News and views
US equities were unconvinced by the recent pace of ascent, despite earlier bullish Chinese data and a positive outturn for US consumer sentiment, and closed the Friday session little changed. The S&P500 made a 2009 high of 1048.18 at the open, but could not follow through, closing down 0.1%. Banks and financials fell by around 1%. WTI oil futures formed a bearish day reversal signal (recall the 25 August occurrence signalled a 6 day decline), losing 3.7% to around $69. Stockpiles and sentiment were cited. Higher Chinese stockpiles helped copper lose 1%. US 10yr notes were unchanged around 3.35%, after an early NY rally to 3.27%.
The US dollar index, while roughly unchanged since Sydney’s close, did make another 2009 low on Friday night, and is closing in on 75.89 support (22 Sep 2008). EUR touched a high of 1.4634, but is little changed at 1.4590 this morning. The EU’s Juncker said the current EUR level wasn’t detrimental to the economy. GBP consolidated from the late Sydney high of 1.6742 to minor support around 1.6660, still looking bullish enough to crack 1.7030. USD/JPY sank like a stone after Sydney, from 91.20 to 90.20, resting at 90.60.
AUD barely made a 2009 high at 0.8677 late London, stuck in a multi-day range above 0.8550.
NZD easily cleared earlier levels to reach 0.7089, sending the AUD/NZD cross down to 1.2212.
US consumer sentiment up 4.5 pts in Sep. Consumer sentiment posted a decent gain in early September, bringing the index more into line with the upswings in confidence reported by both the Conference Board and IBD-TIPP in August. The UoM upswing was driven by a 5.2 pt rise in current conditions and a 4.2 pt gain in the outlook index, the latter rising back to where it was in June whereas the current index is still 1.4 pt shy of its June reading (June is the 2009 high-point, so far, for sentiment).
US wholesale inventories fell 1.4%, more sharply than expected, in July and were revised lower in June – so no evidence yet of the stock-building that it is hoped will contribute to positive GDP growth in Q3.
US import prices up 2.0% in Aug. The 2.0% surge in import prices due to rising energy prices will tend to see the nominal trade deficit widen again, though the 0.7% gain in export prices will provide modest offset.
Japanese GDP recovery downgraded to +2.3% saar for Q2. Revised down from an initial estimate of +3.7% saar after updated estimates on capital spending and inventories. The positive follows an average annualised rate of contraction of over 13% in the previous two quarters – disappointing as far as bounces go.
UK producer price index showed input costs falling at a –7.5% yr pace in August, the first month that the annual rate has risen (i.e. become less negative) since June last year. Base effects will keep driving the annual rate higher over the remainder of the year, as last year’s energy price declines drop out of the annual calculation. Meanwhile, output costs fell –0.4% yr (from –1.3% yr in July) and core output costs were up 0.7% yr (0.1% yr in July) – also the first gains for these respective series, due to base effects. Despite the acceleration, there is no evidence of inflationary pressure emerging from the factory sector, where there is plenty of excess capacity both in the UK and globally.
Canadian new house prices posted their first monthly gain (of 0.1%) since September last year in July, another sign that the Canadian housing market might be approaching a turn for the better.
Outlook
The AUD and NZD rallies remain intact. Our tactical recommendation remains to buy on dips, particularly near the 0.8500 and 0.6900 key support levels. NZ retail sales for July are reported this morning, and we expected a +0.6% mom headline reading, slightly better than the 0.4% consensus.
