News and views
The risk trade was revived last night. Strong US existing home sales gave US investors something to support their view the market will keep rising, and the S&P500 is currently up 1.3% after gapping higher at the open. In addition, the Chicago Fed’s president told the FT “US rates may stay near zero until late 2010, perhaps 2011”, supporting the session’s risk sentiment. Most commodities rallied, with gold standing out (+1.5%) at its new high of $1174. US treasuries were sold in line with better risk appetite, and the two year auction didn’t help either – a lower bid-cover ratio of 3.2 and a yield of 0.802% exceeding the expected 0.786% indicating weaker demand. In credit news, Fitch downgraded Mexico from BBB+ to BBB, citing fiscal weaknesses and falling oil production.
Currencies were higher against the US dollar in line with the positive tone to risk assets. EUR gained throughout the session to 1.5000, currently resting just below. ECB’s Trichet spoke but said nothing new. GBP rallied to 1.6650 but slipped to 1.6590 after the NY open. CAD (+1%) outperformed the majors, reaching the 1.0550 area, assisted by a strong retail sales report. A wild MXN saw a 2% range around the Fitch news, but interestingly is slightly stronger overall. The dollar did gain against one currency, the yen, from 88.80 to 89.20 in a thin Japanese holiday session.
AUD moved from the 0.9200 area at the Sydney close up to almost 0.9280, before taking a rest at 0.9240.
NZD moved from 0.7260 to above 0.7360, and formed a bullish outside day. AUD/NZD moved lower after almost reaching 1.2700 yesterday, spending much time in the 1.2600 region overnight.
US existing home sale completions surged 10.1% in Oct on top of Sep’s 8.8% jump. That took sales to their highest since February 2007. These are sales that would have been agreed back in Q3, when the twin incentives of turning rather than free-falling prices and the tax credit for first home buyers were clearly driving activity. It remains to be seen whether the weakness in more recent housing indicators is also reflected in upcoming existing home sales figures. Pending home sales data due Dec 1 for Oct will provide an early clue.
US Chicago Fed national activity index slipped to –1.08 in Oct from –1.01 (and Sep was revised down from –0.81). This index is derived from 85 previously released economic statistics for October, and reflects the recent softer data tone.
Fedspeak: St Louis Fed President James Bullard said the central bank should keep its asset purchase programs ticking over “at a very low level” beyond March next year instead of shutting them down completely. He argued this would give the Fed more flexibility to respond to future news, for example “if the economy came in very weak... in 2010”.
Euroland PMIs advance further in Nov. The advance factory PMI rose from 50.7 to 51.0, while the services PMI was up from 52.6 to 53.2. That lifted the composite PMI from 53.0 to 53.7, its highest since November 2007, two years ago.
Canadian retail sales rise 1.0% in Sep. New car sales rose 0.6%, ex auto sales were up 1.1%, including a 1.1% rise in gasoline sales.
Outlook
AUD/USD and NZD/USD outlook today: The AUD should range between 0.9120 and 0.9280, while NZD should be contained by 0.7200 and 0.7390. We will watch for any follow through in last night’s broad move higher.
