News and views
The bulls regained ascendancy last night after a stream of good US company earnings, among them Gannet (the largest US newspaper publisher), Texas Instruments and Caterpillar. Of the 44 S&P500 companies to have reported so far, 34 have beaten estimates. The index is currently up 1.0%. Also taken as a sign of improving economic conditions was a comment by the NY Fed that it has been preparing itself for an eventual FOMC exit decision, and has reviewed its reverse repo capability. Crude oil continued its run to make a new 2009 high at $79.09 (front futures contract NY), while copper had a big day, up 4.0%% partly on miners strikes in Peru and Chile. US 10yr notes initially were hurt by a Barron’s article calling for a 2% Fed Funds rate, and recovered for a slight net gain on the day. Fed Chairman Bernanke spoke, but not on the US economy or monetary policy.
The US dollar had an outside down day (just), pointing to further weakness ahead. EUR gained slightly to 1.4964, yet again shy of the eagerly awaited 1.5000. A notable think tank published a dovish piece on the ECB. GBP forged ahead for the fifth consecutive day to 1.6424. JPY ranged sideways between 90.40 and 91.00.
The down-under currencies outperformed. AUD posted a fresh 2009 high of 92.79, neutralising the previous day’s key reversal signal.
NZD did the same, to 0.7548. AUD/NZD slipped to 1.2280 to form its own key reversal near the top of the six-month old channel.
US NAHB housing activity index slips from 19 to 18 in Oct. As we expected, homebuilder sentiment was a little softer this month, with the NAHB citing concerns that the end of the tax credit for first home buyers next month will undermine the recent recovery in the sector.
Fed chair Bernanke, speaking at a Fed-run conference on Asia and the financial crisis, avoided direct comment on the current state of the US economy and monetary policy. He said that the US should save more by cutting the budget deficit and Asia should promote more domestic consumption.
Japan tertiary index continues to improve. August tertiary index gauge of service sector activity rose 0.3%mth, the fourth monthly increase in the last five. This saw the annual rate of decline slow to -4.2%yr from -5.4%yr in July. Together with industrial production 1.6%mth it would point to an August all-industry index rise of 0.5%mth for -7.0%yr from -8.3%, continuing the trajectory of a gradual recovery.
Bank of Japan minutes from the September meeting showed members saw decreasing need for emergency credit-easing programs as companies were finding it easier to raise funds. Last week, the BoJ lifted its evaluation of the economy slightly, but declined to say anything specific about December 31 scheduled ending of their purchases of commercial paper and corporate bonds. It has already been extended from July to year-end. Comments by Governor Shirakawa last week were consistent with market expectations that the central bank will allow the program to expire, as scheduled.
Outlook
AUD/USD and NZD/USD outlook today: Thoughts of reversal cast aside for now, the currencies look to continue higher today. AUD has minor support at 0.9220, NZD at 0.7490, levels worth buying on any dips to.
