China's equities rally (Shanghai index +4.8%) got the ball rolling and helped US equities at the open. A mildly disappointing US jobless claims report dampened the mood slightly, but consensus beating services ISM and chain store sales report supported risk, the S&P500 posting a strong final hour to be up 0.8%. Copper and gold each posted 1.4% gains. Gold is now close to Feb-09 resistance, having gained 5% gain in two days, but causal factors are not obvious ("mirroring the dollar" is the media's favourite). US were subdued, and 3mth Libor is now at 0.32%.
Currency markets were a mixed bag of minor moves. The US dollar index was slightly firmer from the Sydney close, reflecting a slightly weaker EUR. EUR did spike to 1.4348 around London, but fell thereafter to 1.4237. The ECB meeting left rates unchanged, and gave no hints on the timing of an policy tightening. Eurozone retail sales and PMI services data disappointed consensus. Sweden's central bank also kept rates on hold, but sounded more dovish. JPY was slightly weaker at 92.65. The new Japanese governing party showed its colours accepting JPY strength but disapproving of currency intervention.
AUD spiked to 0.8427 during early London, and then congested between 0.8367 and 0.8411 where it currently resides.
NZD made a 0.6829 high before falling back to the 0.6760 area. AUD/NZD provided no new clues, consolidating between 1.2350 and 1.2400.
US ISM non-manufacturing rises from 46.4 to 48.4 in Aug. The services and construction ISM composite headline rose 2 pts to 48.4. The activity sub-component jumped more than 5 points to back above 50 (i.e. from 46.1 to 51.3), consistent with activity growing again after ten months of decline. Orders and jobs were less negative, the latter reversing July's dip lower, and supportive of our forecast that non-farm payrolls declines by a relatively modest 150k in August. Prices jumped sharply to the highest for the year so far, probably a function of the higher oil price.
US initial jobless claims edged down 4k to 570k. Whilst not a dramatic improvement, this outcome maintains the downtrend that began way back in late March from claims' 674k peak (abstracting from the July volatility caused by stresses in the auto sector). However the current level of claims is not consistent with jobs growth, so the downtrend will need to continue and indeed steepen if the recent less weak/positive news on the economy is to translate into positive payrolls outcomes down the track. Similarly, the continuing claims outcome (a 92k rise) leaves in place just the weakest of downtrends, not consistent with much further improvement in the labour market beyond August.
US chain store sales fell -2.0% yr in August, improved from -5.0% yr in July, somewhat stronger than weekly figures through the month had suggested would be the case. This lifts the prospect that ex auto retail sales might point a rise in August.
The European Central Bank left its repo rate unchanged at 1.00% following last night's Council meeting. At the press conference ECB chief Trichet described rates as "appropriate" and gave no hint whatsoever about the timing of any policy retightening, which we expect to still be at least a year away. On the data front, there was an upward revision from 49.5 to 49.9 to the services PMI for Aug, which means the Euroland services sector is now essentially stabilised. Euroland retail sales drifted 0.2% lower in July.
UK services PMI continues to rise, to 54.1 in Aug, its highest in almost two years, adding to the weight of evidence pointing to positive GDP growth in Q3.
AUD and NZD outlook today: These currencies have not technically confirmed either a readiness to move higher or the beginning of a post-March correction. The technicals (pointing lower) and fundamentals (pointing higher) are at odds, and leave us in a neutral stance until price action adds directional clues. Major support and resistance levels to watch are 0.8150 and 0.8500 for AUD, and 0.6630 and 0.6900 for NZD. There are no expected data releases today.
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