News and views
Investors bailed out of risk during the US session, spooked by an unexplained rise in US jobless claims. The S&P plunged immediately after the report and is currently down 2.4%, the largest one day fall since 30 October. Even before the data, though, equities globally were looking soggy. Spain was under the credit analysts’ microscopes, its own treasuries auction underperforming in the wake of Portugal’s yesterday, and the credit spreads for both rose further, to a fresh high of 195bp in Portugal’s case. The Eurostoxx 50 closed 3.5% down. Commodities were significantly lower (CRB index down 2.7%), severe falls seen for oil (-5.2%), silver (-5.5%), gold (-4.0%), and copper -3.1%. Inflation concerns left the radar for the session, US 10yr treasuries shedding 10bp and flattening the curve by 3bp. An outside-down day was formed.
The US dollar continued its post-November rise (7.8% so far) to just shy of 80.00. EUR fell to a post-May low of 1.3728. The ECB held rates at 1.00%, and the statement was little changed. The PIMCO fund said they would avoid the Euro area’s currencies due to the region’s finances. The dollar lost ground against the yen, from 90.50 to 88.50, partly reflecting Japanese margin fx traders stopping out of short-yen positions. GBP fell from 1.5900 to 1.5730. The BoE also held rates steady at 0.50%, but left the door open for further quantitative easing.
AUD roughly held the 0.8800 support area during Europe, but buckled after the US data to 0.8608, a level last seen in October.
NZD fell to 0.6845, last seen in September. AUD/NZD held its domestic session bounce to 1.2650 for much of the evening, slipping to 1.2580 in NY.
US initial jobless claims rise 8k to 480k, their highest for the year so far. The Labor Dept had previously reported that there was a backlog of claims from the new year that explained the mid-January spike, but the latest rise is unexplained, and may simply reflect a genuine lack of further improvement in labour market conditions. Similarly, continuing claims, which fell from 6.9mn to 4.6mn between June last year and early January, appear to have stalled since then. We remain comfortable with our forecast for a –40k fall in January non-farm payrolls, out tonight.
US Q4 productivity growth surged 6.2% annualised, very solid as it typically is in the early stages of recovery, reflecting strong growth and falling hours worked. Consequently unit labour costs fell 4.4% annualised, their fourth straight quarter without a gain.
US factory orders rose 1.0% in Dec, thanks to an upward revision to the durables component and a largely energy price-driven rise in non-durables. A 0.1% fall in factory stocks is not enough to see a downward revision to the stocks cont’n to Q4 GDP growth.
The European Central Bank left its repo rate unchanged at 1.00% following last night’s Council meeting. At the press conference ECB chief Trichet described rates as “appropriate” and repeated that a timetable for unwinding of some of the extraordinary liquidity measures would be given in March. But once again there was no hint re the timing of a more conventional monetary policy tightening, which we consider to still be up to a year away. On the data front, German factory orders fell 2.3% in Dec.
The Bank of England left rates on hold at 0.50% and suspended its asset purchase program at £200bn. The statement noted that “the Committee will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them.” That is consistent with our view that, should the economy slip back into shallow recession later this year, the APP could be expanded further. On the data front, UK house prices rose 3.6% yr in Jan, according to HBoS.
Canadian data wrap: Dec building permits up 2.4%; Jan Ivey PMI rises 2.4pts to 50.8.
Outlook
AUD/USD and NZD/USD outlook today: AUD has broken successive key support levels this year, the next below being 0.8500 (August resistance). For today, it looks extremely oversold, so that 0.8600 should hold until tonight’s US payrolls report. NZD has some support at 0.6850 today, but further declines longer term are expected. Of interest today will be the RBA’s monetary policy statement.
