News and views
Fresh 2009 highs in equities reflected a broad advance in risk appetite last night. The Dow Jones index passed the magical 10,000 level, while the S&P500 gapped 0.5% higher at the open and gained throughout the session to be up 1.7% currently. Earnings results from two major bellwhethers – Intel and JP Morgan – impressed investors, and the US retail sales report for September beat consensus. Oil (+1.0%) and copper (+1.8% on China imports) achieved most of those gains during yesterday’s Sydney session, consolidating thereafter. US 10yr notes initially fell by 10bp on the good news above, recovering most of that until the Fed minutes (from the September meeting) produced another selloff. While the minutes emphasised the risks to growth, the market took more note of the hawkish parts of the report. Credit markets improved further, particularly the high yield sector.
The US dollar index broke down yesterday, breaching the critical 95.80 level. EUR climbed throughout the evening, making a fresh 2009 high of 1.4947 an hour ago. GBP continued its turnaround from Tuesday, gaining to 1.6025, the BoE’s Fisher helping to stall the move by suggesting the quantitative easing discussion remained alive. JPY flopped around in an 88.80 to 89.80 range.
AUD made a 2009 high of 0.9158, but the bulk of the strength came during the Asian session (strong China data), a tight 0.9120-0.9160 range ensuing in NY.
NZD did reach 0.7435 but looked tired doing so. AUD/NZD rose to 1.2394, half a cent from channel resistance.
FOMC minutes for the 22-23 Sep meeting showed that staff raised their growth forecasts for this and next year, though the economy was still seen as “quite weak”, with low capacity utilisation and unemployment expected to remain high. There was some debate about the future of the RMBS purchase program: some committee members thought that an increase in purchases could help to reduce economic slack faster, while one member felt that the improved economic outlook could justify a reduction in purchases.
US retail sales fell 1.5% in September, holding up better than expected following the end of the ‘cash for clunkers’ scheme. Vehicle sales fell 10.4%, reversing the gains of the previous two months – which suggests that the scheme led to a one-off boost in car sales above trend, rather than bringing future sales forward per se. Ex-auto sales rose 0.5%, though higher gasoline prices were a factor. Separately, US business inventories fell 1.5% in August, largely reflecting a rundown in auto stocks.
Japan rates on hold as expected. The BoJ left the overnight rate steady at 0.10%, as widely expected with no reference to expiration of the current credit plan.
Japanese Sep domestic corporate goods price index (CGPI) edged up 0.1%mth seeing the annual pace slow to -7.9%yr from a record -8.5%yr in July and August. While still soft the September rise was the second in three months, interrupting ten consecutive monthly declines amid the recession.
Eurozone industrial production rose 0.9% in August, the fourth straight month of gains, though production remains down 15.4% on last year’s already-depressed levels. The rise was mainly driven by durable goods, which in turn reflected ongoing incentives for the car industry across the region.
UK jobless claims rose by 20.8k in September, the slowest pace since May last year. The jobless rate in the three months to August was steady at 7.9% and average earnings growth slowed further.
Outlook
AUD/USD and NZD/USD outlook today: The breakdown in the US dollar yesterday points to a new, higher, trading range for AUD, which should be supported at 0.9090. NZD has yet to break higher and looks confined to a 0.7320-0.7450 range. RBA Governor Steven speaks today, and unemployment and inflation surveys are released, while in NZ, Q3 CPI could surprise the market slightly higher.
