News and views
Risk appetite partly rebounded from the previous session’s fall, ignoring a weak US consumer confidence report, but supported by the trade report showing rising import volumes – an indication the economy is recovering. The S&P500 gained 0.6%, noting Disney’s estimate-beating earnings, although banks fell 1.4%. Most commodities were firmer within recent ranges, except for oil which broke below its range and fell 0.8%, citing the consumer confidence report as well as the previous day’s weak inventory report. US 10yr note shed 2bp, flattening the curve as various pundits said the 2yr yield at 0.80% had reached its low in this cycle. Chicago Fed President Evans reiterated their accommodative policy, and Pimco’s founder Bill Gross viewed mortgage and high yield corporate debt as now overvalued, adding to the argument for buying treasuries.
The bounce in risk hurt the US dollar. EUR opened in Europe at 1.4868 and, after a volatile session ranging between 1.4825 and 1.4938, closed slightly higher at 1.4900. Eurozone GDP was weaker than expected, but the announcement had minimal market effect. USD/JPY declined throughout to an 89.46 low.
AUD rose from the 0.9260 Sydney close to 0.9344, only interrupted briefly by the US consumer confidence report.
NZD outperformed the majors, rising to 0.7445 but contained within the week-old range. AUD/NZD fell from around 1.2640 to 1.2540.
US trade deficit widens to $36.5bn in Sep. The trade deficit widened by almost $6bn, due to imports rising at double the pace of exports. Both were strong – the 2.9% jump in exports was the strongest yet this year, and broad-based across capital goods, autos, other consumer exports and industrial supplies. But imports surged 5.8% (the biggest monthly rise in sixteen years), coming just two months after a 4.9% jump in July, a further indication that the US economy is back in business. The detail showed a 26.2% jump in crude oil imports, a function of both price and volume, but ex petroleum imports were up 4.4%, so oil was just one quarter of the import story.
US import prices rise 0.7% in Oct. Import prices picked up a bit both due to higher oil prices and presumably due to the weaker US dollar as well although as the trade data demonstrated, increasing volumes are by far the bigger drivers of the US external story now that global trade is in recovery mode once again.
US Uni of Michigan consumer sentiment index down 4.6 pts to 66.0 in Nov (prelim). Sentiment fell quite sharply for the second month running, fairly evenly spread between both the current and outlook components, taking the level of the UoM index back to where it was in July-August. Rising inflation expectations, at least in part due to higher gasoline prices, were a factor at play.
Japan capacity utilisation up 1.6% in Sep. Factory use continued to recover from its disastrous trough in Feb. But despite the 22.4% rise since then, the index remains 2% below the lowest level recorded over the preceding 20 years. Industrial production may be rebounding fast but it is clearly coming out of a deep deep hole.
Euroland GDP expanded 0.4% in Q3 after five quarters of contraction, with France and Germany enjoying their second consecutive quarters of growth. But the level of activity remains more the 4% below where it was a year ago. Detailed breakdowns are not available with these advance reports but we know from monthly data through the quarter that auto production, sales and exports feature substantially in the growth stories, thanks to car scrappage schemes across the continent, as well as in the UK and the US. The impact of these schemes is already starting to wane, and with credit to the private sector now falling in annual terms, we suspect that GDP growth risks stalling again heading into the close of 2009.
Canada’s trade deficit narrowed to C$0.9bn in Sep, reflecting a 3.5% jump in exports (mainly automotive) and a minimal –0.1% imports decline. Also, auto sales are showing something of an up-trend in Canada with StatCan suggesting that October sales increased 3%, on top of the confirmed 1.2% gain in September.
Outlook
AUD/USD and NZD/USD outlook today: Following Friday evening’s bounce in risk sentiment, AUD should retain a firm tone today, supported at 0.9300 and then 0.9260, with any break above 0.9370 signalling a strong buying opportunity. NZD is similarly supported at 0.7380 today, a break above 0.7460 very bullish for the week ahead.
