Little residual optimism from Friday’s EU summit was apparent last night. Instead, a minor bounce in sentiment in London was off set by a fall in NY, leaving US equities unchanged (S&P500 currently flat). The initial bounce was caused by Eurozone manufacturing data (PMI) which was less weak than feared. The NY fall was caused by disappointing manufacturing data for the US (ISM), pointing to low economic growth ahead. Some cracks in the EU pact started to appear, Finland and the Netherlands not ready to support the use of the ESM for bond market intervention. Key commodities were weaker, oil down 1.8% and copper down 0.8%, although the CRB index is unchanged. US 10yr treasury yields fell sharply from 1.66% to 1.56% on the negative European and US news. Eurozone peripheral bonds rallied slightly further, Spain’s 5bp selloff the exception.
The US dollar index (DXY) is slightly firmer. EUR fell during the London morning from 1.2668 to 1.2568 and settled around there in NY. USD/JPY slipped from 79.80 to 79.30. AUD made a fresh two-month high of 1.0278 early London but then consolidated between 1.0223 and 1.0263. NZD similarly made a two-month high of 0.8051 early London and then chopped between 0.8013 and 0.8047. AUD/NZD was slightly lower to 1.2745..
US ISM factory index falls from 50.5 to 49.7 in Jun, in negative territory for fi rst month since July 2009 when the economy was just emerging from recession. The June decline matches the size of several falls seen in 2011 after that year’s early year spike but in 2012 it comes from a lower peak; if last year’s pattern is repeated this year as 2010’s was in 2011 then there could be further downside ahead for this well-regarded US economic indicator. Production fell 4.6 pts to 51.0; jobs were marginally softer at 56.6 but orders were down 12.3 pts to a contractionary 47.8. At the same time construction spending for May, up 0.9% on top of upwardly revised April’s 0.6% gain, add to the recent run of better looking housing data; note that construction is included in the ISM nonmanufacturing survey so could be one reason not to expect that survey to be as weak as the manufacturing counterpart.
Euroland unemployment rose to 11.1% in May, a new modern day high, mainly due to French and Spanish joblessness gains. The Italian rate eased a tick to 10.1% while Germany was steady at 5.6%. Meanwhile the Euroland factory PMI was revised up from 44.8 to 45.1, where it was in may but still at recessionary levels.
UK PMI factory rises from 45.9 to 48.6 in June, its second sub 50 reading in a row, as we saw through most of the second half of 2011, before turning positive again in Jan-Apr 2012. Earlier, Hometrack reported fl at house prices in June, for a –0.5% yr annual pace of decline, its least weak since late 2010.
AUD and NZD Outlooks: Friday’s EU summit-inspired rallies extended only slightly, suggesting market scepticism is creeping in. Today’s key event is the RBA meeting, a pause in the easing cycle expected.
NZD/USD 1 day: A retest of 0.8050 is expected today, but above 0.8060 should be hard work.
NZD/USD 1 month: 0.7750.
NZ 2yr swap yield: Opening today 2bp lower at 2.78%.
AUD/USD 1 day: Vulnerable to a brief pullback to 1.0200 today before pushing above 1.0280.
AUD/USD 1 month: 0.9900.