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| Email Morning Report Wednesday 1 June 2011 Market wrap
Equities and commodities rose, while currencies were subdued, and US yields fell. Investors were initially buoyed by the earlier news Greece may receive a bailout package which could avert a debt restructuring, but later reversed their stance when a batch of US data was all weaker than expected. Regional US manufacturing surveys, consumer confidence and house prices all fell. That didn’t dent commodities though, the CRB index 1.1% higher, with oil +1.0%, silver +0.7%, but copper (-0.1%) more sensitive to the data. US 10yr treasury yields were as high as 3.11% before the US data, falling to 3.04% near the NY close.
The US dollar index was directionless overnight, hovering above the recent multi-week low. Similarly, EUR was rangebound near recent highs, pushing a little higher to 1.4424 early London, but then pulling back to 1.4360. USD/JPY continued its earlier reversal higher after Moody’s put its Aa2 rating on negative watch (which means a decision within 3 months) to 81.77 but partly retraced to 81.20. USD/CAD fell from 0.9720 to 0.9655 after the central bank’s decision to keep rates on hold but statement saying stimulus would eventually be withdrawn. AUD underperformed after a weak set of economic data, continuing its slide to 1.0643 before consolidating around 1.0660. AUD/NZD continued lower to 1.2950.
Economic wrap
US regional factory surveys all weaker in May. The Chicago PMI dropped from 67.6 to 56.6, below even Westpac’s low end 60.0 forecast, the lowest reading since late last year, and the steepest fall since the recession late last decade. Orders and production were both down by 13-14 pts, jobs fell for the second month running (but still elevated at 60), while inventories rose. Parts disruption in the auto sector as a consequence of the Japanese disruption will be a factor at play but is unlikely to explain all the downside. The weaker message was confirmed by the Dallas Fed factory survey, plunging from 10.5 to –7.4 in May, as similar headline fall to that seen when double dip recession concerns emerged last year. However the Dallas detail was less weak, with orders, shipments and jobs all still above 0. The Milwaukee PMI also slipped in May, from 68.0 to 62.0 in May. Recall NY and Philly Fed surveys also dropped sharply but remained positive, while Richmond Fed, like Dallas, slumped to sub-zero.
US consumer confidence fell from 66.0 to 60.8 in May, in contrast to gains in other recent sentiment measures. Expectations led the fall in the Conference Board headline to its lowest for 2011 so far, though the current index was also a little weaker, led by a renewed decline in labour market confidence which had been trending higher.
US house prices down 0.2% in March, according to S&P Case-Shiller, their ninth month of renewed decline since the short-lived gains around the time of the homebuyer tax credit. Prices are now down 3.6% yr on the 20 city index.
Bank of Canada on hold at 1.0%. The closing line of the statement was slightly more inclined towards an eventual rate rise: “To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn... Such reduction would need to be carefully considered.” This compares to “This leaves considerable monetary stimulus in place... Any further reduction in monetary policy stimulus would need to be carefully considered.” On the data front, industrial product prices rose 0.5% in April.
Euroland inflation down a tick to 2.7% yr in the May flash estimate. Euroland unemployment held steady at 9.9% in April, but in Germany in May it fell from 7.1% to 7.0% with a modest 8k fall in the jobless number. German retail sales bounced just 0.6% in April after their 2.7% slump in March.
Market outlookAUD/USD and NZD/USD outlook next 24 hours: AUD has bounced off trend resistance at 1.0750 and formed a bearish key day reversal, suggesting a move lower today. The Q1 GDP release today will be a significant influence. NZD upward momentum remains intact, arguing for a push beyond 0.8260 today, any corrections finding major support at 0.8120. Q1 terms of trade today should be supportive. AUD/NZD is now slightly oversold, but no reversal signals are seen, allowing for lower still..Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 1 June 2011. 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 Westpac’sfinancial 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 withoutnotice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. © 2010 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.Daily Forex Market News
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