News and views
Markets were quiet during the London morning, but sparked once NY opened. US equities initially sagged around 1.5%, investors troubled by a report from the Federal Deposit Insurance Corporation saying, in Q2, the number of problem US banks rose sharply, and the financial industry reported a $3.7 billion loss. Better Q2 GDP data was tempered slightly by the jobless claims report. However, with those reports out of the way, risk appetite steadily returned to see the S&P500 close up 0.3%. Crude oil futures bounced 1.8% during the NY afternoon, no obvious catalyst apparent.
EUR was quiet until mid-afternoon NY, when it suddenly lurched to 1.4406 from its earlier 1.4220-1.4280 range. As with oil, there was no obvious event to ascribe the move to (indeed, many commentaries suggested one was causing the other), but the price action suggests large flow. Rumours regarding an M&A transaction supporting EUR/GBP circulated during the London morning.
AUD had already started climbing before the Sydney close, and simply continued the move overnight to a high of 0.8420. An article by influential journalist Alan Mitchell talked up the chance of firmer monetary policy setting by the RBA, supporting AUD.
NZD spiked with the EUR move, and reached 0.6896, falling short of the magical 0.6900 by a whisker for the fifth time this month. AUD/NZD made a turnaround from yesterday’s low and hovers around the previously strong support level of 1.2200.
US GDP growth unrevised at –1.0% annualised in Q2. Upward revisions to consumer spending, housing, exports, business investment in plant and equipment and government spending were neatly offset by lower estimates for business investment in structures and inventories.
US initial jobless claims down 10k to 570k last week, and continuing claims down 119k to 6133k. Both outcomes are consistent with diminishing labour market weakness.
Euroland M3 growth slows to 3.0% yr in July. Within the detail, loans to the private sector growth slowed to just 0.6% yr, the slowest on record. This will be of concern to the European Central Bank, and is a reason for them to maintain current easy policy settings for some time yet.
German CPI rises from –0.5% yr to 0.0% yr in August. From September, base effects are unfavourable and will lift the annual CPI back into positive territory. Also, German consumer confidence rose from 3.4 to 3.7 in the latest GfK survey.
UK business investment falls 10.4% in Q2. Much weaker than expected, this poses downside risks to Q2 GDP, with revised figures due Friday (advance estimate –0.8%). Other UK data included a 1.6% rise in house prices in August (Nationwide series) giving a –2.7% yr pace of decline; and a little changed CBI retail survey at –16 in Aug (from –15 in July).
Outlook
AUD and NZD outlook today: We await a break above 0.8480 and 0.6900 before becoming excited about higher legs in these currencies. Alternatively, a break below 0.8220 and 0.6760 would support the case for corrections of the moves since March. Today’s NZ building consents report should continue the upward trend, and be NZD supportive.
