US equities failed to recover from the body blow from yesterday's disappointing Japanese GDP report. That plus a mixed bag of US data resulted in a choppy equities session in which the S&P500 posted a fresh four-week low but is currently only 0.3% down on the day. One bright spot among the data was an easing of bank lending standards. A report on cross-border US financial flows in June told us foreign investors continued to shun corporate debt and equities in favour of treasuries and agencies. Commodities were mixed, the CRB down 0.3%, as was oil, but copper gained 0.8%. Funding cost indicators (LOIS and TED spreads) continued to normalize, US 3mth Libor nudging another 0.7bp lower to 0.362%. US 10yr treasury yields plunged 10bp to 2.57% (last seen in March 2009), lingering risk aversion and speculation that Fed stimulus targeted at small business lending is in the pipeline the observed likely factors.
The US dollar consolidated below yesterday's high. EUR rose to 1.2870 around Europe before slipping back to 1.2810. News that ECB funding to Portugese banks rose to a record high of EUR49bn helped cap gains. Greek 10yr treasury yields widened 27bp over German equivalents. The Swiss franc and the yen outperformed, USD/JPY falling from 86.00 to 85.22 despite poor local data.
AUD firmed on the day, dipping after the Sydney close to 0.8890 before peaking at 0.8994 during the NY session. NZD similarly dipped to 0.7007 before peaking at 0.7105. AUD/NZD firmed to 1.2690.
US NY Fed factory index rises from 5.1 to 7.1 in August. However this 2 pt improvement in the "headline" question re general business conditions masked major weakness in some of the key activity components. Orders and shipments both tuned negative for the first time this year (orders down 13 pts to -3; shipments down 18 pts to -12), indicating that current and future output in the northeast may actually be contracting, rather than just showing slower growth as was the case up until July. There was some positive news: the jobs component rose 6 pts to 14.
US TICS capital flow data for June. Net long term flows posted a fairly typical $44.4bn inflow, but the broader total net flows showed a $6.7bn outflow, the first since January, and consistent with the turnaround in the dollar's fortunes in June, when European sovereign concern-driven safe have status started to wane. The report also showed a further decline in Chinese holdings of US Treasuries.
US NAHB housing market index fell from 14 to 13 in Aug, the third monthly decline and the weakest result since early 2009. This is the payback in homebuilder sentiment following the end of the tax rebate for homebuyers in April which saw activity pulled forward into 2009 and early 2010 and slump thereafter.
Japanese Q2 GDP well below expectations at 0.1%qtr. Export volumes were strong at 5.9%qtr, outstripping robust imports (+4.3%), driving a 0.4ppt net export contribution. That balanced a negative contribution from domestic demand, as consumption fell to zero growth as fiscal stimulus letdown came into play. The main downside surprises came in inventories (subtracting 0.2ppt vs expectations they would add to growth) and public investment (-3.4%). We expect that when more source data on inventories and business investment come to hand, GDP will be revised up substantially.
Japanese tertiary activity index declined by 0.1% in June as expected. This follows a revised 0.8% decline in May (previously -0.9%).
Euroland CPI confirmed at 1.7% yr in July, in line with the flash estimate and up from 1.4% yr in June. July saw the fastest CPI annual pace since late 2008. However the core rate just edged up from 0.9% yr to 1.0% yr, just 0.2 ppts above the cyclical low of 0.8% yr recorded earlier in 2010.
UK Rightmove house (asking) prices fell 1.7% in Aug. That followed a 0.6% fall in July, and adds to growing evidence that the housing market may be softening again. However the annual pace rose 0.6ppts to 4.3%yr due to base effects.
AUD/USD and NZD/USD outlook next 24 hours: AUD support at 0.8850-0.8900 has held, and a minor corrective bounce is likely over the next day or two. Similarly, NZD support is around 0.7000, a further correction to the 0.7150 area likely before the larger degree selloff resumes.
.Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 13 August 2010. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpacâ€™s
financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without
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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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