Bounce in risky assets failed to
impress currencies. The
S&P500 closed up 1.1%, led by banks (+4.0%) after RBC issued an overweight
recommendation. Still, the US dollar index was little changed, perhaps
supported by a rumoured large USD basket order. Oil and copper gained over 4%. Latvia remained on the brink of devaluation,
negotiating with the IMF and EU for more loans, widening most sovereign CDS's.
Fitch expressed confidence in the US and UK's ratings. The UK, Eurozone, and Canadian central banks all kept
their policy rates unchanged, with no talk of new policy measures. The ECB did
confirm its bond purchases would be sterilised, and no new money would be
printed. US treasuries were heavily sold (+17bp) ahead of Friday's payrolls
report, last night's continuing claims improvement contributing.
EUR continued to 1.4240 around the London open, but fell to 1.4070 during the next four
hours with theGBP, and stabilised between 1.4150 and 1.4200 late NY. GBP
fell from a London high of 1.6435 to 1.6090 around , rumours of Gordon Brown's resignation reported
but unconfirmed. JPY weakened from 96.20 to 97.00.
AUD fell from 0.8090 early London to 0.7895 around the time of the Brown rumours,
but also coinciding with a story the Chinalco/Rio Tinto deal was off. It later
recovered to 0.8020.
NZD moved in sympathy with the rest, reaching a 0.6225 low before
revering to 0.6350. AUD/NZD held onto its higher range of 1.26 to 1.27.
US Q1 productivity revised higher. Productivity was revised up from 0.8% to 1.6%
annualised, consistent with the GDP contraction being revised lower.
Consequently unit labour costs were revised lower, to 3.0%.
US initial jobless claims down 4k to
621k, still in the recent range,
but in the previous week, continuing claims fell 15k to 6735, their first
decline in five months, possibly another sign that the labour market meltdown
is abating somewhat.
The Japanese MOF's enterprise survey
offers some downside risk for Q1 GDP.
While the capital spending component was broadly in line with the ESRI's
preliminary estimate (nominal, seasonally adjusted, ex software), inventories
may have been run down faster than originally thought. Inventories were always
going to be a swing factor for Q1 after adding 0.4ppts to Q4. As manufacturers
wound back production dramatically from Sep to Feb, to take account of the
weakness of shipments, they made significant progress towards de-stocking. The
preliminary estimate has inventories subtracting 0.2ppts from growth, only
reversing half of the Q4 gain. That fraction could well rise in the second cut.
The European Central Bank left its
repo rate unchanged at 1.00% and
continues to drag its feet with respect to its EUR60bn asset purchase program,
which won't begin until July and will not be pure quantitative easing (QE)
because the ECB intends to sterilise the funds (i.e. it is not "printing
money" to fund the purchases). The ECB staff slashed its forecast midpoint for 2009 Euroland
GDP growth from -2.7% in March to -4.6% in June, close to Westpac's -4.7%
forecast. On the data front, Euroland retail sales rose 0.2% in April.
The Bank of England maintained the
bank rate at 0.50% and kept
"under review" the asset purchase program (QE) which currently runs
to next month (and GBP125bn) but could be extended to August without further
consultation with Treasury. There was no other detail in the brief statement.
On the data front, HBoS reported May house prices up 2.6% (but still down 16.3%
Bank of Canada on hold at 0.25%, and reiterates conditional commitment to hold
current policy rate until the end of the second quarter of 2010. On the data
front, building permits fell 5.4% in April and the Ivey PMI was very weak,
dropping from 53.7 to 48.4 in May.
Last night's failure to bounce back towards the
0.66 high adds to the argument we may have witnessed a medium term top in NZD.
Accordingly, we would be sellers on strength today, such strength likely to be
capped at 0.6400. We look for a move down to 0.6130 next week.
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