News and views
Risk markets offered few fresh clues from last night’s price action. Momentum from Monday’s equities rebound ensured a strong NY opening, helped also by a reported improvement in US house prices in July. Consumer confidence hit the wires an hour later, and quelled the enthusiasm, the S&P500 closing +0.1% and the Dow -0.2%. Industrial commodities were well contained, oil -0.3% and copper -2%. US 10yr notes were little changed from Sydney’s close, although the two US data releases above did cause a brief 6bp spike in yields. US 3mth Libor rose almost 1bp to 0.29%, the first movement since early September.
The US dollar ground to a three week high after Sydney closed. EUR fell a cent to 1.4527. GBP outperformed, reaching Monday’s 1.5990 high. The batch of UK data released had a positive complexion overall. USD/JPY ground slightly higher to 90.34.
AUD remained in its two week sideways range, touching 0.8676 after the consumer confidence report. A comment headline from Russia’s central bank that reserves could be diversified to include AUD and CAD caused a brief flurry, the fuller story adding it was unlikely due to market liquidity concerns.
NZD touched 0.7220 at the Sydney close, and lost almost a cent thereafter. AUD/NZD followed Monday’s key day reversal script, reaching 1.2210.
US Conference Board’s consumer confidence index slipped 1.4 pts in September, in contrast to the solid rise in the Uni of Michigan’s sentiment index this month, although at 53.1 the CB index remains well up on the sub 50 readings recorded in June and July. The September fall was led by the present measure, and within that the job market component showed renewed weakness, consistent with our view that the unemployment rate uptrend still has some way to run.
US S&P Case Shiller house prices up 1.6% in July, their third consecutive monthly gain, after falling every month since July 2006. The latest gain saw the annual pace of price decline, which troughed at –19.0% yr in January, rise to –13.3% yr in July. This result adds to other indicators including new and existing home sales, homebuilder confidence and starts/permits figures which all suggest the housing market has begun to turn, after up to four years of falling activity and prices.
Japanese consumer price deflation deepened in Aug/Sep. The nationwide headline CPI for Aug was steady at -2.2%yr; the ex perishables series deteriorated from -2.2%yr to -2.4%; and the ex food and energy measure was steady at -0.9%yr. The Tokyo measure, which runs a month ahead, fell from -1.7%yr to 2.2%. The ex food and energy measure fell from -1.1%yr to -1.4%. Of the ten major index categories in the nationwide series, eight are below their year ago levels, one (education) is up and the other is flat.
All of the Euroland household and business confidence surveys continued to improve in September, with consumer confidence in particular showing its steepest rise in four months. Other data included German import prices, which rose 1.3% in August. Along with base effects (last year’s energy price falls dropping out of the calculation), that saw the annual rate rise from –12.6% yr to –10.9% yr.
UK’s Q2 GDP contraction was revised from –0.7% to –0.6%, the fifth quarter in a row that the economy has receded. The current account deficit in Q2 was a larger than expected £11.4bn, but Q1’s deficit was revised down by a substantial £4.4bn to £4.1bn.
More up-to-date monthly UK data: These included the second ever net repayment of consumer credit (i.e. a £0.3bn fall in outstandings) in Aug as increased credit card lending was more than offset by falls in other forms of personal credit. However mortgage credit grew by a larger than expected £1.0bn (following July’s small net repayment) – another sign of the apparent turnaround in the UK housing market. In Sep, the CBI reported a modest rise in spending amongst its retail members, the first positive outcome since April’s weather and Easter driven bounce. No obvious such distortions at play this time around, however.
Outlook
AUD/USD and NZD/USD outlook today: Recent range trading has established good short-term support and resistance levels for guidance today. For AUD/USD, 0.8590- 0.8770, and for NZD/USD 0.7110-0.7230. AUD/NZD remains interesting, a move to at least 1.2300 (mid-channel) expected, but 1.2200 presenting a decent obstacle today. Today’s NBNZ business confidence report should continue the trend higher.
