Another US data disappointment was the attributed catalyst for a continuation of the risk-averse sentiment for the sixth consecutive day.US new home sales plunged 3.6% compared to expectations of +2.6%. Adding to the negativity was a US investment banks' downgrade to Q3 GDP from 3.0% to 2.7%, based partly on the shipments and inventories components of last night's durable goods report. The S&P500 fell throughout and is currently down 1.0%. The VIX barometer of risk aversion rose by 7%. Most European and Asian indices also recorded 1% to 3% losses. Commodities losses were broad based, oil -2.6%, copper -1.8%, and sugar -3.1%. US treasuries were buoyed by the data as well as another solid outcome for the record-sized 5yr auction (bid-cover ratio was 2.63, the highest since October 2007), 10yr notes shedding 6bp.
The US dollar nudged higher to touch trend resistance at 76.44, as carry trades lost some of their allure. EUR fell throughout the evening to trend support around 1.4710. Norway's central bank hiked by 25bp to 1.50%, as expected, and did produce a brief rally in NOK, but negative risk-sentiment overwhelmed the event and it is down 1.8% against the dollar. GBP again bucked the stronger dollar to 1.6467, settling a half cent lower. JPY did the same, strengthening to 90.55.
AUD fell 1.8% after Sydney closed to 0.8967. The domestic session saw heightened expectations for the inflation report disappointed, pulling it down from the 0.9207 session high, and a host of articles from influential commentators (such as McCrann and Mitchell) pushed the idea of 'only' a 25bp hike in November, and possibly nothing in December.
NZD also fell 1.8%, to 0.7278. AUD/NZD was little changed, ranging 1.2300-1.2340.
US durable goods orders rose 1.0% in September, in line with market expectations. Orders strength was led by a 5.2% rise in aircraft and a 7.1% jump in defence, while vehicles were subdued following the end of the cash for clunkers scheme in August. Inventories fell another 1% in September, and while a slower rundown of stocks should make a positive contribution to GDP growth in Q3, it seems that outright rebuilding of stock levels is unlikely to be seen until well into next year.
US new home sales fell 3.6% in September, and downward revisions to previous months left the overall level of sales substantially below market forecasts. On a more positive note, the stock of unsold homes fell to 7.5 months' worth of sales (compare that to a peak of 12.4 months in January), and a 2.5% rise in prices for the month saw the annual pace of decline slow from -9.5% to -9.1%.
Norges Bank raised its policy rate by 25bp to 1.50%,becoming the second major central bank to begin removing monetary stimulus. Their interest rate projections were revised up substantially compared to their last published forecasts in June, though they are still consistent with a gradual pace of tightening - around 25bp every three months - and the Bank noted that hikes could be scaled back if the krone strengthens more than expected.
German CPI rose 0.2% in October, bringing the annual rate up from -0.3% to 0%. State data suggested that a renewed rise in energy prices was the main driver.
AUD/USD and NZD/USD outlook today: AUD has broken below several key levels and now targets 0.8860. A 'sell on rallies' approach is our preferred tactical strategy today. Similarly for the NZD which may see minor support at 0.7250. The RBNZ meeting at is a major event risk, the market expecting some change to the language of the last sentence.
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