News and views
US equities opened strongly after solid performances from the Asian bourses, but with little of substance to sustain the move, profit taking set in. Dampening the mood, Suntrust Banks’ chairman said US lenders faced more credit losses and commercial real estate may falter through 2010. The S&P500 is unchanged at the close, but banks are down 2.5%. Commodities struggled to make further gains, consolidating near their recent highs. US 10 treasury yields made a 7 day high of 3.60% around the NY open, from where they rallied by 13bp on nervous equity switching and slightly larger than expected Fed purchases.
Currencies were subdued overall, the US dollar slipping slightly against commodity majors and gaining slightly against the rest. EUR initially rallied from 1.4280 at the London open to a 1.4343 intraday high on the bullish US equities start and consensus beating industrial new orders data, but later turned with equities for no net gain. GBP underperformed most, falling from its session high of 1.6520 to its current 1.6395. JPY firmed from around 95.00 to 94.40 against the US dollar. USD/CHF bounced off 1.0560 as fears of central bank intervention mount with recent CHF TWI gains.
AUD opened the London session at 0.8360 and recent momentum plus further Asian equity gains of 1-3% propelled it to 0.8429 before the reversal in risk dragged it back a half cent.
NZD initially followed AUD higher to 0.6886 (last Friday’s 2009 high) and later reversed half those gains to 0.6850. AUD/NZD made another attempt on the bottom of its multi-month channel but was well contained.
Chicago Fed national activity index rose from -1.82 to -0.74 in July, the highest since January 2008. The CFNAI is essentially a coincident index of economic activity, compiled from 85 previously released indicators. It bottomed out at –4.03 in January and has risen sharply since, but at current levels is still consistent with activity running below its historical trend.
Eurozone industrial orders rose 3.1% in June, beating market expectations. At last some evidence of a pickup in real activity in the region, to go with the soaring confidence surveys of recent months. But there is a lot of lost ground to make up – orders are still down 25% on a year earlier.
Canada retail sales rose 1.0% in June, building on a 1.1% rise in May. To put a slight dampener on it though, about half the increase in both months reflected higher prices, particularly gasoline prices.
Outlook
The environment remains conducive to risk seekers, and tactical buying of AUD and NZD on dips remains the favoured strategy, with good resistances at 0.8480 and 0.6890, respectively, presenting short term obstacles. Today’s RBNZ 2yr inflation expectation report shouldn’t trouble the markets, our own forecast of 2.3% sitting at the RBNZ’s sweet spot for monetary policy. The Australian data calendar is bare today.
