Europe kept markets on the defensive. Standard & Poor’s downgraded five Spanish banks, including troubled (and nationalised) Spanish bank Bankia which fell from BBB- to BB+ (junk). The bank has requested EUR 19bn in aid. Another request for help, to make debt repayments, came from the Catalonia region of Spain. Finally, the EU was reportedly planning to give regulators more power to impose private sector debt writeoffs. A US consumer confidence Oct- 07 high failed to stir markets. The S&P500 closed down 0.2% and the CRB commodities index close unchanged. US 10yr treasury yields fell from 1.78% to 1.74%, while Eurozone peripheral equivalents were weaker (Spain +15bp, Greece + 24bp and Italy +10bp).
The US dollar index (DXY) again pushed to a fresh 20-month high. EUR fell during the London morning to a fresh 23-month low of 1.2496 and then settled just above 1.2500 having triggered an option barrier at 1.2500. USD/JPY was well contained between 79.50 and 79.70. AUD fell from 0.9800 to 0.9746 but opens this morning firmer at 0.9790. NZD fell from 0.7585 to 0.7520, and opens today at 0.7560. AUD/NZD slipped to 1.2915 before recovering to 1.2940.
US University of Michigan consumer confidence revised up to 79.3. On the revised estimate, May University of Michigan consumer confidence was 79.3, up from 76.4 in April. The upward revision was to the expectations component, while current conditions were revised down a touch. This is the highest headline consumer confidence since October 2007. However, with weak income growth (we expect another disappointing payrolls print this Friday) US consumer confidence is still very vulnerable to a reversal.
German GfK consumer confidence nudges up to 5.7 in June. Possibly a reflection of some of the relatively positive data out of Germany in the first few months of the year, though it’s worth remembering that German business surveys have dipped again.
AUD and NZD Outlooks: The US holiday today and a lack of economic data may result in a subdued session down under. RBA Governor Stevens speaks to a payments conference in Sydney but may be questioned on monetary policy.
AUD/USD 1 day: Friday afternoon’s rally looked unconvincing and we favour a test of 23 May support at 0.9690. Any bounced should be temporary and capped by 0.9815.
AUD/USD 1 month: Below 0.9660.
NZD/USD 1 day: A test of 0.7455 is expected during the next day or two, any rallies capped by 0.7600.
NZD/USD 1 month: Below 0.7300.
NZ 2yr swap yield: Opening today unchanged at 2.42%.