Market wrap
Global market sentiment: The Fed’s tapering signal reverberated for a second day. Asian equities saw losses in the 2%-4% range, the Eurostoxx 50 fell 3.6%, and the S&P500 is currently down 2.2% to a six-week low. Commodities also joined the rout, weaker China PMI yesterday an additional prod, the CRB index currently down 2.9%. Adding to equity market gloom was news China’s central bank is taking a harder line on its banks and the IMF is threatening to withhold aid from Greece.
Interest rates: US 10yr treasury bond yields rose further, from 2.35% to 2.47%. A US data batch was mixed (Philadelphia manufacturing activity and home sales improved, jobless claims and PMI disappointed). The 30yr inflation-linked auction was disappointing (2bp above market and 2.5 times covered vs 2.8 average).
Australian 3yr government bonds yields rose further from 2.74% to 2.81% and then ranged while the 10yr yield rose from 3.67% to 3.76% - a 14-month high – before consolidating after lunch in London.
Currencies: The US dollar index rose for a second consecutive day. EUR fell from 1.3250 to 1.3161 but rebounded to 1.3239 in NY. USD/JPY went in the other direction, though, falling from 98.98 to 97.11. AUD ground lower from 0.9250 to 0.9164 – a three-year low. NZD similarly fell from 0.7850 to 0.7713 – a 12-month low. AUD/NZD bounced from 1.1760 to 1.1900.
Economic wrap
US Philadelphia Fed factory index jumps from –5.2 to +12.5 in June. That is its highest in more than two years. Strong orders, shipments and jobs detail was in total contrast to the NY Fed index in June which saw those components all fall despite a stronger headline. This will make forecasting the national ISM factory index tough this month!
US existing home sales rose 4.2% in May, hitting a new cycle high (though still down 29% from the 2005 sales pace record), the only caveat being that cash buyers and investors remain over-represented relative to the norm.
US leading index rose 0.1% in May, with only three of the ten components rising, after a 0.8% April rise when seven of the ten components were higher.
US initial jobless claims rise from 336k to 354k in week ended June 15, leaving in place the mildest of downtrends since the start of the year, indicative of a slower pace of layoffs.
Euroland composite PMI rises from 47.7 to 48.9 in June, its least weak since the end of Q1 last year. The gain was led by services (with the German services PMI at 51.3, its first >50 reading in three months) although the factory index also rose (constrained by a lower German index down from 49.4 to 48.7). Also the advance consumer confidence reading of –18.8 in June (from –21.9 in May) was the highest in nearly two years. Meanwhile the German PPI edged up from 0.1% yr to 0.2% yr, the lowest pair of industrial inflation in three years.
Market outlooks
Event risk today: It’s a quiet calendar today, monthly NZ consumer confidence minor for markets.
NZD/USD 1 day: A break below 0.7713 is expected during the next day or two.
NZD/USD 1-3 month: A three-year trend support line was broken yesterday at 0.7760 and if sustained over the next day argues for 0.7455 next. Fed tapering expectations will remain a depressant and NZ’s economic data momentum is likely to slow during the next few months.
AUD/USD 1 day: A break below 0.9164 is expected today.
AUD/USD 1-3 month: The 16 May decisive break below a two-year contracting range was a very bearish signal pointing towards 0.9200 initially. Technically it could run as far as the low 0.80’s. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
AUD/NZD 1 day: 1.1900 should cap this mini-bounce, a retest of 1.1760 expect during the days ahead.
AUD/NZD 1-3 month: The early June consolidation period appears complete allowing the trend decline to resume towards 1.1500, possibly as far as 1.1100. Relative fundamentals (e.g. RBA easing to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.
NZ swap yields 1 day: Taking the lead from US and Australian bond yields overnight (see above) the 2yr should open up 3bp at 3.12%. The 10yr should open 5bp higher at 4.46%.
NZ swap yields 1-3 month: The break in the 2yr above 3.10% argues for 3.18% next. While the next few months could see rates swing either way, by late-2013 we would expect to see the 2yr above 3.40% based on NZ’s improving fundamentals and eventual RBNZ tightening in 2014. The 10yr is more US-influenced and targets 4.68% next.
