Market wrap
The USD fell sharply overnight after the FOMC minutes for their 1 August meeting signalled a clear intention to ease monetary policy. Whereas a “few” members argued for accommodation at the prior meeting, today’s minutes showed, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery”. The committee noted that the risks to the economy were tilted to the downside reflecting strains from the Eurozone crisis, the potential for a sharper than expected global slowing and US fiscal restraint. The minutes showed an active discussion of policy options including the merits of purchasing more Treasuries vs mortgage backed securities, extending the Fed’s guidance to maintain accommodation beyond the current target of “late-2014”, cutting the interest paid on reserves deposited at the Fed and a program similar to the BoE’s “funding for lending” scheme.
EUR held a narrow 1.2430-1.2490 range for much of the session and surged to fresh six-week highs of 1.2539 following the release of the Fed minutes. AUD traded as low as 1.0413 in NY, extending its earlier Asian session decline but jumped to highs just shy of 1.0520 after the Fed minutes. NZD/USD jumped from around 0.8090 to highs of 0.8145, where it ran into offers at yesterday’s highs.
US equities were not as impressed as FX markets with the dovish Fed minutes. The Dow pared losses in afternoon trade but is trading down 30pts into the close. Gold predictably surged after the Fed minutes, rising almost USD20/oz to $1654.85. US10yr yields fell almost 10bp on the day to 1.71%. The Eurostoxx index fell 1.5%, crude oil rose 0.5% while copper was flat.
While some key data released since the Fed’s 1 August meeting has been stronger than expected, notably payrolls and retail sales, it’s not clear that the data can be characterised as pointing to a “substantial and sustainable strengthening” in the pace of the recovery. Bernanke’s 31 August speech at Jackson Hole and the next non-farm payrolls 7 September will be the key events to watch going into the Fed’s next meeting on 13 September.
US existing home sales rose 2.3% in July, their first rise in three months, taking the annualised sales pace to 4.47 mn, still the second lowest of the year so far, but also a faster sales pace than in any month of 2011 apart from January of that year. Sales were up in three of the four regions but flat in the West. Median prices rose 9.4% yr in July, the fastest annual pace since early 2006, although that is not adjusted for quality/size of the houses sold.
Economic wrap
US existing home sales rose 2.3% in July, their first rise in three months, taking the annualised sales pace to 4.47 mn, still the second lowest of the year so far, but also a faster sales pace than in any month of 2011 apart from January of that year. Sales were up in three of the four regions but flat in the West. Median prices rose 9.4% yr in July, the fastest annual pace since early 2006, although that is not adjusted for quality/size of the houses sold.
Canadian retail sales fall 0.4% in June, reflecting broad-based declines across auto dealers, furniture, DIY, apparel, general and department stores and gasoline (due to lower prices). Food and electronics sales rose but not enough to prevent a 0.4% fall in ex auto sales.
Market outlook
There is no data scheduled for NZ today. RBA Governor Stevens testifies before the House Standing Committee on Economics today. The August HSBC flash manufacturing PMI for China is out as well. AUD’s sharp bounce off short term support near 1.0410 suggests a short term low may be place. The currency should run into offers around 1.0530/40 on the day though. NZD will find support at 0.8080 and resistance at 0.8145 today.
