News and views
No follow through from Friday. Expectations for the US data releases may have been higher than the published consensus, because the releases coincided with the clear turnaround in US equities. Personal spending slightly beat consensus but personal income just missed, questioning the sustainability of the former. The S&P500 is currently down 1.5%, with the banks’ sector underperforming at -3.2%. Commodities overall are little changed, oil down 0.6%, but copper up 1.2% to a 27 April high on optimism that the world’s central banks will support growth. US 10yr treasury yields fell 10bp to 2.54%, in line with the equities move, and unfazed by news US officials are discussing new fiscal stimulus as well as unconfirmed rumours the head of China’s central bank has fled after losses on US treasuries.
The US dollar index rose from the European session onwards, currency trading thinned by the London holiday. EUR conversely fell, from 1.2750 to 1.2660, the underperformer of the day. USD/JPY continued its decline in the wake of disappointment around the scope of stimulus from yesterday’s BOJ meeting, from 85.10 to 84.55. AUD fell from 0.9000 to 0.8926 after Sydney closed, following the EUR more than US equities. The NZD fell from 0.77115 to 0.7080. AUD/NZD remained within the recent range, a ½ cent lower at 1.2600.
US personal income and spending grew modestly in July. Incomes lifted 0.2% from June, led by 0.3% growth in wage and salary income.
Spending rose 0.4%, the fastest monthly pace since March. Durable goods spending led the charge, although non-durables and services spending also increased. The saving rate ticked down to 5.9% after two months above 6%. Real spending grew 0.2% as the top-line PCE deflator rose 0.2%. Core prices rose 0.1%, with low inflation supporting consumer budgets.
US Dallas Fed factory index still weak. After plunging to -21 in July, general business conditions improved modestly in Aug, rising to -13.5.
However, at these levels conditions remain well in negative territory.
Overall, the survey demonstrated ongoing deterioration, especially in current perceptions of business conditions, with an emphasis on the hit to businesses due to the recent deepwater drilling moratorium. The employment index turned negative for the first time in six months.
Eurozone economic sentiment rose from 101.1 to 101.8 in August. This is the third consecutive increase and puts the index at its highest since March 2008.
Canada's current account deficit widened to C$11 billion in the second quarter of 2010, from a deficit of C$8.5 billion (revised) in the first quarter. This is the seventh straight quarter that the current account has been in deficit.
Canada's industrial product price index rose 0.1% in July (weaker than the 0.4% expected), driven mainly by higher prices for primary metal products. During the same month, the raw materials price index rose 1.8%, largely because of higher prices for crude oil.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: The weak US close should cap AUD at 0.9000 today, but there’s plenty of event risk from retail sales, current account, and private sector credit data today.
NZD should be capped by 0.7110, minor support at 0.7080 vulnerable.
