A slightly better than expected US ISM services report could not persuade investors to leave the sidelines ahead of next week's earnings reports, the S&P500 up only 0.3% after recouping initial losses. The overnight low of 886 was close to the critical 879 support level established on 15 May. The VIX's 1.9 ppt rise to 30 indicates the mood is swinging slightly towards risk aversion. WTI oil futures fell 4.0%, gapping down to near the 200 day moving average. US treasuries posted gain in the shorter end, the 2yr down 5bp, and 3mth Libor 1bp lower to 0.55%. Moody's this morning place Brazil on review for possible upgrade, matching S&P's existing BBB-.
The US dollar was unchanged over the day (DXY back to 80.40), but did retreat from the mid-London peak after equity futures rebounded. EUR made a mid-London low of around 1.3875 and moved above 1.3960. GBP's 2 cent plunge to 1.6100 before marked the turnaround, and it is now higher at 1.6255. GBP's volatility was possibly due to a rumoured large corporate sell order, but grim media comment on the economic outlook also helped.
AUD made its 0.7880 low earlier than most other majors, and is now at 0.7950. Today's highlight will be the RBA's comments around their expected decision to keep the policy rate unchanged.
NZD bottomed at 0.6245 and is currently at 0.6360. AUD/NZD retraced some of last week's gains, and looks soft at 1.2515.
US ISM non-manufacturing survey headline rose 3 pts to 47.0 in June. The activity sub-component jumped nearly 8 points from just over 42 to just under 50, consistent with activity levelling off after eight months of decline. Orders and jobs were less negative, the latter in contrast with the steeper decline in construction and services payrolls jobs in June compared to May. This outcome completes the suite of regional and national business surveys for June, almost all of which point to a significantly less steep pace of economic contraction at the close of the second quarter.
European Sentix investor confidence falls from -27 to -31 in June. The Sentix index fell for the first month in four, reflecting a 7 pt drop in expectations and a 2.5 pt drop in the current business conditions measure. The weaker reading for June corresponds with the weaker stock market over the past month, not surprising considering that Sentix surveys market investors.
This morning's quarterly survey of business opinion will be important to the markets. The headline number may well be higher than last quarter's -65 (perhaps around -20), which could elicit a small positive move in NZD initially, but the real value of this report is in the detail - labour, capacity utilisation, profit, and investment intentions will be closely analysed, and it's this mix which will determine the overall flavour. Recent price action suggests a correction of the fall from 0.6550 to 0.6245 is now underway, and could take NZD to either 0.6360 or 0.6400 over the next day or two. We remain bearish medium term.
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