News and views
Risk sentiment picked up last night, after being initially dented by yesterday’s China-US trade spat which spilled over to risk currencies and Asian equities during the Sydney session. The S&P500 opened lower, to 1035, but spent the session recovering to close up 0.6% with no US data or major events (President Obama’s speech was on regulatory reform) to guide proceedings. Downward momentum in oil waned, slipping only 0.4%, but copper sagged again by 1.3%. Natural gas rose 13% on winter weather speculation, last Friday having made a seven year low. US 10yr notes sold off from Sydney’s closing 3.33% yield to 3.41%, reverting to the usual correlation with equities.
The US dollar is slightly weaker than Sydney’s closing level. EUR threatened a reversal, but recovered after noon London to reach 1.4653, currently at 1.4610. Eurozone IP revealed the pace of decline has slowed a little. GBP rallied from a 1.6522 base to 1.6630, but slipped back to 1.6560. The yen rally since early August was checked at 90.21, the sell-off taking it to 91.13.
The Sydney session saw the extent of the AUD sell-off, a slow recovery taking it from 0.8545 to 0.8624.
NZD spent the evening congesting above the 0.6964 low. AUD/NZD built on its domestic session gains to 1.2300.
No US data to report.
Euroland industrial production falls 0.3% in July, keeping a place the mildest of downtrends in output after the collapse around the turn of the year, although the annual pace of decline has eased from –16.7% to –15.9%.
The EU Commission published updated forecasts for 2009 GDP growth, although the full-year Euroland bottom line was unrevised at –4.0%, compared to the May forecasts. That compares to Westpac’s –4.1% forecast for this year.
Canadian capacity utilisation drops from 70.2% to 67.4% in Q2, to an alltime low, reflecting the steep decline in economic activity in recent quarters. This provides a considerable degree of anti-inflationary slack in the economy which helps make the Bank of Canada’s conditional commitment to keep rates low until mid 2010 a low risk strategy.
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. The RBA minutes today will be closely watched for clues regarding the timing of the first rate hike.
