News and views
US equity markets and the dollar chose to follow economic data, rather than company earnings, for guidance last night. Consensus-missing housing starts disappointed a market which has pushed S&P500 company valuations to over 20 times reported earnings. The index opened lower on the data, and is now 0.9% down. Oil (-0.7%, and a key reversal) and copper (-1.4%) followed equities and stalled their recent multi-week rallies. US 10yr notes at 3.31% were 9bp lower from Sydney’s close, also paying attention to the lower PPI reports. Global credit spreads bucked the correlations and narrowed slightly further.
The US dollar firmed around 0.9% overnight. EUR had another crack at 1.5000 in London, but 1.4991 was it, followed by a one cent fall. GBP had minimal reaction to the record budget deficit, and actually made a month high of 1.6489 before following US equities. USD/CAD outperformed, rising 2.5% (forming a bullish key reversal) after the central bank kept rates on hold and maintained a dovish stance given the soft inflation outlook. USD/JPY gained from 90.08 to 91.07.
AUD tried to break above 93.00 for the second time yesterday, but stalled at 0.9299 and dipped below 0.9200. Commentary from journalists McCrann (hawkish) and Mitchell (cautious) caused a pre-US data flurry.
NZD managed 0.7558 before the NY decline to 0.7442. AUD/NZD congested near the channel top, 1.2260-1.2360.
US housing starts rose 0.5% in Sep. That reflected a 4% rise in single family home starts offset by a 15% fall in the multiples component. However permits were down 1.2%, as single family permits fell 3% and multiples rose 6%. The softer permits picture is consistent with the recent fall in homebuilder sentiment, and could reflect the end of the tax credit for first time homebuyers (which runs out next month).
US producer prices fell 0.6% in Sep, and the core rate was down 0.1%. The PPI was soft across the board, with the exception of a jump in auto prices, most likely due to the end of the cash for clunkers discounts.
UK budget deficit update. Public sector net borrowing was £14.8bn in Sep, the biggest Sep deficit since current records began, further evidence of recessionravaged tax revenues and higher public spending.
Italian industrial orders plunge 8.6% in Aug, pulling the annual pace of decline down to -28% yr. German producer prices fell 0.5% in Sep. Both outcomes could in part reflect recent euro appreciation.
Bank of Canada on hold at 0.25%. In the statement, the BoC assessed that risks to the inflation outlook are still “tilted slightly to the downside” and it maintained the conditional commitment to keep rates on hold until the middle of next year. The BoC’s monetary policy report on Thursday will provide more insights.
Canadian leading index up 1.1% in Sep, its fourth straight monthly rise; however in Aug, wholesale sales fell 1.4%, softer than expected.
Outlook
AUD/USD and NZD/USD outlook today: The upward trends remain intact, despite last night’s minor pullback. AUD has support at 0.9110, NZD at 0.7350, levels worth buying on any dips to. In Australia, the Westpac Leading Index and motor vehicle sales data are due, while in NZ, migration data will be watched by the RBNZ.
