Data surprises. US data from the Philadelphia Fed and the
leading index positively surprised the markets, the S&P500 jumping at the
open, and closing up 0.8%. Commodities remained unstirred, however, the CRB index
-0.1% on the day. US 10yr treasuries clearly responded, rising 16bp to 3.84%, a
record supply next week also contributing.
The US dollar, which had been stuck in
a 0.5% sideways range during the London session, lurched upwards a couple of hours ago
to be +0.5% on the day. It seems a move by the British Bankers Association to
expand the Libor fixing panel was behind the lurch, the reasoning being the new
panel members are expected to be of lower credit quality, which would raise the
Libor fixing rate; the market responded by pushing swap rates higher, in turn
supporting the dollar. EUR was contained in a sideways 1.3900 to 1.4000
range before the Libor news, falling to 1.3870 and settling just below 1.3900. GBP
saw a volatile range, falling from 1.6460 to 1.6190 during the London morning after a disappointing retail sales
report, before recovering to 1.6340. The CHF weakened against the USD
from 1.0760 to 1.0900 after the Swiss central bank intervened verbally and
supposedly via buying EUR/CHF. The Canadian central bank repeated its pledge to
hold rates until June 2010, and said the CAD was being closely watched,
with no obvious effect on the currency.
AUD ranged between 0.7925 and 0.8005 until the London afternoon, when it broke higher to 0.8050,
settling at around 0.8000.
NZD was similarly subdued until an afternoon
breakout to 0.6445, settling at 0.6400. AUD/NZD continued its week-long grind
lower, to a 1.2480 to 1.2540 range.
US Philly Fed jumps to -2.2 in June. The Philly Fed factory survey jumped 20 points
this month, and although the headline remained slightly negative, in the detail
shipments turned slightly positive. Orders also posted a dramatic improvement
although jobs were only marginally less weak. Whilst an undeniably up-beat
report, we would note that the NY Fed survey did exactly this a month ago in
May, before slipping back in June. Also, the last time the Philly Fed jumped
20+ points was in September last year; in October 2008 it fell 40 points (in
the aftermath of the Lehman's collapse).
US leading index posted back to back rises of over
1.0% in April-May. Going back
40 years, we cannot find a stronger two month performance. The May gains were
driven mainly by the supplier deliveries, interest rate spread, equities, money
supply and consumer expectations components. Coupled with the Philly Fed
survey, this result has reignited talk of US economic recovery.
US initial jobless claims hovered just above 600k for the second week running last week, but the
real news was that in the prior week, continuing claims fell a sizeable 148k,
their first decline since January this year. Clarification - continuing claims
have on occasion fallen this year, but the decline has subsequently been
revised away. So before we add this result to the growing swag of evidence
pointing to less deterioration in the labour market, we will need to wait for
next week's figures at the very least.
UK retail sales down 0.6% in May, pay-back for apparent April strength which was
due to distortions caused by the timing of Easter and warm weather. May's
annual pace of retail volume decline matches February's low point, and those
two months represent the slowest annual sales pace since 1992. Also, the June
CBI industrial survey only posted the mildest of improvements. Along with huge
public sector borrowing numbers in May and deceleration in money supply growth,
this added to the weak tone of the UK data.
Canadian headline CPI dipped to just
0.1% yr in May, its lowest
since 1994. However there was some upward on the core rate. As last year's late
cycle gasoline price rises drop out of the annual calculation, and this year's
CAD appreciation impacts on prices, the CPI should continue to moderate.
The NZD's short term strength could take it to
0.6470 today, which doesn't damage our medium-term view of a multi-month
decline to around 0.5500. US markets tonight could be volatile, given the
quadruple witching day, where several important futures and options contracts
expire simultaneously. Next week's data calendar is busy, including a number of
heavyweight releases such as GDP and the current account, and increased
volatility in the NZD is likely.
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Mon 10 Sep 2018 AA 08:30 GB- GDP, Trade, Output Tue 11 Sep 2018 AA 08:30 GB- Employment Decision A 09:00 DE- ZEW Survey Wed 12 Sep 2018 A 12:30 US- PPI A 14:30 US- EIA Crude A 18:00 US- Beige Book Thu 13 Sep 2018 A 1:30 AU- Employment AA 11:00 GB- Bank of England Decision AA 11:45 EZ- European Central Bank Decision A 12:30 US- Weekly Jobless AA 12:30 US- CPI Fri 14 Sep 2018 A 08:30 GB- GDP AA 12:30 US- Retail Sales A 13:15 US- Industrial Production AA 14:00 US- prelim University of Michigan
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