News and views
Equities and currencies are little changed from yesterday’s Sydney close. US factory orders just beat consensus, and Warren Buffet placed an “all-in wager” on the US economy by buying the largest US railroad, offering some support to soggy US equities markets. The S&P500 is now down 0.2%, after a static session. The Euro Stoxx index lost 1.8%, hurt by UBS’ larger than expected Q3 loss. Commodities were looking soft until the Buffet news, when oil surged 3.8% in three hours, analysts noting the correlation between Burlington shares and the CRB index. Gold powered to a new high of $1085 (+2.5%) after India’s central bank bought 200 tonnes, raising expectations of other central banks doing likewise. US treasuries fell by 9bp from Sydney’s close, citing the US data and rumours of bonds-gold switching.
The US dollar gained around 1% into London’s noon and partly retraced thereafter, for a bullish looking breakout on the price charts. EUR was dented by the UBS news, falling from 1.4806 to 1.4626 before congesting. JPY was stable between 89.90 and 90.60.
AUD mirrored the USD and fell after the Sydney close from 0.9033 to 0.8917, before recovering to just above 0.9000. Commentators raised the spectre of an RBA pause in December if economic data shows weakness.
NZD also fell and rose to the current 0.7200 level, the overnight Fonterra auction result of +13.7% not yet digested by markets. AUD/NZD rebounded after its post-RBA slip to the 1.2500-60 area.
US factory orders up 0.9% in Sept. This reflected an upwardly revised durables component (from 1.0% to 1.4%) and a 0.6% rise in non-durables, not all of it due to higher gasoline prices. factory inventories fell 1.0% in Sept, which by itself could see a modest downward revision to the contribution from stockbuilding to Q3 GDP growth.
US weekly retail reports. Chain store sales edged up 0.1% last week, their sixth consecutive weekly gain. Meanwhile the Redbook retail average accelerated to 1.9% in the last retail week of October. Both results suggest some consumer spending growth at the start of the fourth quarter.
European Commission revised forecasts. The EC warned again that the still “fragile” banking system was likely to wear further losses of up to €400bn over the next year, and that would constrain growth to an anaemic 0.7% in 2010 (in line with Westpac’s forecast), following 2009’s 4% plunge in output.
UK house prices up 1.2% in Oct. The HBoS index posted its fourth consecutive monthly gain, lifting its smoothed annual pace of decline from –7.4% yr to –4.7% yr. Also, the PMI construction slipped from 46.7 to 46.2 in Oct, indicative of ongoing contraction in that sector.
Outlook
AUD/USD and NZD/USD outlook today: AUD bounced off trend support again, arguing against any bearish case here for now. NZD, on the other hand, has already broken below trend support, but could head back there (0.7300) today on the Fonterra news.
