Concerns around US debt. US treasury yields rose sharply, 10yrs up 17bp,
despite a solid 5yr auction (well bid by foreigners). The attributed catalyst
was the rebalancing of mortgage book hedges for convexity reasons, but there is
a larger theme of record bond issuance driving yield curves higher (and to
historically steep levels) at play here. This aversion to 10yr bonds was duly
noted by US equities, the S&P500 falling in the last 2 hours to close down
1.9%. That, in turn, seems to have negatively affected risk currencies. Also
contributing to a moderately stronger US dollar was Chinas central bank saying
their economy is still under downward pressure; and Standard & Poor's
saying there is no credible replacement for the USD as reserve currency, the UK rating revision was not a warning message to the
US, and the US's credit rating was very safe. Moody's also
weighed in, saying the US rating was safe despite increased debt.
EUR weakened in a choppy manner from around 1.40 to just under 1.39. GBP
bucked the trend to rally from 1.5935 to 1.6085. USD/JPY dipped from
95.50 to 94.65, recovering to 95.20.
AUD spent much of the London and NY sessions clustered around 0.7850, with a
sudden drop an hour ago to 0.7770.
NZD ranged around 0.6200, the sudden drop this morning to 0.6160.
AUD/NZD edged higher to a 1.26 to 1.27 ranged, and will remain nervous ahead of
the NZ budget release at NZT.
US existing home sales continue to
see-saw, most recently rising
2.9% in April, although the annualised pace remains within the 4.49mn to 4.74mn
range that has prevailed since November last year (down from 2005's 7.25mn
peak). On this basis, we can increasingly confidently call the
"bottom" for this sector of the US housing market, as long as we recognise that
sales are being supported by the distressed vending of foreclosed properties at
knockdown prices. That view is supported by the price data, down 15.4% yr
compared to April 2008; the excessive supply of unsold homes is likely to keep
that downward pressure on prices for some time yet.
US FHFA house prices down 1.1% in
March. The separate government
house price measure, based on homes that have been sold at least twice and
financed via Freddie Mac or Fannie Mae, resumed its downtrend back in March
after surprise gains in the first two months of 2009. The annual rate of
decline for this index in Q1 was -7.1% yr, compared to the cycle low of -8.3%
yr in Q4 last year. This single digit pace of decline compares to the much
steeper annual falls recorded by the NAR price data above and Tuesday's
S&P-CS measures, both well into double digit negatives. Those measures have
broader coverage of housing transactions across the US and tend to feature more distressed sales than
the FHFA data.
Treasury Secretary Geithner said the economy was showing some initial signs
of stability although we would characterise most of the data as indicating a
slower pace of decline.
Japan's trade balance close to expectations at
-JPY52bn s.a. The raw balance
was +JPY69bn, which is the relevant number for the analysis of financial flows.
Exports moderated their rate of decline to -39% from -46%yr, while imports
recorded a 36% rate of decline (-37% in March). Also today, small business
confidence for May showed a modest uptick from 30.8 to 34.1, with one-month
ahead expectations factoring in a further gain to 37.4.
The annual German inflation rate fell
to zero this month, the lowest
since records for reunified Germany began in 1992, beating the previous low-point of
0.2% yr in 1999. The annual inflation rate peaked just ten months ago in July
2008 at 3.3% yr.
UK banks issue 28k mortgages in April. The number of new mortgages approved by UK banks bottomed out at 18k per month in November
last year (down from the 87.5k peak earlier this decade), but had shown some
signs of recovery earlier this year. However that upswing seems to have stalled
in recent months. Industry wide data will be published by the Bank of England
next week (the banks currently have a 68% share of new approvals).
The NZD is sitting on 0.6150 minor support right
now, a break pointing to 0.6100 which should hold on the day, barring event
shock (such as an S&P downgrade tonight after the budget). Market consensus
is for NZ's AA+ rating to remain intact, but with the negative outlook
attached; that scenario would likely produce only a small relief rally at best.
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