News and views
Consensus-beating US housing and consumer confidence reports, as well as Ben Bernake’s renomination as Fed chairman, pushed the S&P500 1% higher at the opening bell. That was the extent of the upside, though, and profit-taking set in. Later in the session, US officials raised their estimate of the government deficit over the next decade from $7.1 trillion to $9 trillion, citing an economic downturn that has been deeper than first thought, and sellers re-emerged. The S&P500 closed up 0.2%, still the highest close since October 2008. Key commodities oil (-3.2%) and copper (-2.2%) stood out in an otherwise neutral-ish evening for markets; without any event to ascribe the selloffs to, talk was of recent price gains overdone and slowing Chinese demand. US 3mth Libor is now 0.38%, below the JPY equivalent at 0.39%. The 2yr US treasuries auction was successful, and 10yr notes are around 3bp lower in yield compared to Sydney’s close.
Currencies were generally quiet. EUR closed Sydney at 1.4280, rising to 1.4360, and settling just above 1.4300. EUR/CHF remained subdued around 1.5180, SNB’s Jordan talking the franc down. USD/JPY was stuck between 94.00 and 94.50.
AUD rose no further than the previous day’s high, at 0.8426, and is consolidating around 0.8360.
NZD made its third attempt on 0.6900 this month but failed by a few pips (there was talk of defending 0.69 option barriers), and sits around 0.6850. AUD/NZD was locked in a very tight 1.2190 -1.2230 range all evening.
US consumer confidence jumps. The Conference Board’s consumer confidence index reversed much of its June-July slippage in August, the 6.7 pts rise just failing to reach back to May’s 2009 high. The jump was mostly due to expectations, up just over 10 pts, although the present measure rose 1.6 pts, thanks mainly to a less negative consumer view of the labour market. The overall rise in confidence contrasts with the weaker preliminary read on Uni of Michigan consumer sentiment for August but is consistent with the gains recorded in most other weekly and monthly confidence measures.
US Richmond Fed factory survey steady at 14 in Aug. For four months now the Richmond Fed factory index has indicated clearly expanding industrial activity. Of note, the Richmond factory jobs index rose to 0 in August, the first indication from any industrial survey that the sector might no longer be shedding employees. The Richmond Fed survey also found a slower pace of service sector contraction in August, improving from –16 to –8.
US S&P Case Shiller house price index posted its second consecutive monthly gain in June, after falling every month since July 2006. A caveat is that the series is not seasonally adjusted, nevertheless the latest gain saw the annual pace of price decline, which troughed at –19.0% yr in January, rise to –15.4% yr in June. Also, the FHFA (government) house price index recorded back to back gains in May-June.
President Obama confirmed that he is renominating Fed chairman Ben Bernanke for a second term in that role. Also, the White House and Congressional Budget Office released revised economic and budget forecasts today. The CBO expects the economy to grow 2.8% in 2010; the White House is on 2.0%.
German GDP growth was confirmed at 0.3% in Q2, unrevised from the flash estimate. The main source of the upside surprise compared to wide expectations that GDP fell further last quarter was a 0.8% rise in capital investment (vs expectations of a fall) and accelerating private consumption (vs expectations it slowed).
UK banks continue to approve more mortgages in July, with the number of new loans up 113% from the November low-point of just 18k.
Outlook
Risk appetite remains positive, and tactical buying of AUD and NZD on dips is our favoured strategy, with major resistances at 0.8500 and 0.6900, respectively. Australian construction work done in Q2 is expected to be -3.0%, an improvement over the previous quarter’s -3.7%. The NZ data calendar is bare today.
