News and views
Lacklustre Friday evening sessions in London and NY saw equities markets little changed, the S&P500 up 0.3%. Oil futures looked to the US dollar for direction and slipped 0.6%. Copper fell 3.8% on a continuing rise in inventories. US 10yr notes weakened by 10bp ahead of this week’s record auction volume and Wednesday’s FOMC meeting. Although there were no US economic releases, the weekly ECRI LEI index, an excellent lead indicator for both the economy and asset markets, posted a new high, but also exhibited waning momentum – an early warning signal the post-March rallies are now mature.
The US dollar posted a small correction of September’s losses, but it is too early to tell if this will evolve into the grander correction some chartists have been waiting for. EUR fell to 1.4648 soon after Sydney closed, but rebounded to above 1.4700 for most of the NY session. The Euroland current account returned to surplus in July. GBP finished the week with an accelerated decline reaching 1.6231. UK government finances showed further deterioration. The yen was stable between 91.00 and 91.50.
AUD looked tired after its recent surge, and closed at 0.8670, near the 0.8654 bottom of Friday’s range.
NZD was also looking for a rest, but 0.7076 limited the downside, and it closed around 0.7090. AUD/NZD remained locked in last week’s 1.22-1.23 range.
No US data to report.
Euroland current account back in surplus. July saw a surplus of €6.6bn, the first since February last year.
German producer prices fall 6.9% yr in Aug. Base effects (last year’s energy price falls dropping out of the calculation) have started to unwind the pace of decline of the PPI.
UK public finances continue to deteriorate. The cumulative public sector net credit requirement for FY2009/10 as at August was £57bn, compared to less than £9bn a year earlier! In other news, money supply M4 growth slowed from 14.4% yr to 12.6% yr, though the breakdown is not yet available so we can’t draw conclusions about any impact of the Bank of England’s quantitative easing program.
Canadian wholesale sales jump 2.8% in July. The biggest jump since 2006 was due to autos, reflecting increased activity in the sector as GM and Chrysler emerged from bankruptcy.
Outlook
AUD/USD and NZD/USD outlook today: The AUD and NZD rallies since March remain intact, but there are signs of maturity. Accordingly, our shortterm recommendation is to cautiously buy on dips. For AUD/USD look to buy at 0.8660 with a close stop, while for NZD/USD look for 0.7080.
