News and views
Risk markets peaked around the NY open. A double top in the S&P500 is now in place at 1080 after an influential equity analyst downgraded Goldman Sachs to neutral and said the banking sector is now at least fairly valued. The overall tone of earnings reports so far is an improvement from Q2, although the spotlight on revenue growth figures (versus cost-cutting) has seen some EPS consensus-beating stocks decline (e.g. Johnson & Johnson). The index fell at the NY open, partially recovering to be down 0.5% currently. Oil was slightly higher, but copper fell 2.9% (an outside down day) after Rio Tinto said demand in the US and Europe has yet to recover. Gold made a new high at $1069. In the latest Fed-speak, a dovish vicechairman Kohn said very low interest rates were warranted for an extended period of time. US 10yr notes are now 8bp lower over the NY trading day.
A vulnerable looking US dollar index continued to stubbornly hold above the 75.80 area after peeking at 75.74. EUR made a fresh 2009 high at 1.4876, overlooking a disappointing German economic sentiment survey, before the US equity markets opened, slipping back to 1.4800. Similarly, lower than expected UK inflation depressed GBP only slightly to 1.5708 before bargain hunters pushed it 2 cents higher, creating a bullish key reversal day. CAD made a fresh year high against USD at 1.0267.
AUD was another to make a 2009 high after ranging sideways during the Sydney session, toughing 0.9127 before settling above 0.9040.
NZD ground higher to 0.7416 before the reversal in sentiment saw it back to 0.7320. AUD/NZD continued to respect the six-month old channel, consolidating under 1.2350.
US IBD-TIPP economic optimism fell from 52.5 to 48.7 in October, reversing the previous month’s strong surge. That leaves a mixed impression of consumer sentiment, with the Uni of Michigan survey stronger but the Conference Board survey weaker in September.
Japanese money supply edged up 0.3%mth to 3.0%yr pace in Sep from 2.8% yr in Aug. This is a 7-year high in rate of growth in M2. The overall monetary base slipped -1.1%mth in Sep to a 4.5%yr pace.
German ZEW survey showed a drop in economic sentiment in October, with the expectations index falling from 57.7 to 56.0. While hopes remain high for a return to growth in coming months, the yawning gap between expectations and current conditions (which did improve slightly from -74.0 to -72.2) suggested that something eventually had to give.
UK CPI was unchanged for the month of September and was up just 1.1% for the year, below market expectations. Core inflation dipped slightly to 1.7% as expected. Base effects will eventually push annual inflation higher again, though more so next year as the temporary cut in VAT (from December) and large cuts to gas and power prices (from Feb/Mar) drop out of the equation.
UK same-store retail sales rose 2.8% y/y in September, up from -0.1% in August, according to the British Retail Consortium. Plunging sales this time last year will make for easy comparisons on an annual basis over coming months.
Outlook
AUD/USD and NZD/USD outlook today: The upward trends remain intact after AUD’s fresh high, although ranging around the highs looks likely for the next day or two, AUD between 0.8950 and 0.9150, and NZD between 0.7250 and 0.7450. Watch for today’s AU consumer confidence release to gauge the reaction to the RBA’s 25bp rate hike.
