The positive mood in risk markets yesterday extended into the European and US sessions. Bullish investors took comfort from denials by offi cials in China (as well as Kuwait overnight) that a shift from eurozone debt was being considered, and Spain and Portugal took steps down their austerity paths. Equities rose in Europe (Eurostoxx 50 +3.5%) and the US (S&P500 +2.7%), the VIX index falling by 13% to 30. The CRB commodities index gapped 1.8% higher, oil gaining around $3/bbl (+4.2%), and copper up 2.6%. US 10yr treasury yields gained a total of 16bp on the day to 3.34%, the 2-10yr curve steepening by 10bp as Fed (moderate) hawk said a discount rate hike was unlikely. The 7yr auction was decent. US 3mth Libor was unchanged at 0.54%, refl ecting a fading of funding concerns.
The US dollar index is weaker, as money fl owed out of safe-haven parking spots following the lead of equities. EUR rose to 1.2395 after dipping to 1.2205 around the European close. Safe-haven yen underperformed, down 1% on the day to 91.00 (USD/JPY).
AUD outperformed, extending its domestic session rally to 0.8507 for a 3% gain on the day.
NZD followed the global moves and rose to 0.6850. AUD/NZD ranged sideways between 1.2390 and 1.2490.
US GDP growth revised down from 3.2% annualised to 3.0% in Q1. Consumer spending on services was the main driver of the lower outcome, despite some positive offset from the other components of consumer spending. Business investment, government spending and net exports were also shaved back, while housing and inventories both saw positive but minor revisions.
US initial jobless claims fell 14k to 460k last week but that only half reversed the prior week's 28k rise, adding to the sense that the US labour market might be losing some momentum. In contrast, the latest reading on continuing claims, down 49k to 4607k, was the lowest level for this indicator for seven weeks.
US Kansas City Fed index down from 24 to 5 in May. Another weaker regional factory index, suggesting that the US industrial sector might be on the cusp of a period of slower growth. The detail was especially weak, with shipments and orders both turning negative for the fi rst time this year and the jobs index barely positive.
Japanese trade balance above expectations in April. The April trade balance came in at ¥729bn after the March trade balance outcome was revised sharply higher to ¥768bn, previously ¥666bn. The decline in the trade balance from March to April was the result of comparatively stronger growth in imports than exports in the month (3.4% versus 2.3% for exports). Exports are 40% higher over the year to April, down from 43.5%yr in March.
German CPI up from 1.0% yr to 1.2% yr in May. There was nothing remarkable in the breakdown of the state data used to derive the preliminary national measure.
UK retailing down sharply in May according to CBI. The distributive trades survey sales volumes index fell from 13 to –18 in May, its weakest since early last year when the economy was still in recession. Higher prices, cautious shoppers and poor weather were all possible contributing factors.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD and NZD are undergoing upward corrections from very oversold states. AUD's upside target is 0.8570-0.8730 (Fibonacci's), with support today at 0.8400. NZD's target area is 0.6850-0.6950, minor support at 0.6800.
