June 12, 2015

Markets Today: US$ showing some fatigue

It’s been a whippy, but in the event, mostly an up week for the AUD, starting with a better NAB Business Survey for May, disappointing consumer confidence, RBA’s Stevens keeping the rate easing door ajar and yesterday’s strong employment report.

It’s been a whippy, but in the event, mostly an up week for the AUD, starting with a better NAB Business Survey for May, disappointing consumer confidence, RBA’s Stevens keeping the rate easing door ajar and yesterday’s strong employment report.  And on top of that, yesterday afternoon’s China activity data for May mostly met market growth expectations, followed up by better lending and money supply data.  Iron ore prices also ticked higher yesterday to the highest since late January, though base metals were weak overnight.  As well, the People’s Bank of China also announced a Yuan internationalisation report on its website yesterday, sequencing reforms, starting with cross border trade, cross border direct investment, the RMB as a reserve currency, and other reforms to capital account, interest rate and exchange rate mechanisms.

The Aussie consolidated yesterday afternoon ahead of US retail sales, a report that met market expectations.  And the growth hurdle was a reasonably ambitious, but US shoppers did not disappoint after what’s been a very weak Q1 and a flat April.  The market was looking for 1.2% growth in headline sales and that is what retailers delivered in growth.  There was a small sweetener in the form of a modest 0.2% upward revision of April sales.  The report offers the prospect of broader growth re-emergence to add in the consumer as the FOMC consider their forecasts and policy outlook at next week’s June 18 meeting.  This is the meetings with a formal forecast update and Yellen press conference so intense market interest.

US Fed Fund futures are almost unchanged in the wake of retail sales, the market still now less than 50% priced for a 25 bps “lift-off” in the Fed funds rate by the September.  The US$ had only the briefest of relief rallies, then quickly reversed, before steadying and some net selling as the New York session wore on. And so it was in reverse for the likes of the AUD/USD in reverse movement, re-establishing a base of support through the remainder of the session.

There was yet more Greek news, the IMF team flying back to Washington apparently without Greece accepting its reforms, IMF spokesman Gerry Rice telling reporters in Washington that there remain major differences in most key areas.  Likewise, Europeans are equally frustrated, EU President Donald Tusk seemingly drawing a line in the sand (again?), saying “we need decisions now     there’s no more space for gambling    the day is coming I’m afraid that someone says the game is over”.  He suggested that next week’s June 18 EuroGroup Finance Ministers meeting is “very crucial”.  Now there’s a phrase that’s been used once or twice during this total imbroglio.  We wait and observe how the events unfold.  It feels closer to whatever a breaking point might be, though we seem to have been at that point many times before.  Despite these developments, the EUR mostly made up ground against what was a soggy US$ overnight.  Greece’s unemployment rate hit 26.6% in Q1.

Coming up today/tonight

It’s light as far as scheduled data are concerned today with NZ’s Manufacturing PMI, NZ food prices, and RBA credit card data, usually ignored by the market.  After yesterday’s bath for the Kiwi – and surge in the AUD/NZD – a day of consolidation might well transpire.  Tonight sees EC industrial production for April.  While German IP was better than expected, French and Italian IP released Wednesday night disappointed, grounds perhaps for some disappointment given those two recent reads.  In the US, the main focus will be the preliminary June UoM Consumer Sentiment index, the market expecting the index to show signs of reversing the downtrend evident since late last year; a rise from 90.7 to 91.2 is the market consensus.


US$ stalls and AUD consolidates: Eurostoxx 600 +0.6%, Dax +0.6%, CAC +0.7%, FTSE +0.2%.  Dow +39 points to 18,039, +0.2%, S&P 500 +0.2%, Nasdaq +0.2%, VIX 12.85 -2.8%.  Mumbai +0.3%, Nikkei 225 +0.1% and ASX 200 -1.7%; ASX SPI futures this morning -0.1%.  US bond yields: 2s at 0.71% (-1), 10s at 2.38% (-11).  WTI oil at $60.54 (-1.4%), Brent at $64.87 (-1.3%), Malaysian Tapis (yesterday) $66.81 (-1.3%).  Gold at $1181.40/oz (-0.4%). Base metals: LME copper -2.5%, nickel -2.2%, aluminium -0.5%. Iron ore $65.6/t +0.3% Chinese steel rebar futures -1.0%. Soft commodities spot futures: wheat -1.9%, sugar -2.4%, cotton -2.1%, coffee -3.0%.  Euro Dec 14 CO2 emissions at €7.54/t (-1.0%). The AUD/USD’s range overnight 0.7693-0.7769; indicative range today 0.7715-0.7790; the AUD/USD is 0.7756 now

French CPI (May, EU harmonised) 0.2%/0.3% (L: 0.1%/0.1%; E: 0.2%/0.3%); Greece unemployment (Q1) 26.6% (L: 26.1%; E: 25.4%)

US Retail sales (May) 1.2% (L: 0.0% ; E: 1.2%); US weekly Jobless Claims (w/e 6 Jun) 279K (L: 276K: E: 275K); US household net wealth (Q1) $1629B (L: $1517B)

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