Fears of a change in the Federal Reserve's stance receded last night, after the release of benign US inflation and housing data. Asset classes which typically benefit from loose monetary settings posted gains. The S&P500 is up 0.5%, with financials outperforming at +1.3%. Oil rebounded strongly (+3.2%) helped by Iran's missile test and a weaker inventory report, as did copper (+2.0%), gold up 0.8%. US treasuries shed 4bp across the curve, relieved at the benign data and expecting the FOMC meeting (result due at NZT) to reiterate their pledge to keep rates at near zero for an extended period. Norway's central bank hiked by 25bp to 1.75% against expectations.
The US dollar is little changed after initially slipping a little during London/NY. EUR consolidated at the recent low, initially bouncing from 1.4520 to 1.4590, but slipping during the past two hours to 1.4540. GBP outperformed after better jobs numbers, rising from 1.6250 to 1.6400, and resting around 1.6350. JPY did little, stuck between 89.40 and 89.80.
AUD bounced off a 0.8955 low reaching 0.9025 but settling back at 0.9000.
NZD's overnight low was just under 0.7160, the bounce taking it to 0.7220. AUD/NZD continued grinding lower to 1.2470.
The FOMC left the fed funds rate target at 0-0.25% and reiterated that it would remain exceptionally low for an extended period. They noted that activity has continued to pick up, but the substantial degree of slack in the economy is likely to keep inflation subdued for some time. The committee also announced that several of the Fed's extraordinary liquidity facilities will expire in February 2010 - as flagged by recent media reports that the Fed is trying to make a distinction between its monetary and liquidity policies.
USCPI rose 0.4% in Nov, its fastest headline monthly gain in four months due mainly to a 1.5% rise in energy (gasoline prices rose 6.4%). But the core rate posted a rare flat outcome after rounding (the first for this year), due to a 0.1% fall in the highly weighted owners' equivalent rent component. This offset a further gain in auto prices of 0.8%, following the cash for clunkers discounts earlier this year. This soft core outcome follows two slightly above trend 0.2% results, but left the annual rate unchanged at 1.7% yr. Also, the headline annual rate jumped from a small negative to 1.8% yr, with last November's -1.7% CPI slump dropping out of the annual calculation.
US housing starts jumped 8.9% in Nov, but this failed to fully reverse the 10.1% October slump. In particular, single family starts rose just 2.1% after falling 7.1%, suggesting some underlying weakness recurring in the sector early in Q4, rather than just a wet weather effect. However the housing permits rebound of 6% was more convincing, so a mixed report overall.
US current account deficit widened from $98.0bn to $108.0bn in Q3, reflecting a wider trade deficit with some offset from a stronger investment balance.
Euroland advance PMIs showed a further pick-up in economic activity in late 2009 (the composite rose from 53.7 to 54.2 in Dec), in contrast to other indicators which suggest some loss of economic momentum in Q4 compared to Q3. Also, the November CPI annual rate was revised down from the advance 0.6% yr estimate to 0.5% yr, and the core rate continued to drift lower, to 1.0% yr.
The UK recorded the first fall in claimant count unemployment since February last year in November (down 6k). Also, the separate household survey found jobs growth of 53k in the three months to October, compared to a 199k job loss in the previous three month period. These data add weight to the view that the economy will record positive growth in Q4, after six quarters of decline between Q2 08 and Q3 09.
AUD/USD and NZD/USD outlook today: Selling into rallies is our preferred tactical strategy. AUD looks vulnerable to breaking lower, yield support evaporating after yesterday's RBA comments. It followed through on its earlier bearish outside down day signal, the key support level to watch now at 0.8950, a break of which opens up 0.8850. NZD is setting up for a retest of 0.7050 key support, an eventual breakdown to the high 0.60's our expected result. The FOMC is today's key event risk, watch also for NZ business confidence.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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