News and views
Risk markets took a hit last night on the back of two negative US data surprises. First up, jobless claims rose more than expected, although the trend improvement remains intact, so the jolt was minor. The later ISM manufacturing report did more damage, showing the important new orders/inventories ratio (a favoured lead indicator for production) tumbled sharply. Further, Westpac’s US surprise index is at risk of breaking lower, pointing to risk aversion ahead. The S&P500 fell from the opening bell, down 2.1% as we write, and is below the key technical level of 1040. Oil was stable but copper fell 2.9%, the consensusmissing Chinese PMI from yesterday also telling. US 10yr notes lost 11bp in yield, breaking below key 3.27%, and the 2-10 curve flattened 6bp.
The US dollar bounced to the top of this week’s range on the evening’s negative risk sentiment. EUR fell to major support at 1.4520. GBP was unscathed, having been pummelled for two weeks already, and held around 1.5950. The yen was also stable, ranging between 89.40 and 90.20.
AUD reversed all of the previous day’s breakout, which can now be labelled false; the Sydney close marked the evening high at 0.8833, the slide still in progress as we write at 0.8694.
NZD followed the pullback after peaking at 0.7243 pre-data, and is now at 0.7148. AUD/ NZD pulled back to 1.2160.
US ISM factory slips from 52.9 to 52.6 in Sep, its first “slippage” in nine months, while still indicative of a newly expanding industrial sector. The lower headline reading reflected losses of over 4 pts for both orders and production (though at near 56 and 61 respectively these are by no means weak) and a slightly steeper pace of decline in jobs; offset by less inventory rundown and increased supplier delivery times.
US construction spending rose 0.8% in August, but this followed steep downward revisions to June and July data. Meanwhile, pending sales of existing homes posted their seventh consecutive monthly gain, and the 6.4% rise was the second strongest of that sequence.
US personal spending jumped 1.3% in Aug thanks in large part to a 5.3% jump in durables spending, mostly autos due to the now expired “cash for clunkers” scheme. The report showed another soft core PCE deflator, with the annual rate drifting down to 1.3% yr in Aug, now lower than at any time during the 2003 deflation scare.
US initial jobless claims jumped 17k to 551k after falling in each of the prior three weeks, but the trend remains downwards. Another report showed corporate layoff announcements fell to 66.4k in September from 76.4k in August. Tonight’s payrolls report for September will provide more guidance.
Fedspeak: Chairman Bernanke said that protecting consumers of financial services is “vitally important” and dropped previous insistence that the Fed be responsible for that protection.
German retail sales fell 1.5% in August, their sixth monthly decline out of eight months so far in 2009. Annual retail growth slipped from –0.8% yr to –2.6% yr.
UK factory PMI slipped to 49.5 in September. This points more to industrial sector stabilisation rather than growth. The Bank of England’s credit conditions survey for Q3 found, based on lender responses, “some increase in overall credit availability expected over the next three months”, with corporates rather than households the main beneficiaries.
Outlook
AUD/USD and NZD/USD outlook today: The abrupt reversal in price action last night, as well as clues from US new orders/inventories and Westpac’s US surprise index, warns of a larger correction. Accordingly, we watch for any breaks below 0.8670 and 0.7140 signalling further bearish behaviour.
