News and views
Equity markets paused for breath after a solid two week rally. The Philly Fed’s factory survey was strong overall (but less impressive in detail), supporting the S&P500 higher at the open to 1075 (the new 2009 peak), but things looked tired from then on, the index closing down 0.3%. Oil was unchanged, but copper slid 1.0% on inventories. US 10yr notes took a lead from the weaker employment component of the Philly Fed report, gaining by 9bp to 3.39% yield.
The US dollar reached its low point of 76.01 at the Sydney close, little appetite to sell it further evident. The EUR stalled at the 1.4767 high for 2009 around the time Sydney closed, ranging between 1.4689 and 1.4760 thereafter. Eurozone reported another trade surplus. GBP continued to underperform, falling from a 1.6568 peak to 1.6430, UK retail sales data unimpressive. CHF succumbed to central bank jawboning for a few minutes after their policy meeting (rate left on hold at 0.25%), but closed in London stronger against EUR.
AUD pulled back from its 0.8775 peak to 0.8691, the price action looking consolidative, rather than trend-reversing.
NZD paused also, from 0.7158 back to 0.7080. AUD/NZD firmed slightly to 1.2280.
US Philly Fed index rises from 4 to 14 in Sep. The Philly Fed headline looks (and is) strong, relative to where this particular regional factory survey has been (i.e. –41 in February this year), but the detail in the report was less impressive. Compared to August, new orders growth remained modestly positive but slowed; jobs fell at a slightly faster pace; the six month outlook was a little less upbeat; and pricing power was weaker. The main positive in the detail was the stronger shipments reading. This report is consistent with the recent return to manufacturing expansion continuing, but perhaps not accelerating. The NY Fed index released earlier this week also included some detail less robust than the headline, so a theme is developing here.
US housing starts up 1.5%/permits up 2.7% in Aug. Although both starts and permits recorded renewed gains in August, that was due to 25%/16% bounces in the respective multiples components. Single family housing starts and permits were both down last month, though not enough to reverse their recent up-trend.
US initial jobless claims fell 12k to 545k last week, continuing their recent downtrend, albeit with upward revisions to the previous week’s claims number. The Labor Day holiday in the week of 12/9 might have impacted on that outcome. Continuing claims maintained their recent see-saw pattern about a slight downtrend. Both series point to labour market conditions improving slightly.
The Swiss National Bank left its key rate at 0.25% and signalled it would not tolerate excessive Swiss franc appreciation.
UK retail sales came in flat in August, exactly in line with Westpac’s below market forecast, and downward back revisions added to the soft tone of the report. But the CBI factory survey was less weak in Sep.
Canadian inflation –0.8% yr headline, 1.6% yr core in Aug. The headline CPI has just turned slightly less negative due to energy price-related base effects from a year ago, a factor that will impact the series more from October. Meanwhile the core CPI continues to drift lower, consistent with the excessive spare capacity that has opened up in the Canadian economy. That said, the leading index has turned around in recent months, indicating that the economy should be growing again in coming quarters.
Outlook
The AUD and NZD rallies remain broadly intact. Our short-term recommendation remains to buy AUD/USD on any dips to 0.8670. A NZD/USD bearish divergence signal formed this morning pushes us into a more neutral stance for kiwi for the day ahead though.
