News and views
Quarter-end window-dressing effects were unobservable during the first hour of US equities trading, the consensus-missing ADP payrolls and Chicago PMI reports helping the S&P500 drop 1.6% at the open. Buying then kicked in, and the index is unchanged as we write. The month-end currency fixing, during which equity fund managers rebalance and rehedge, had no significant impact. Oil gained an impressive 4.9%, a surprise drop in gasoline inventories a factor. Copper gained 3.0% on positive China and Japan manufacturing reports. US 10yr notes traded in a 4bp range around 3.30%.
Risk currencies were stronger. EUR made a 1.4632 high early London, followed by a whippy lower range. The 1.1% spike in EUR/CHF at the time of the ECB liquidity tender (revealing less demand from banks as conditions stabilise) suggests possible SNB intervention. GBP pared recent losses, its 1.4674 daily high close to a major resistance level. BoE’s Miles spoke of the efficacy of their quantitative easing. USD/JPY made an outside daily bar, pointing to last night’s 89.36 low giving way soon.
AUD lead the way higher last night, to 0.8847, the only major to break last week’s resistance and make a fresh 2009 high. Expectations of parity with the USD have started to hit the media.
NZD touched 0.7253, 60 pips shy of key resistance. AUD/NZD made slow progress higher to 1.2242.
US Q2 GDP contraction was revised from –1.0% to –0.7% annualised, not especially significant given that the quarter ended three months ago. The biggest contribution to the upward revision was 0.24 ppts from plant and equipment investment; all other component revisions were very minor.
US Chicago PMI dipped sharply from 50 to 46 in Sep in contrast to most other regional factory surveys (including the NY and Milwaukee PMIs out last night), which held steady or improved further. The Chicago dip possibly reflects its occasional tendency to reflect shifting moods in the auto sector. With the cash for clunkers boost to auto sales now behind us, many Sep data reports, including retail sales, industrial production, personal spending and orders (as well as auto sales of course, out tomorrow), will be quite weak.
US ADP private payrolls report showed further improvement in Sep, falling 254k, its smallest decline since July last year. Assuming that it continues to underperform the official payrolls data, then our –150k forecast for Friday’s Sep non-farm payrolls report (–140k private) looks safe enough – that would also be the smallest fall in the official number since July last year.
Fedspeak: Philly Fed president Plosser wants to avoid a recurrence of previous episodes of high inflation and says the Fed should tighten policy promptly when necessary. Determining when that is, “is high on my list of priorities”. On that point, Atlanta Fed president Lockhart said “ it may well be some time before comprehensive exit need be underway”.
Japanese industrial sector still in recovery mode. The preliminary IP release was on expectations at 1.8% in Aug, while the Nomura PMI improved to 54.5 in Sep from 53.6.
Other Japanese data. The construction sector continues to exhibit an ability to plumb new lows. Housing starts resisted forecasters’ want to call a bottom, crashing to 676k annualised in Aug. Construction orders cut their rate of decline almost in half to -25.2%, but private non-residential building is in a deep ice age. On the labour market, cash earnings fell 3.1%yr in Aug, from a revised -5.6% in July.
Euroland flash estimate of the annual CPI eased to –0.3% yr in Sep, indicating falling prices over the previous year for the fourth month running, despite. German unemployment fell yet again due to changed statistical methods from May this year which will continue to impact the data until April next year.
Canadian GDP growth was flat in July, its second month without contraction after ten months of decline between August last year and July 2009. Also, industrial product prices rose 0.5% in August, mainly due to a 6.2% spike in energy prices.
Outlook
AUD/USD and NZD/USD outlook today: The positive string of economic data continues to support both AUD and NZD. The AUD’s break higher is significant, and should take NZD along for the ride. For today, buying dips to 0.8790 (previous resistance) and 0.7180 are our preferred strategies.
