Markets are little changed. Some soggy production data from Germany and downgraded BOE growth forecasts weighed on markets during the London morning but stronger US data (productivity, labour costs) helped the recovery. Also helping may have been a MNI story alleging the ECB is aiming to intervene in the bond markets after the German court ruling on the ESM (12 Sep) and is lobbying for an ESM banking license. European equities closed down 0.3% and the S&P500 is currently unchanged. Commodities were similarly contained, the CRB index up 0.2%, oil unchanged, copper -0.8% and gold +0.1%. US 10yr treasury yields are 2bp higher at 1.65%. The 10yr auction fared poorly, the awarded yield 2.5bp above market yield and the 2.5 bid-cover ratio the lowest since August 2009.
The US dollar index (DXY) ranged sideways overnight. EUR fell from 1.2392 to 1.2327 during the London morning but recovered to 1.2376 in NY. USD/JPY bounced from 78.24 to 78.52. AUD ground higher from 1.0535 to 1.0582 before slipping to 1.0560. NZD similarly firmed from 0.8121 to 0.8164. AUD/NZD slipped from yesterday’s 1.2985 minor peak to 1.2950.
US productivity growth was 1.6% in Q2 compared to –0.5% in Q1. Although growth slowed, hours worked slowed even faster implying greater productivity and also pulling unit labour costs down from 5.6% to 1.7% annualised growth.
Fedspeak: adequate stimulus in place, according to Dallas Fed’s Fisher, contrasting to his Colleague Rosengren yesterday, who wanted more.
German industrial production fell 0.9% in June, reversing part of May’s 1.7% bounce, to be down 0.3% yr, the same annual pace of contraction as in May. Meanwhile, German exports fell 1.5% in June, reversing some of their 4.2% May bounce.
Bank of England inflation report. Inflation is “a little more likely to be below” the 2% target in late 2013 and 2014 but risks are balanced by the end of the forecast period in 2015, although that view is based on market pricing of a further rate cut and the asset purchase program being held at £375bn, so it implies some further easing could yet be justified. The Governor’s notes on the economy make gloomy reading. “The economy will continue to face headwinds over the forecast period, from the fiscal consolidation and tight credit conditions at home, as well as from the difficulties in the euro area and a broader slowing in the world economy. The recession in the euro area is damaging demand for our exports; a black cloud of uncertainty is hanging over investment; and the weakening euro is a further obstacle to the adjustment we need to make in our net trade position. Our efforts to bring about a rebalancing of the UK economy will require patience.”
AUD and NZD Outlook: We’re looking for signs that downward corrections to the post- June rallies have started. There’s plenty of event risk today, with labour market reports from both Australia and NZ, and Chinese CPI, PPI, IP and retail sales this afternoon.
NZD/USD 1 day: As long as 0.8187 holds, we favour a break below 0.8120 today.
NZD/USD 1 month: 0.8000.
NZ 2yr swap yield 1 day: Opening today 1bp lower at 2.83%, following movement in AU overnight.
NZ 2yr swap yield 1 month: Higher towards 3.00% on ECB expectations.
AUD/USD 1 day: As long as 1.0580 holds, we favour a break below 1.0530 today.
AUD/USD 1 month: 1.0300.