News and views
Equities and risk currencies slightly extended a reversal from last week’s peaks, US data contributing to a 0.6% fall in the S&P500. Durable goods orders fell against both consensus and the previous month, while new home sales also disappointed. The large upward revision to consumer sentiment had less impact. Oil prices were unchanged, stabilised by US allegations Iran has been constructing a uranium facility. US 10yr notes rallied from 3.36% to 3.32%, the 2-10yr curve flattening by 10bp. The G20 group said they would avoid any premature withdrawal of stimulus, providing a small boost to risk late NY.
The US dollar was little changed, hovering around the 76.70 level during Friday evening, the bearish (for risk, bullish for dollars) technical picture at odds with strong US lead indicators (ECRI higher again). EUR dipped to 1.4624 around non London, followed by a 1.4725 high, and oscillated further to the 1.4689 close. GBP hovered around its 4-month low area of 1.5950, UK Treasury head Darling negating Thursday’s weak Sterling rhetoric from the BoE. The 90.00 level provided only weak support for USD/JPY, 89.50 marking a post-February low.
AUD drifted off its Sydney close of 0.8690 to 0.8616, and then ranged between these levels, providing no new short term directional clues.
NZD ranged between 0.7126 and 0.7211, looking toppish since Wednesday’s peak. AUD/ NZD ranged sideways all evening around 1.2080, but opened just above 1.2100 this morning.
US consumer sentiment revised higher. The 3.3 pts upward revision to the UoM consumer sentiment index for Sep is quite a big one by the usual standard of UoM revision, and means that the full month gain in the index over August is now 7.8 pts, which is towards the very top end of the range of monthly movements seen for this confidence series.
US durable goods orders posted a 2.4% decline in Aug, weighed down by a pull-back in civilian aircraft orders that had been pre-empted by Boeing data, but also by a second consecutive month of slippage in core capital goods orders. The contribution from autos was minimal (up just 0.4%), probably because orders were cut back sharply later in the month as the cash for clunkers scheme drew to a close. Overall a much softer orders picture than implied by the business surveys, including the Aug ISM manufacturing whose orders index surged nearly 10 pts to just shy of 65. The 1.3% fall in durable inventories is another signal that stock-building may not be making the hoped for contribution to Q3 GDP growth.
US new home sales rose 0.7% in Aug, a modest gain compared to the 6-8% jumps of the previous three months, and indeed the annualised sales pace of 429k in Aug was down almost 1% on the previously reported July sales pace (which was revised down today from a 9.6% surge to a 6.5% rise). The regional breakdown showed falls in the northeast and midwest, steady sales in the south and a rise in the west. From the July 2005 peak to the January 2009 trough, new home sales fell 76%; seven months into the “recovery”, home sales are still down 69% from their peak four years earlier.
Fedspeak: Chairman Bernanke did not comment on the economy or interest rate policy in remarks he made in Washington, but he did day that financial markets showed an “ongoing need” for the Term Asset-Backed Securities Loan Facility, which has helped restart securitisation markets.
Euroland money supply growth continued to subside in August; loans to the private sector grew just 0.1% yr (lowest on record). This is considered too low for the health of the economy by the European Central Bank, although recent quasi-quantitative easing measures may eventually impact on credit provision and hence the rate of money growth.
Outlook
AUD/USD and NZD/USD outlook today: The warning flag for risk remains hoisted, thanks to a further follow through in the S&P500 from Wednesday’s technical reversal signal. While the fundamental backdrops certainly support AUD and NZD further, the post-March rallies are technically ripe. RBA Governor Stevens speaks to the Senate in Sydney today.
