The news flow was negative for markets overall, reversing yesterday’s minor rallies following the Eurogroup’s minor progress (it agreed to pay Spain EUR30bn by month-end for its banking sector bailout). Germany’s court said it could take months to decide on whether to block the ESM bailout process, and Italy’s PM said it may need to access aid at some point. The latter comment appears at odds with Italy’s cancellation of its bond auction (higher tax revenues cited) last night, the recent surge in yields possibly a factor. The S&P500 is currently 1.0% lower. Commodities underperformed (CRB index -1.4%, oil -2.3%, copper -1.3%, and gold -1.3%), probably due to China’s weak import data yesterday. US 10yr treasury yields fell from midday London from 1.53% to 1.50% - a fresh six-week low and close to the 1.44% record. Fed non-voter Bullard seemed unmoved by recent weak data, saying low market yields have taken some of the pressure off the FOMC to ease.
The US dollar index (DXY) probed slightly higher. EUR underperformed, falling since the London morning from 1.2333 to 1.2235 – a two-year low. USD/JPY rose from 79.20 to 79.50. AUD peaked during the London morning at 1.0245 and fell to 1.0180 with US equities. NZD peaked at 0.7988 and fell to 0.7930. AUD/NZD firmed slightly from 1.2810 to 1.2840.
US NFIB small business optimism down 3 pts to 91.4 in June, its lowest reading for the year so far and the steepest one month drop since mid 2010. As with other business surveys, the NFIB is failing to maintain early year strength for the third year running. The detail included a 3 pt drop in the intention to hire index, its lowest since March.
US IBD-TIPP economic confidence recovered 0.3 pts in July after its June fall of 1.8pts. This first read on how Americans feel in early July was the second lowest reading for the year after June. The economic outlook and personal finances components both fell by 1.0 pts or more, but confidence in Federal policies rose 3.2 pts, off setting those declines.
Canadian housing starts rose 2.4% in June with a 4% bounce in volatile multiples off setting a 0.3% fall in single family starts, their third fall in four months.
UK industrial production rose 1.0% in May. The May gain benefited from a downward revision to utility output from 14% to 9% in April and a further 2.4% rise in May; factory output bounced 1.2% after falling 0.8% in April, perhaps due to what would be a temporary boost from the delayed bank holiday (pushed into June for the Jubilee). Factory output is still down 1.7% compared to a year ago. Meanwhile exports bounced 7.8% in May, recovering three quarters of their 9.6% April slump and contributing to a £1.3bn narrower trade deficit of £8.3bn.
UK house price and retail surveys. The BRC reported same store sales growth edged up from 1.3% yr to 1.4% yr in June, its fastest annual growth pace for the year so far, although Jubilee holiday-related spending would have been a factor. The RICS reported a net balance of 22% of surveyors assessing lower house prices in June, the most pessimistic since October last year.
AUD and NZD Outlooks: There are no major market-moving events scheduled today. Probably of most interest will be RBA Deputy Governor Lowe’s speech to an economics conference this morning. Otherwise there’s housing finance and consumer confidence to watch. NZ PM Key speaks in Christchurch.
NZD/USD 1 day: Yesterday’s upward correction appears over (ending at 0.7988) and we now expect a test of 0.7930 below.
NZD/USD 1 month: 0.7750.
NZ 2yr swap yield: Opening today 1bp lower at 2.69%.
NZ 2yr swap yield 1 month: We expect a move towards 2.35% within the next month, driven mainly by Eurozone disappointments.
AUD/USD 1 day: Yesterday’s upward correction appears over (ending at 1.0245) and we now expect a test of 1.0155 below.
AUD/USD 1 month: 0.9900.