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Westpac Institutional Bank Morning Report 15.9.10

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Fuseworks Media
Fuseworks Media
Westpac Institutional Bank Morning Report 15.9.10

News and views

Asset classes diverge on Fed rumours. Various analyst reports (some a day old) gained traction suggesting the Fed could signal a fresh round of significant quantitative easing as early as next week's FOMC meeting, staggered purchases of up to US$1t in government bonds mentioned. The brunt of the market impact occurred during the NY morning, US dollar selling and treasuries buying the notable responses. US equities were relatively muted, the S&P500 currently unchanged. The CRB commodities index rose around 1% to major April and July resistance, the precious metals largely responsible (gold +2.3% to $1275, a fresh record). US 10yr treasury yields are 9bp lower on the day at 2.66%.

The US dollar fell 1.2%, breaking the month-long neckline at 82.0 to reach 81.0, and underperformed against all the majors. EUR did the reverse, breaking higher to a 1.3034 high a few hours ago. Outperformer Swiss franc gained 1.3% on the day. USD/JPY made a fresh post-1995 low of 82.93.

AUD surged at the NY open from 0.9350 to 0.9457, breaking above long-standing resistance around 0.9400, and forming a post-August 2008 high.

NZD surged from 0.7280 to 0.7395, July's resistance level holding. AUD/NZD peaked at 1.2828 in Europe, dipping briefly on the Fed rumours before settling above 1.2800.

US retail sales up 0.4% in Aug. Apparel, food and gasoline were the main drivers of the rise, offsetting falls in auto sales, furniture and electronics. Building materials sales, which had collapsed in May-July (part of the collateral damage from the end of the homebuyer tax credit) were flat last month. Ex auto sales rose 0.6%; core retailing (ex autos and gas) saw a 0.5% rise. Despite the rise in August retail trends remain weak: 3 month annualised sales were -2.2% for total retailing and -1.0% for core retail.

US IBD-TIPP economic optimism up 1.7pts to 45.3 in Sep. The first rise in four months in this measure of consumer confidence reflected improved personal finances and federal policies assessments, offsetting slippage in the economic outlook.

US business inventories jump 1.0% in Jul. A 0.7% rise in retail stocks complemented known gains in wholesale/factory inventories. This solid start to Q3 stock-building adds to recent evidence suggesting the US economy is not contracting this quarter.

US small business optimism rises from 88.1 to 88.8 in Aug. The first rise in three months occurred despite slippage from 2 to 1 in the intention to hire index, down for the first month since March.

Euroland industrial production flat in July, following a 0.2% June fall - loss of momentum after solid gains earlier this year. In Q2, labour costs growth decelerated from 1.9% yr to 1.6% yr.

German ZEW analysts' economic sentiment dropped from 14.0 to -4.3 in Sep, the steepest fall yet since the downtrend began last year. However the current index, which has not fallen since mid-2009, rose a further 10.6 pts to 59.9 this month. That means respondents doubt recent strong German economic data can be sustained.

UK CPI 3.1% yr in Aug, same as in July and in line with Westpac's above consensus forecast. The sticky inflation story, which included accelerating core inflation (from 2.6% yr to 2.8% yr), will continue to worry a minority of monetary policy committee members. Other UK data included weaker house prices (RICS surveyors' net balance down from -8% to -32% in Aug and DCLG annual pace down from 9.9% to 8.4% yr in Jul) but a bounce in Nationwide consumer confidence from 56 to 61 in Aug.

Canadian data update. Auto sales rose 2.4% in July, stronger than StatCan guidance that sales would rise 1%. Guidance for August is a 5% fall. In Q2, labour productivity fell 0.8% and capacity utilisation rose to 76.0%, the fourth rise running.

Outlook

AUD/USD and NZD/USD outlook next 24 hours: AUD is due for a pullback after its multi-week rally, 0.9360 providing minor support today. NZD is also due for at least a minor correction, initial support at 0.7350.

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