News and views
Risk markets held the previous day’s gains. US equities ground higher (S&P500 currently +0.8%) before and after a batch of US economic data which had a positive complexion. Pending home sales and chain store sales both recorded decent monthly gains. The CRB commodities index was 1.0% higher, oil’s +1.5% fuelled by a rig explosion off Louisiana and approaching hurricane Earl, and copper up 0.3% to a fresh four month high. Silver (+1.3%) has been impressive and is not far from the multi-year peak formed in May. US 10yr treasury yields rose another 5bp to 2.62% on further unwinding of stretched long positions. Japanese 10yr government bonds rose 10bp to 1.12%, surging at the end of the local session, amid speculation on spending increases.
The US dollar index was stable just below 82.50. EUR was also relatively stable between 1.2800 and 1.2850, briefly spiking after the ECB meeting. The meeting produced no major surprises, pledging to continue providing liquidity to banks for the remainder of the year (albeit no longer fixed at a 1.0% rate), although the GDP growth forecast for 2010 was raised to 1.6% from f0.9%. USD/JPY was also stable between 84.00 and 84.50. AUD ground from 0.9077 to 0.9121, testing the previous day’s high. NZD peaked at 0.7178 and then slipped to 0.7131. AUD/NZD bottomed at 1.2678 during the European morning and bounced to the current 1.2750.
US Pending home sales saw a large jump of 5.2% in July. While a modest rebound was expected, the magnitude surprised the market somewhat. That said there were significant revisions to previous outturns and as such, the annual rate was broadly unchanged at - 20.1%. US Factory Orders were a touch lower than expectations posting a 0.1% gain in July (market consensus 0.2%) while there was a revision to -0.6% from -1.2% in June. Orders ex-transport were weak, however, at -1.5%. Although shipments were encouragingly up a robust 1.1% over the month, inventories also posted a third consecutive increase. US initial jobless claims were moderately lower for the second consecutive week registering 472k, down from 478k the previous week. There was a small decline in the four-week moving average down to 485.5k. Continuing claims were also down in the week of 21st August to 4456k.US Nonfarm productivity was revised lower in Q2 to -1.8%, broadly in line with expectations. The breakdown revealed downward revisions to nonfarm output growth; however unit labour costs were revised up to 1.1% from 0.2%.
The ECB left the main refinancing rate on hold at 1.0% for the seventeenth consecutive month as expected. At the press conference, Trichet maintained a relatively positive tone on the economic outlook as reflected in the latest set of staff projections. The GDP forecast for 2010 was revised up to a mid-point of 1.6% (from a previous projection of 1.0%) while 2011 was nudged up to 1.4% from 1.2%. CPI inflation projections were also revised 0.1ppts higher for both 2010 and 2011.
Euro GDP was unrevised at 1.0% in Q2, although an upward revision from Q1 stemming from German GDP meant that the annual rate was revised up to 1.9% from 1.7%. The breakdown revealed government expenditure up to 0.5% from 0.2% and a similar improvement in household consumption.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD is currently breaking clear of the 0.9100 area and should move towards the 0.9220 August high. NZD broke resistance at 0.7150 and now targets 0.7200.
