News and views
US equities opened strongly, after benign personal income and spending data, but a consensus-beating consumer sentiment report (University of Michigan). The S&P500 made a new 2009 high, but only by a point, and in a replay of previous sessions, lacked follow trough, closing down 0.2%. The ECRI leading indicator (annualised) continued to soar, posting the highest weekly reading since 1971, which augurs well for this week’s payrolls report. Copper stood out among commodities, gaining 2.7%, and making a 2009 high. US 10yr treasuries rallied around 8bp after the peak in risk appetite. 3mth Libor made a new low at 0.35%.
EUR bounced slightly on positive Eurozone business and household confidence surveys, US data and the strong US equities opening, to 1.4388, but faded thereafter to 1.4282. USD/JPY fell throughout, perhaps in anticipation of an opposition victory in the weekend’s Japanese elections. Confirmation of that victory (a landslide) sees it even lower this morning, at 93.32, equities and bond yields likely to rise later today.
AUD peaked at 0.8471 after the US data, declining to 0.8397 on the general decline in risk appetite during the NY session.
NZD again attempted to breach 0.6900, but again fell 5 pips short, and rests around 0.6840 this morning. AUD/NZD held its Sydney session gains to reach 1.2317, and has opened this morning around the figure.
US consumer sentiment revised higher. Consumer sentiment as measured by the Uni of Michigan was revised higher in the final Aug reading by 2.5 pts, though that still leaves in place modest slippage relative to July, compared to the decent gains recorded by the Conf Board confidence measure, and other indices that capture the consumer mood, for Aug. Both the current and outlook indices were revised higher, though that still left in place a second consecutive decline in the current measure, despite inflation expectations drifting lower over the past two months (often a source of difference between the UoM and CB indices).
US personal spending rose just 0.2% in July, with a 1.3% jump in consumer durables (mostly autos thanks to the cash for clunkers scheme) largely offset by a 0.3% fall in nondurables spending, confirming once again that when consumers fork out for a big ticket item, they tend to cut back on other discretionary spending. That is not so surprising given that personal income growth was flat, with the big swings in prior months due to the one-off impact of that large security payment now out of the monthly data. The inflation measures in this report were subdued, with the core PCE deflator up just 0.1%.
In a sign of waning demand for emergency funding, the Fed has announced it will cut the size of upcoming Term Auction Facilities from $100bn in Aug to $75bn in Sep.
Japanese consumer price deflation and labour market slack deepened in Q3. The unemployment rate rose to an all-time high of 5.7% in July. The jobs-to-applicants ratio fell further, to 0.42, a further indication that the supply/demand balance is way out of kilter. The nationwide CPI headline for July came in at -2.2% from -1.8% in June. The ex-volatile measure deteriorated from -0.7%yr to -0.9yr. Also, real household spending fell by 2.0%yr in July after rising 0.2%yr in June. The outright collapse in labour earnings in June (-7.1%yr) has more than a little to do with that.
All of the Euroland household and business confidence surveys continued to improve in Aug, with the BCI in particular showing its steepest rise yet since it started recovering in April (it is actually a composite of these and all the other business surveys published for Europe).
UK GDP contraction in Q2 was revised from –0.8% to –0.7%. The detail in the report showed household spending down 0.7%, capital formation down 4.5%, and exports down 2.7%, all lesser declines than in Q1. Government spending growth accelerated to 0.8% in Q2, the only sector with positive growth.
Canadian industrial product prices fell 0.5% in July, reversing June’s gain. Petroleum and coal price declines were the main drivers of the fall. In other news, the Q2 current account was in deficit for the third quarter running, of C$11.2bn, including the first quarterly trade deficit in over thirty years.
Outlook
AUD and NZD outlook today: The 0.8480 and 0.6900 resistance levels continue to obstruct further gains, but data in the US, AU and NZ this week could be a catalyst for a break. Only a break below 0.8220 and 0.6760 would argue for corrections of the moves since March. Today’s economic calendar contains private sector credit in AU, and the NBNZ business confidence survey in NZ, and should be currency supportive.
