Market wrap
The pro-risk theme since mid-March was preserved, risky currencies pushing to fresh recent highs. US equity markets overlooked a potential government shutdown to rally to fresh highs. The S&P500 (+0.3%) made a 2-month high, while the DJ Industrial (+0.3%) made a 2 ½ year high. Commodities were higher overall, WTI oil up 0.4% (2½ year high), copper surging 2.5%, and gold (+0.3%) making a fresh record high at $1462. US 10yr treasury yields are currently 7bp higher at 3.55%, yesterday’s price-bearish key reversal signal confirmed. Recent dovish rhetoric from the more influential Fed members, combined with the changes designed to eliminate Fed funds arbitrage (steers money away from the Fed and into other shortmaturity instruments), steepened the 2-10yr curve by 4bp last night. Speculation the ECB intervened in the Portuguese government debt market explains the abrupt 23bp reversal in the 10yr yield.
Risky currencies again outperformed, the NZD best on the day, and the yen the worst. The US dollar index extended the previous day’s slide and is not far off the 15-month low of 75.25. EUR made a 15-month high at 1.4348. German factory orders surprised with a 2.4% monthly jump, and expectations are the ECB’s tightening cycle will start tonight. USD/JPY consolidated between 84.84 and 85.48. AUD accelerated around the NY open to a fresh post-float high of 1.0451. NZD behaved similarly, reaching 0.7808, recent positive data surprises possibly influential. AUD/NZD broke below 1.3400 to 1.3380.
Economic wrap
No US data to report. But more Fedspeak, this time on the dovish side, with Atlanta Fed president Lockhart saying he didn’t expect tighter Fed policy this year: “I wouldn’t rule it out entirely, but at this stage I personally am not leaning in the direction of thinking that is absolutely required”. He does not vote on the FOMC until next year.
German factory orders up 2.4% in Feb, their fourth month in five with a decent gain, with both domestic and foreign customers contributing. ‘
UK industrial production falls 1.2% in Feb, and Jan revised down to 0.3%. A near 8% fall in oil and gas output and a further 2% fall in utilities explained the IP fall, but even excluding those factors, the factory sector recorded nil growth in output in Feb, after bouncing 0.9% in Jan from Dec’s small snow-impacted fall.
UK shop prices decelerated from 2.7% yr to 2.4% yr in Mar, according to the BRC, a sign that Feb’s CPI spike to 4.4% yr could prove to be the peak. In other news, the Halifax reported house prices up 0.1% in March, to be down 2.9% yr.
Canadian Ivey PMI up from 70.8 to 73.2 in March on the new seasonally adjusted measure, it’s highest reading since the adjusted figures began two years ago.
Market outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD broke above the 4 April peak of 1.0417 and that level should now support AUD for a push even higher. The Australian employment report today poses risks, the market expecting 25,000 jobs were added in March. NZD broke above a well-defined five-month channel, so that should now provide support at 0.7720. The next upside target is 0.7975.
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- UK house price data mixed
- Eurozone Industrial Orders Jump In May
- US ISM factory up from 53.5 to 55.3 in June
- Australia Building Approvals Plunge 7.9% On Month In May
- The Trading Week: May 9 – May 13
