It was a quite orderly start to the week as trading got underway in Asia. The positive end on Wall Street saw a mild risk bid emerge throughout the morning, but not aggressively so.
There was not much on the data front to occupy us – early New Zealand data and UK Rightmove house prices. New Zealand’s services PMI jumped to its highest level since November 2007, rising from 49.9 to 57.4, with improvements seen across 5 of the 6 sub-categories. Activity/sales saw the biggest jump from 49.2 to 64.2, the first increase in 5 months, with the only decline seen in stocks/inventories (52.7 to 51.0). The data follows last week’s improved manufacturing sector data which turned to expand for the first time in four straight months to 50.5 from 48.5 prior.
On the inflation front, producer prices declined in the third quarter with input prices falling for the first time in 3 years, down 1.0 percent q/q while output prices declined 0.9 percent q/q following a 0.3 percent rise in Q2. While the data implies pipeline inflation pressures may be easing, and could be reflected in further softness in CPI numbers (data in the 12 months to September showed inflation rising 0.8 percent y/y, its slowest pace since 1999). RBNZ is likely to maintain its current policy stance with rates at record low levels. All data considered, the NZD traded in a tight range.
House prices in the UK slid in November according to Rightmove’s latest survey. Its house price index slid by 2.6 percent % m/m versus +3.5 percent in October although on an annual basis, prices rose 2 percent, which is the highest annual rate of increase seen in November since 2007. Rightmove noted that there were still “hotspots” in certain areas that posted gains but generally the housing market was patchy with difficulty for potential buyers to secure financing still a drag on prices. GBPUSD was dragged through 1.59 again though more as a risk-on trade rather than affected by data.
We had another bout of weakness in the early part of European trading on Friday. There were not any real concrete facts to drive the EUR lower, just a wealth of negative sentiment on the Euro-zone. Opinion articles suggesting France was the biggest danger to the EUR (from the Economist), talk that Spain is averse to the OMT were both factors driving the EURUSD through 1.27 on a stop-driven slide. Increased hopes that Greece would get the next phase of its funding did not help.
Geopolitical woes also enhanced the US dollar’s status as Middle-east tensions increased. Wall Street was trading softer until Congressional leaders divulged some semi-concessionary noises on the budget after their meeting with Obama. US data was again weak with industrial production falling 0.4 percent on-month (+0.2 percent expected) and capacity utilization sliding to 77.8 percent from 78.2 percent (though super-storm Sandy probably played a hand in that). TIC flows showed a remarkable slowing of inflows with just $3.3 bln of net long-term inflows in September.
Data Highlights
US Sep. Net Long-term TIC Flows out at +$3.3 bln vs. +$50.0 bln expected and revised +$90.3 bln prior
US Oct. Industrial Production out at -0.4% m/m vs. +0.2% expected and revised +0.2% prior
US Oct. Capacity Utilization out at 77.8% vs. 78.3% expected and revised 78.2% prior
US Oct. Manufacturing (SIC) Production out at -0.9% m/m vs. +0.2% expected and revised +0.1% prior
NZ Oct. Performance of Services Index out at 57.4 vs. revised 49.9 prior
NZ Q3 PPI – Input out at -1.0% q/q vs. +0.3% expected and +0.6% prior
NZ Q3 PPI – Outputs out at -0.9% q/q vs. +0.2% expected and +0.3% prior
UK Nov. Rightmove House Prices out at -2.6% m/m, +2.0% y/y vs. +3.5%/+1.5% prior resp.
Upcoming Economic Calendar Highlights (All Times GMT)
JP Leading/Coincident Indicators (0500)
JP Machine Tool Orders (0600)
EU ECB’s Weidmann to speak (0830)
EU Construction Output (1000)
US NAHB Housing Market Index (1500)
US Existing Home Sales (1500)
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