Risk sentiment remained sour amid some weak US data and pending Spanish downgrades. Bloomberg news reported Moody’s is about to downgrade Spanish banks, adding to a tense day for Spain, an official forced to deny rumours there was a run on deposits at ailing bank Bankia. US jobless claims and Philadelphia regional manufacturing data disappointed, helping push the S&P500 0.8% lower to a fresh four-month low. Commodities were relatively resilient, the CRB index unchanged, with oil -0.3%, copper -0.2% and gold’s +2.3% bounce possibly reflecting a flight to the store of value amid expectations of further quantitative easing in Europe. US treasury yields are 6bp lower at 1.70%. An auction for 10yr inflation linked bonds went at a record low of -0.39% real yield. Australian 3yr yields fell 8bp.
The US dollar index (DXY) probed a little higher but looked consolidative rather than trending. EUR fell from 1.2750 to 1.2667 and rebounded to 1.2735. USD/JPY plunged from 80.20 to 79.14 following the weak US data. AUD was volatile in a 0.9895-0.9964 range. NZD also remained in an intraday sideways range of 0.7622-0.7681. AUD/NZD continued its upward trend to 1.3000.
US Philadelphia Fed index drops from 8.5 to –5.8 in May, its first negative reading since Sep last year (and contrasting with the sharp rebound in the NY Fed index in May). The detail showed orders down 3.9 pts to –1.2; shipments reversed their slight April fall to 2.8 by rising back to 3.5; but jobs slumped from 17.9 to –1.3.
US initial jobless claims steady at 370k in week ended 12/5, although a slight uptrend is discernible in the series once again, from the 361k low-point back in February. In other news, the leading index fell 0.1% in Apr, its first decline since Sep, though partly due to the spike in initial claims last month which has since mostly been reversed.
Canadian wholesale sales rose 0.4% in Mar, driven by autos.
Spanish PM Rajoy last night called on EU institutions for help because Spain faces the “serious risk” of losing access to debt markets. A bond auction today was fully subscribed, but at higher yields, especially at the short end. There were also reports of a €1bn deposit run on Bankia (about to be part nationalised), subsequently denied.
AUD and NZD Outlooks: AUD and NZD are oversold, and while the condition can persist for many days, we are vigilant for a corrective bounce (an opportunity to sell into if it occurs).
AUD/USD 1 day: As long as 0.9870 holds, we favour a brief bounce above 0.9960.
AUD/USD 1 month: Lower to 0.9800.
NZD/USD 1 day: As long as 0.7620 holds, we favour a brief bounce above 0.7680.
NZD/USD 1 month: Lower to 0.7550 (trend support since Aug-10).
NZ 2yr swap yield: Opening unchanged at 2.51%