News and views
Mixed US data and mixed equities resulted in muted moves in the other asset classes. The gloss from the US leading index was dulled by weaker house prices and a modest bounce in jobless claims. The S&P500 slipped at the open, but is steadily recovering as we write to be up 0.5%, positive earnings surprises continuing (AT&T, McDonald’s and Travelers were notable last night). The previous session’s weak US equities close produced an outside day reversal signal, and we watch for confirmation or denial of that sign. US treasury yields likely rose on supply, a record $123 billion announced for next week. Moody’s said the US’s Aaa rating was at risk if it didn’t reduce its record $1.4 trillion (to Sep-09) deficit. One downgrade did occur – Greece from A to A- by Fitch, the increased budget deficit cited.
Currencies mostly remained within recent ranges. EUR congested between 1.4944 and 1.5014 until an hour ago, when it broke to 1.5025 on the S&P500’s recovery. The twoweek old GBP rally stalled at the high of 1.6637. JPY continued to weaken against the dollar, reaching a month low at 91.71. BoC’s Monetary Policy Report Carney noted the strong currency would check inflation and economic growth, and Governor Carney said intervention is always an option, but CAD was unfazed ranging between 1.0450 and 1.0550.
AUD ran out of steam, having over-expected the Chinese data, retreating to 0.9200 support for much of the evening, before bouncing this morning to 0.9270.
NZD was a similar story, its support level being 0.7500, and the bounce just touching 0.7585. AUD/NZD was stuck in a tight 1.2215 to 1.2260 range.
US initial jobless claims rose 11k to 531k last week (ended 17/10) and the prior week’s fall was revised from 10k to 4k. A downtrend in claims is till in place but it has slowed a little recently. In contrast, the continuing claims downtrend has steepened, with a 98k fall in the week ended 10/10, though we caution that a factor at play there could be claimants running out of benefit and so dropping out of the count.
US leading index rose 1.0% in Sep. That is the sixth straight rise in the index (and the fourth of 1% or higher), providing further confirmation that policy stimulus is impacting positively on those variables that traditionally lead the economy higher (such as the yield curve and the stock market, which together have explained about 75% of the rise in the leading index in the past two months).
US house prices down 0.3% in Aug, according to the FHFA (government) index. That’s the first fall after three monthly gains, and another somewhat softer indicator from the housing market, adding to the sense that the sector might be losing some of its recent upward momentum.
Japan trade surplus narrows to ¥58.6bn in Sep from a revised ¥173.5bn in Aug. Exports fell 0.8%mth but this still saw the annual pace improve to -30.7%yr from -36.0%yr in Aug. Imports rose 1.9%mth lifting the annual decline in imports up to -36.7%yr from -41.3%yr.
European business confidence stronger in Oct, according to reports out of France and Belgium. More national reports are due later this week (eg. Ifo in Germany). The Euroland current account slipped back into deficit (€1.3bn) in Aug after a temporary return to surplus in July.
UK retail sales flat in Sep, in contrast to upbeat private sector surveys of the retail sector. Food and clothing sales weakened and household goods were lacklustre for the second month running. Still on the UK, BoE deputy governor Paul Tucker said that further expansion of the Bank’s quantitative easing asset purchase program was “possible if necessary”.
Bank of Canada reiterates that the stronger currency will hold inflation down and be an ongoing drag on economic growth in its latest monetary policy report. BoC Governor Carney at his press conference said “intervention is always an option”. On the data front, retail sales rose 0.8% in Aug, with auto sales and higher gasoline prices the main driving factors.
Outlook
AUD/USD and NZD/USD outlook today: We’d be tactically neutral today, given the momentum indicators suggest the currencies need a rest and yesterday’s strong reversal signal for the S&P500 has not been neutralised.
