Tuesday December 15, 2009 - 19:22:31 GMT
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Forex Research - Morning Report
Morning Report Wednesday 16 December 2009
News and views
Better US data hurt US equities last night, the first sign this year of a breakdown in the positive correlation between the two. The US dollar/data correlation started changing 10 days ago, and the fear of a tighter Fed (US producer price inflation beat estimates easily) is now starting to dawn on equity investors. The S&P500 did recover after the data releases, to be only 0.3% down currently, although banks (-1.2%) and financial companies (-1.8%) were a drag. Oil (+1.7%) rebounded from an oversold condition, but the metals were largely unchanged. US 2yr notes technically broke down, adding 3bp in yield, while 10yr notes rose 5bp to their 13 August level, testing a key level. Credit risks continued to hover, an Austrian bank denying nationalisation is on the cards, the Greek Deputy Interior Minister resigning, and Moody's reviewing four UAE banks for possible downgrade.
The US dollar benefited from the better US data, as well as global credit risks, gaining around 1%. EUR broke from 1.4650 down to 1.4500. GBP fared slightly better thanks to a firmer CPI falling from 1.6320 to 1.6210. USD/JPY rose from 89.00 to just under 90.00 in the underperformance of the day.
AUD was close behind, falling from 0.9120 post-Sydney to 0.9040, a McCrann article allowing for a pause at the next RBA meeting.
NZD fell from around 0.7260 to 0.7190. AUD/NZD was stuck in a 1.2540 to 1.2580 range.
US industrial production up 0.8% in Nov, restoring the uptrend that began in July. The gain was reasonably broad-based, led by construction supplies (better weather in Nov) but with consumer goods, autos, business equipment and materials all contributing.
US Dec NY Fed index fell sharply to a five month low, though it remained in slightly positive territory at 2.6. That was the story for the orders and shipments components too, although jobs turned negative again after two positive readings. We shouldn't read too much into just one month's results of this survey of barely 100 northeastern factory bosses. After all the December result essentially means that after four months of rapidly improving business conditions, the pace of improvement slowed this month. Also, this particular regional survey has tended to outperform the others, which have been mostly up-beat of late but not excessively so like the Empire survey. So maybe this is just pay-back for that out-performance.
US PPI posted a sharp 1.8% monthly rise in Nov, mostly due to a 14.9% spike in gasoline prices. The core rate reversed its October fall, mainly due to a swing higher in light truck prices (down 5.2% in Oct, up 4.2% in Nov), but there was some offset from a 2.0% fall in new car prices. So a bit high overall but lots of noise in the detail and lower energy prices since the survey was taken should deliver a much lower PPI in December.
Other US data included the Dec NAHB homebuilders' sentiment index, which slipped one point to 16, despite expectations of a rise due to better weather in November. The TIC data showed a small $14bn outflow in Oct, mainly due to the previous month's huge interbank inflow normalising.
German ZEW analysts' expectations index fell from 51.1 to 50.4 in Dec, its third consecutive month of slippage, consistent with the view that Q3's growth pace will prove not to have been sustainable going forward. That said, the current measure posted a further gain. Also, Euroland labour costs decelerated to 3.2% yr in Q3, from 4.3% yr in Q2.
UK CPI rose to 1.9% yr in Nov, and will rise sharply further between now and January, during which time base effects (mainly last year's falling energy prices and the soon to be reversed VAT cut) will add another 1.1 ppts to the CPI headline.
AUD/USD and NZD/USD outlook today: AUD formed a bearish (but minor) outside down day, and is currently testing the key 0.9050 area, warning of further falls. If NZD breaks below 0.7200 this morning, we'd expect to see a quick move down to the key 0.7050.
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