News and views
US equities were little changed, consolidating near the month’s low.
There was a minor bounce after the better house price data, but the FOMC minutes dampened the mood and the S&P500 closed unchanged. The minutes had a clear dovish tilt, downgrading economic growth expectations, and suggested a willingness to reinvest in either treasuries or MBS. Commodities fell, the CRB index 1.3% lower, with oil plunging 4.0% and copper down 2.1% on economy concerns. Gold rose 0.8% to a fresh two-month high of $1250. US 10yr treasury yields fell 5bp to 2.47%, while the German equivalent fell 4bp to a new record low of 2.09%%. In contrast, government bonds from European peripherals continued to struggle, the Hungarian 10yr adding 31bp on concerns over mounting Swiss franc-denominated debt.
Month-end hedge rebalancing contributed only minor volatility to currencies. The US dollar index is little changed after fluctuating in a 0.5% range. EUR bounced from 1.2625 to 1.2743 in tandem with US equities, but didn’t hold the gains for as long, slipping back to 1.2660. Outperformer Swiss franc made a fresh seven-month high against the USD of 1.0137. USD/JPY ground a half yen lower to 83.90. AUD slipped a little further after Sydney closed, but was confined to a narrow range of 0.8860 to 0.8920. Underperformer NZD remained heavy in the wake of confirmation one of NZ’s largest finance companies had failed, breaking below 0.7000 to a 0.6966 US session low. AUD/NZD made a fresh four-month high of 1.2772.
US Conference Board consumer confidence improved to 53.5 in August, a little better than expected, and partly reversing the large declines over the past two months.
US Chicago PMI index dropped to 56.7 in August, fully unwinding the bounce in July. The index is now at its lowest since November 2009 when it was 55.5. Together with the other regional surveys out to date, the message is one of a softer read for Aug ISM manufacturing (due tonight) and downside risk to August non-farm payrolls on Friday.
US Jun existing home prices rose faster than expected during the three months to June. The S&P/Case-Shiller 20-city home price index climbed 4.2% from a year ago during the three months ending in June, only slightly slower than the increase in May.
FOMC minutes from the August meeting indicate that participants further lowered their near-term economic outlook, following the pessimistic views expressed in the June meeting. All but one member voted to maintain the current size of the Fed's balance sheet in order to ensure extremely loose monetary conditions in light of the slowdown in the recovery in recent months. They still expect the expansion to continue and gain strength in 2011, even as inflation remains very modest.
Canadian Q2 GDP grew at an annualised rate of 2% during the second quarter of 2010, lower than consensus expectations.
Eurozone Jul unemployment remained at 10% in July, a 12-year high, for the fifth consecutive month.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD should be rangebound between 0.8850 and 0.8950, until the important Q2 GDP release. NZD is testing the key 0.7000 level for the second time in a week, a sustained break would open the way to 0.6800. Tonight’s Fonterra auction may be slightly supportive.
