News and views
Risk appetite continued to firm slightly, benefiting equities, commodities and risk currencies. A large batch of US economic data releases produced mostly modest surprises (for personal spending, jobless claims, consumer confidence, and new home sales), the overall picture that of improving conditions. The S&P500 is up 0.3% as we write, having slipped slightly over the past two hours. US dollar weakness was appeared to be the main reason for commodities’ gains, oil up 1.3%, copper up 1.6%, and gold up 1.4% to yet another record high at $1186. US 10yr notes gained 4bp in yield overnight, before abruptly dropping 5bp after a very successful seven year auction (2.835% average yield vs 2.878% forecast). Credit markets are watching state-owned Dubai World after they said they may default on bond payments.
The US dollar made a fresh 2009 low at 74.40. EUR broke above its multi-month range to make a fresh 2009 high at 1.5096. CHF put in a strong performance to break below parity. JPY was also strong, to 87.40 – a major support level from January. CAD strengthened to 1.0450, helped also by Russian central bank comments they would broaden its foreign currency reserves by adding CAD and possibly a couple of others (one must suspect AUD). The reserves change appears to be a longer term goal, rather than an immediate flow for markets, but it fitted the negative-dollar sentiment on the day.
AUD had already benefited from bullish RBA yesterday afternoon, and continued higher to just above 0.9300 last night.
NZD was swept along to 0.7330, settling at 0.7280. AUD/NZD sustained its break above the key 1.2700 and is currently at session highs of 1.2745.
US personal income and spending recorded solid gains in Oct. Income rose by 0.2%, along with upward revisions of 0.2% to each of the previous three months that put income onto a substantially higher track than the market expected. Spending rose by 0.7%, with a 13% bounce in vehicle sales even after the effects of the ‘cash for clunkers’ scheme.
US durable goods orders fell 0.6% in Oct, falling short of market forecasts, though sizeable upward revisions for September largely made up the difference. Orders for commercial aircraft rose strongly, while orders for defence gear and electronic equipment were down.
US new home sales rose 6.2% in Oct. As with the 10% jump in existing home sales reported earlier this week, it’s likely that some demand was brought forward in anticipation of the end of the first home buyers’ grant (which has since been extended). Still, the signs of a stabilising market are in place: the stock of unsold homes fell to 6.7 months’ worth of sales, compared to a peak of 12.4 months in January, and sales prices bucked the usual seasonal decline to rise by 0.7%, taking the annual rate of change from -6.4% to -0.5%.
US initial jobless claims dropped sharply from 501k to 466k last week. Continuing claims in the previous week also fell sharply, from 5.61m to 5.42m. The weekly figures tend to be more volatile around holiday weeks – of which there are plenty between Nov-Feb.
US University of Michigan consumer confidence rose to 67.4 on the final estimate for November, but remains well short of September’s high of 73.5. Current conditions were revised lower while expectations ticked higher.
Japanese corporate services prices fell 2.2% in Oct. That compares to -3.2% in Sep. The improvement partially reflects some unwinding of the collapse in energy driven prices such as international air and maritime freight.
Japanese trade surplus widened in October. The raw figures produced a surplus of ¥807bn, up from ¥525bn, and the seasonally adjusted data yielded a ¥419bn surplus, up from ¥223bn in Sep.
German GfK consumer confidence fell from 4.0 to 3.7 for “December” (the survey was actually held in early November). This was the second monthly decline.
UK Q3 GDP was revised a touch higher to -0.3%. The more detailed second estimate revealed flat consumption and a mild 0.2% contribution from government spending, but investment held up better than expected, with a drop of just 0.3%.
Outlook
AUD/USD and NZD/USD outlook today: A firmer tone for risk, coupled with the US holiday today, should support AUD above 0.9220. NZD’s major support level is 0.7220 ahead of today’s important NZ business confidence report.
