The US dollar index (DXY) is little changed

Market wrap

Sentiment rebounded during the NY morning. A mixed set of US data (disappointing NY manufacturing, upside retail sales surprise) saw US equities initially slip 0.5% but the rebound a couple of hours later has the S&P500 at 0.6% currently. Background support may have come from a Reuters report that a Spanish bailout is planned for November, to coincide with aid for Greece and Cyprus, according to senior unnamed Eurozone officials. Citigroup’s earnings surprise may also have contributed. US 10yr treasury yields are 1bp higher at 1.67%. Fedspeak from dove Dudley was countered by hawk Lacker who remained opposed to QE3, leaving markets unmoved. The Spanish 10yr yield rose 19bp despite the Reuters report.

The US dollar index (DXY) is little changed. EUR rose during the London morning, from 1.2897 to 1.2979 but slipped in NY to 1.2930. USD/JPY rose from 78.50 to 78.86, safe haven yen underperforming on the day. AUD initially slipped in NY from 1.0248 to 1.0219 but rebounded with US equities to 1.0259. NZD similarly bounced from 0.8141 to 0.8195. AUD/NZD slipped from 1.2570 to 1.2510.

Economic wrap

US retail sales rose 1.1% in Sep and Aug was revised from 0.9% to 1.2%. As in Aug, auto sales and gasoline prices rose sharply, but core retailing surged from 0.3%growth in Aug (revised from 0.1%) to 0.9% in Sep, matching July’s pace. That lifted quarterly annualised core retailing from –0.2% in Q2 to +4.6% in Q3 (though still down on +6.6% in Q1). In Sep, only two stereotypes out of 14 recorded declines and 6 rose by in excess of 1% (including electronics up 4.5% due to the iPhone 5 launch) compared to 5 declines and 4 >`1% in Aug. These numbers suggest Sep’s household income gains, as recorded in the Sep payrolls report, were spent rather than saved, and accord with the recent upswing in consumer confidence. Forecasts for Q3 GDP growth (due October 26) may need to be nudged a little higher as a consequence.

US NY Fed factory index rises from –10.4 to –6.16 in Oct. The own firm detail was not so solid, with orders falling at a slower pace (rising from –14 to –9), and shipments and jobs fall 9 pts and 5 pts respectively, to below zero readings (–6 and –1) for the first time this year.

US business inventories rose 0.6% in Aug, reflecting a 0.6% rise at retailers, and previously reported 0.6%/0.5% gains at factories/wholesalers.

Canadian Q3 surveys. The business outlook survey showed future sales stalling, with the net balance falling from 15.0 in Q2 to 0.0 in Q3, while the BoC senior loan officer survey found slightly easier credit conditions, slipping from –10.8 to –15.8 in Q3. Meanwhile existing home sales rose 2.5% in Sep, the first rise in the brief four month published history of the report.

UK house prices rose 3.5% in Oct, according to the Rightmove index of asking prices, lifting the annual pace of gain from 0.7% to 1.5%.

Market outlook

AUD and NZD Outlook: The local calendars are important today. NZ’s Q3 CPI release is expected to see annual inflation at 0.9%, below the RBNZ’s 1%-3% band for the first time, although this should mark a low over the medium term and shouldn’t faze the RBNZ. The RBA releases the minutes of its recent meeting where it cut the cash rate by 25bp, which the market will comb for clues regarding November. The GlobalDairyTrade milk auction is overnight.

NZD/USD 1 day: 0.8210 should provide a cap today, eventually looking for trend support (since 25 Sep) at 0.8130 to give way.

NZD/USD 1 month: Lower below 0.8100.

NZ 2yr swap yield 1 day: Opening today 1bp higher at 2.60%.

NZ 2yr swap yield 1 month: Targets 2.52% below, influenced by AU rates.

AUD/USD 1 day: The corrective bounce since 8 Oct may still be in progress, targeting 1.0295. Below 1.0200 argues it’s over and the trend decline resumes to 1.0150-.

AUD/USD 1 month: Lower to 1.0100- (12 July low).