European credit-related woes dominated market news last night, hurting risk markets in Europe and the US. Moody's weighed in to the Portugal discussion with its own warning shots regarding a sovereign credit rating downgrade, following Fitch's comments a few days ago. S&P said it no longer classified the UK as a low-risk banking system. And in new twists to the Greek story, Le Monde reported that France and Germany were considering a bailout, which was later refuted by those governments, the IMF said it was ready to help, and the Greek PM denied they approached China for funds, as well as blaming the blowout in bond yields on speculators. The Greek 10yr government bond yield reached 396bp over its German counterpart, a level last seen in 1998 during the LTCM crisis. The Eurostoxx index closed down 1.8%, and the S&P500 is currently 1.1% lower. Commodities are again lower, copper down 3.9% and breaking the 2009 trendline. US 2yr treasuries caught a safe haven bid and shed 5bp, the 10yr note gaining 2bp. The 7yr auction went well.
The US dollar was bid during the European and US sessions to August 2009 levels. Strong Eurozone confidence readings could not support the EUR which fell a cent to around 1.3950. GBP was hurt by S&P's comments, dropping quickly from 1.6250 to 1.6125, where it rests. Safe-haven yen fared well, from 90.50 to 89.50.
AUD, which had bounced to 0.9048 early Europe before the negative views, dropped back to recent lows around 0.8940.
Similarly, NZD's bounce to 0.7140 was completely retraced to 0.7040. AUD/NZD was stable between 1.2660 and 1.2700.
US durable orders posted an insipid 0.3% gain in December, weaker than even the lowest forecast in the Bloomberg survey of economists. The big surprise was the further steep fall in aircraft orders which contrasts with Boeing data showing a 500% increase last month. That will probably get captured in the January orders report. Defence fell 2.8%, its third consecutive decline. Other detail was more positive, including the back to back rises in core capital goods in November and December: that component has risen in three of the past four months, suggesting some restoration of momentum in business investment. A much slower pace of inventory rundown and the solid shipments data are also consistent with what we expect to be a solid 4% annualised pace of GDP growth in Q4, to be reported tonight.
USChicago Fed national activity index falls from -0.39 to -0.61 in Dec. The CFNAI compiles 80 or so data releases each month into one indicator of national economic performance. It was quite a bit weaker in December, no surprise really given recent housing, jobs, manufacturing and other data.
US initial jobless claims fell just 8k to 470k last week, after the new year back-log jump of 34k in the prior week. This leaves claims higher in late January that was the case earlier in the month, but at least some of the late January claims relate to job losses that took place around new year or in late December. Given that the monthly payrolls survey is taken in the week of the twelfth of the month, this late January blip in claims is indicative of some job losses that will be captured in the January payrolls report. We remain comfortable with our forecast of a -40k payrolls decline.
Japanese retail trade improved in Dec but undershot expectations. Nominal sales fell 0.3% from a year ago in Dec. That compares to a 1.1%yr decline in Nov and the market forecast of +0.3%.
European confidence surveys all improve in Jan. Once again all of the Euroland confidence surveys continued to climb, though in the case of consumer confidence the rounded number was unchanged at 16.
German unemployment rose 6k in January, again understating the extent of weakness in the labour market due to survey methodology changes and the short working scheme which has enabled otherwise unemployed people to work part-time.
AUD/USD and NZD/USD outlook today: Corrective, albeit shallow, rallies did finally occur yesterday, neutralising the short-term (hourly charts) oversold conditions. Support for AUD remains around 0.8910-40, and for NZD is 0.7030-40. Watch for Bernanke's reconfirmation vote in a few hours, if successful, to support the currencies. RBNZ's Bollard speaks on monetary policy at NZT.
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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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