News and views
Fed boosts risk appetite. US equities surged after Fed Chairman Bernanke’s closely followed speech at the Jackson Hole symposium, where he pledged to ensure a continuation of the recovery, including using unconventional measures if necessary. Importantly, he underscored quantitative easing as the favoured option. The S&P500 earlier fluctuated on positive and negative surprises from reports on GDP and consumer sentiment, respectively, resulting in a fresh August low, but the 1.7% gain at the close signals (key reversal) multi-day strength ahead. Commodities closed 1.2% higher overall, oil (+2.5%) and copper (+1.8%) moving with equities. US 10yr treasury yields rose 17bp to 2.65%.
The US dollar index fluctuated wildly with the economic data and Bernanke’s speech, but closed little changed. EUR similarly fluctuated, falling to the session low of 1.2676 as the speech was reported, but then rallying to 1.2780 upon full digestion. The ECB’s Weber also commented from Jackson Hole, saying the European recovery is selfsustaining. USD/JPY firmed from 84.60 to 85.46, the market expecting policy easing at an emergency BOJ meeting this week. Outperformer AUD formed a base in Europe at 0.8860, surging to 0.9001 during the US session. NZD rose from 0.7025 to 0.7150. AUD/NZD gained from 1.2580 to 1.2650, remaining within the week’s sideways range.
US GDP growth revised from 2.4% annualised to 1.6% in Q2. The main drivers of the revision were a smaller contribution from inventories and a larger drag from net exports. With most partial data suggesting that growth has slowed further in the current quarter, it may be the case that Q3 GDP data in late October will reveal the economy has stalled or even contracted modestly.
Fed Chairman Ben Bernanke in his keynote address at Jackson Hole said that the Fed “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly”. He acknowledged that growth was too slow, and unemployment too high but remained hopeful the economy would pick-up more sustainably in 2011.
US consumer sentiment revised lower. The final August reading for the Uni of Michigan index was 68.9, up 1.1 pts on July, compared to the preliminary August print of 69.6.
German CPI eases from 1.2% yr to1.0% yr in August. The statistician noted that lower retail gas prices offset higher prices for other fuels.
UK GDP growth revised up from 1.1% to 1.2% in Q2. Construction’s contribution was revised higher, with some offset from a lower services estimate. Unlike in the US, early partial data for Q3 suggest growth momentum has been maintained, although aggressive fiscal tightening will soon impact.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: The effects of Bernanke’s stimulatory speech may linger for a session or two, supporting the commodity currencies. AUD resistance is now higher at 0.9080, while NZD could bounce a little higher to 0.7200 resistance. NZ business confidence poses event risk today.