Global market sentiment: The Fed’s tapering signal reverberated for a second day. Asian equities saw losses in the 2%-4% range, the Eurostoxx 50 fell 3.6%, and the S&P500 is currently down 2.2% to a six-week low. Commodities also joined the rout, weaker China PMI yesterday an additional prod, the CRB index currently down 2.9%. Adding to equity market gloom was news China’s central bank is taking a harder line on its banks and the IMF is threatening to withhold aid from Greece.
Interest rates: US 10yr treasury bond yields rose further, from 2.35% to 2.47%. A US data batch was mixed (Philadelphia manufacturing activity and home sales improved, jobless claims and PMI disappointed). The 30yr inflation-linked auction was disappointing (2bp above market and 2.5 times covered vs 2.8 average).
Australian 3yr government bonds yields rose further from 2.74% to 2.81% and then ranged while the 10yr yield rose from 3.67% to 3.76% - a 14-month high – before consolidating after lunch in London.
Currencies: The US dollar index rose for a second consecutive day. EUR fell from 1.3250 to 1.3161 but rebounded to 1.3239 in NY. USD/JPY went in the other direction, though, falling from 98.98 to 97.11. AUD ground lower from 0.9250 to 0.9164 – a three-year low. NZD similarly fell from 0.7850 to 0.7713 – a 12-month low. AUD/NZD bounced from 1.1760 to 1.1900.
Economic wrap
US Philadelphia Fed factory index jumps from –5.2 to +12.5 in June. That is its highest in more than two years. Strong orders, shipments and jobs detail was in total contrast to the NY Fed index in June which saw those components all fall despite a stronger headline. This will make forecasting the national ISM factory index tough this month!
US existing home sales rose 4.2% in May, hitting a new cycle high (though still down 29% from the 2005 sales pace record), the only caveat being that cash buyers and investors remain over-represented relative to the norm.
US leading index rose 0.1% in May, with only three of the ten components rising, after a 0.8% April rise when seven of the ten components were higher.
US initial jobless claims rise from 336k to 354k in week ended June 15, leaving in place the mildest of downtrends since the start of the year, indicative of a slower pace of layoffs.
Euroland composite PMI rises from 47.7 to 48.9 in June, its least weak since the end of Q1 last year. The gain was led by services (with the German services PMI at 51.3, its first >50 reading in three months) although the factory index also rose (constrained by a lower German index down from 49.4 to 48.7). Also the advance consumer confidence reading of –18.8 in June (from –21.9 in May) was the highest in nearly two years. Meanwhile the German PPI edged up from 0.1% yr to 0.2% yr, the lowest pair of industrial inflation in three years.
Market outlooks
Event risk today: It’s a quiet calendar today, monthly NZ consumer confidence minor for markets.
NZD/USD 1 day: A break below 0.7713 is expected during the next day or two.
NZD/USD 1-3 month: A three-year trend support line was broken yesterday at 0.7760 and if sustained over the next day argues for 0.7455 next. Fed tapering expectations will remain a depressant and NZ’s economic data momentum is likely to slow during the next few months.
AUD/USD 1 day: A break below 0.9164 is expected today.
AUD/USD 1-3 month: The 16 May decisive break below a two-year contracting range was a very bearish signal pointing towards 0.9200 initially. Technically it could run as far as the low 0.80’s. The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
AUD/NZD 1 day: 1.1900 should cap this mini-bounce, a retest of 1.1760 expect during the days ahead.
AUD/NZD 1-3 month: The early June consolidation period appears complete allowing the trend decline to resume towards 1.1500, possibly as far as 1.1100. Relative fundamentals (e.g. RBA easing to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.
NZ swap yields 1 day: Taking the lead from US and Australian bond yields overnight (see above) the 2yr should open up 3bp at 3.12%. The 10yr should open 5bp higher at 4.46%.
NZ swap yields 1-3 month: The break in the 2yr above 3.10% argues for 3.18% next. While the next few months could see rates swing either way, by late-2013 we would expect to see the 2yr above 3.40% based on NZ’s improving fundamentals and eventual RBNZ tightening in 2014. The 10yr is more US-influenced and targets 4.68% next.
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