Weaker economic data from around the globe hurt sentiment. Eurozone PMI’s were mixed but confirmed falling economic activity in that region, while in the US Philadelphia area manufacturing activity plunged. These reports came after yesterday’s weak China PMI reading, increasing markets’ concerns that global activity is set to remain weak for some time. On top of the downbeat economic news, Moody’s reported it is about to downgrade up to 17 major global banks. There appeared to be little advance on bond intervention from the Eurogroup meeting. The S&P500 is down 1.8%, financials down 2.7%. The CRB commodities index fell 2.1% and is close to making a 21-month low, oil -3.4%, copper -2.6%, and gold -2.5%. US 10yr treasury yields fell after London noon from 1.66% to 1.59%. A 7yr inflation-linked auction went well, awarded at a real yield of 0.52% - an auction record.
The US dollar index (DXY) rose over 1%. EUR fell from noon London onwards, from 1.2700 to 1.2532. USD/JPY rose throughout the evening from 79.40 to 80.33. Session underperformer AUD fell during the London session from 1.0193 to 1.0029. NZD similarly fell from 0.8000 to 0.7863. AUD/NZD initially extended the post-NZ GDP decline to 1.2710 but partly recovered in NY to 1.2760.
A range of weak US data came in over night. US Philadelphia Fed factory index plunged from –5.8 to –16.6 in Jun, US existing home sales fell 1.5% in May, and US initial jobless claims fell 2k to 387k last week.
Euroland PMI composite was steady at 46.0 in advance June report. The French PMI for services and factories both ticked higher but the German surveys were weaker than expected. The Euroland services PMI edged up a tick fro 46.7 to 46.8 off setting a weaker factory PMI (44.8 from 45.1). The composite at 46 is lower than at any point in the first two quarters of the 2008 recession, and consistent with a 0.5/6% contraction in Q2 GDP. On that point, the € value of GDP in Q1 this year was -0.0001% lower than in Q4 last year according to recent revised data. That rounded up to fl at in the advance GDP report, but the technical truth is that on these figures, the Eurozone has been in a mild recession since Q4 last year, that appears to have deepened significantly in the current quarter. Given that partial data on industrial production and retail sales were very weak in Sep 2011, it seems reasonable to argue that the decline in output began around the middle of Q3 last year. When Euroland Q1 GDP advance was released 6 weeks ago the headlines were “skirts recession”, “avoids recession”. The data now suggest the eurozone has been in recession for the best part of a year.
Other Euroland news. The advance consumer confidence report for June slipped from –19.3 to –19.6. The current account surplus narrowed from €10.3bn to €4.6bn in April. Euro finance ministers plan to discuss allowing Greece more time to meet its austerity objectives with the IMF; a preliminary audit showed that Spanish banks need up to €62bn of recapitalisation; the Spanish government paid 4.7% for 2yr bonds auctioned today, up from 2.1% in March; ECB Council member Couere said a rate cut could be discussed at the July ECB meeting.
UK retail sales rose 1.4% in May after falling 2.4% in April. Lovely May weather compared to a miserable April and mild March would explain much of the recent swings in the data, which will remain volatile due to shifting public holidays for the Queen’s jubilee, and the upcoming London Olympics. In other news the CBI industrial trends survey improved from –17 to –11 (new orders index) in June.
AUD and NZD Outlooks: The June bounce is probably over, and much of it (if not all) should be retraced during the weeks ahead. There’s little to watch locally today, NZ migration and credit card spending not usually market movers. Off shore, there are meetings for ECOFIN as well as four major European leaders, presenting some headline risk.
NZD/USD 1 day: The (outside down day) reversal last night should continue to 0.7800, and any bounces along the way should not exceed 0.7960.
NZD/USD 1 month: Below 0.7400.
NZ 2yr swap yield: Opening today below 2.79%.
AUD/USD 1 day: The reversal last night should continue to 1.0000, and any bounces along the way should not exceed 1.0150.
AUD/USD 1 month: Below 0.9800.