News and views
Markets were generally stable after six days of risk-affection, taking a rest ahead of tomorrow’s US holiday. US equities failed to continue the previous day’s strong performance, the S&P500 currently down 0.4%. The slight retreat was attributed to an earnings disappointment from MBIA, the world’s largest bond insurer which lost $728 million on credit derivatives. Fed members Yellen and Lockhart spoke of the fragility of the US recovery, supporting the ‘low for long’ view (and therefore risk), eliciting little market reaction apart from a minor dent in the US dollar. Oil lost 1.6%, but remains stuck in its month-old sideways range. Gold stalled, diverging from close relation silver which fell 1.9%. US treasuries are little changed, despite a well-received 10yr auction.
The US dollar stalled slightly above its 2009 low. EUR touched its recent 1.5020 high before slipping to around 1.4950. GBP partly recovered from its late-Sydney fall to 1.6600, after Fitch warned of a ratings downgrade, bouncing above 1.6700. USD/JPY is unchanged at around 89.90. CAD forged ahead to a recent high of 1.0498 against the dollar.
AUD held above 0.9250 during the evening sessions, briefly spiking to 0.9320 on the Fed comments, before settling around 0.9280.
NZD was similarly muted, stuck between 0.7380 and 0.7450. The AUD/NZD cross was stable between 1.2500 and 1.2550.
US economic optimism slips again in Nov. The IBD-TIPP index eased from 48.7 to 47.9, its softest since July, and consistent with other less upbeat confidence indicators recently. The major driver of the lower reading was personal finances, although the assessments of the economic outlook and federal policies also slipped. In contrast, the NFIB small business optimism survey for Oct posted its third consecutive (but modest) gain.
US weekly retail reports mixed. Chain store sales fell 0.1% and have been effectively unchanged for three weeks; but the Redbook surged to 4.3% in the first retail week of November. These two reports often look inconsistent so no conclusions about consumer health, or otherwise, should be drawn.
Fedspeak: San Francisco Fed president Janet Yellen, said that “at some point” the Fed will need to retighten policy, but the task now was to “prevent inflation from falling any further below rates that are consistent with price stability”. Atlanta Fed president Dennis Lockhart said that the FOMC statement “guideposts” (i.e. capacity use and inflation) in the statement were not an “exhaustive” list of things to watch as clues to the timing of retightening.
German ZEW analysts’ survey slips from 56.0 to 51.1 in Nov. This contrasts with the improved Sentix investor survey yesterday, probably because that survey was conducted when the stock market was surging ahead at the end of last week, whereas many of the ZEW analysts would have submitted their responses when the market was sliding in late Oct and earl Nov.
French industrial production fell 1.5% in Sep, with autos down almost 8% after five months of cumulative gains worth nearly 50%. This could be an early sign that car scrappage schemes are starting to see their positive impact on growth unwind.
British Retail Consortium reported stronger same store sales for the second month running, up 3.8% over the year in Oct. The RICS reported rising house prices for the third month running, although the DCLG (government measure) house price index was merely less negative, rising from –5.6% yr to –4.1% yr. Also the UK visible trade balance widened from £6.1bn to £7.2bn in Sep, with auto imports a big part of the story (car scrappage schemes at work again!). This result, and last week’s IP figures, could see the UK’s –0.4% Q3 GDP contraction revised even weaker!
Outlook
AUD/USD and NZD/USD outlook today: Following the tone from the overnight sessions, the currencies may pull back a little further today, representing tactical buying opportunities. AUD shouldn’t run any further than 0.9230, while NZD should hold 0.7350.
