News and views
A risk averse tone. The European open marked a peak in risk appetite, the ensuing slide later fueled by a weak US durable goods report, and perhaps by some elements of the Fed’s Beige Book. The latter report contained no major surprises, describing modest increases, although two regions noted the pace had “slowed” – the fi rst use of the verb in that context since July 2009. The S&P500 is currently 0.8% lower. Commodities generally consolidated after yesterday’s fall, copper (+1.0%) following China equities, although oil (-0.8%) was hurt by reported supply increases and validated yesterday’s bearish key reversal signal. US 10yr treasury yields fell 6bp, mainly around the Beige Book release. The 5yr auction went well, 3.1 times bid, with good central bank presence observed. EU peripherals Ireland, Hungary, and Portugal had decent bond rallies after a successful 13yr Portugese auction.
Safe haven currencies performed best on the day. The US dollar index held its ground near the recent low. EUR, too, was undramatic ranging between 1.2970 and 1.3040, a slight negative tone during the US session. USD/JPY slipped from around 88.00 to 87.30, the yen outperforming all majors.
AUD consolidated its CPI-related fall around 0.8950 until the US data, slipping to 0.8908.
NZD was affected by global sentiment as well as a softer NZ business confi dence reading, slipping to 0.7256. AUD/NZD retraced its decline to 1.2310 before settling above 1.2250.
US durable goods orders fall 1.0% in June. The fall was largely driven by transport, with civilian aircraft down 26% despite solid gains in Boeing’s own orders data. However ex transport orders fell 0.6% and ex defence was down 0.7% so there was some underlying softness in the report, consistent with other evidence that the US economy will slow further in H2 2010. One bright spot was the 0.6% rise in core capital goods orders in June, on top of a 4.6% rise in May.
US Fed Beige Book for July pointed to continued modest growth, though with a few regions reporting a slowdown in activity. Retail and services were seen to be picking up, manufacturing was steady, but the housing market remains sluggish and commercial property is very weak. Labour market conditions were seen to be gradually improving. Like the recent fl ow of data, this report is far more consistent with a slower pace of growth in H2 than with a double-dip recession.
German CPI rises to 1.1% yr in July, in part due to base effects related to falling energy prices this time last year.
Canadian house prices accelerate to a 13.6% yr annual pace in May, according to Teranet/National Bank.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD is showing early signs of a major reversal, and should be capped by 0.9000 today. The tone of today’s RBNZ statement (we think +25bp is a done deal, it’s certainly fully priced) will determine NZD intraday direction, but further out, we note the recent peak around 0.7400 was on waning RSI strength.
