US risk markets benefited from firm US data

News and views
US risk markets benefi ted from firm US data. US equities, treasury yields, and the US dollar all rose after solid import and export price data, and better than expected consumer confidence. General Electric’s dividend increase also helped market sentiment. The S&P500 closed up 0.6% to make a fresh two year high. Commodities were slightly weaker (CRB -0.4%) after China announced it would increased bank reserve requirements by 50bp to 18.5% – the sixth increase this year – to dampen growth. Chinese economic data (CPI 5.1% yoy was released on Saturday after markets closed) has been very strong, and an interest rate hike is now only a matter of time. US 10yr treasury yields made a fresh six-month high of 3.33%, rising 15bp after Sydney closed.

The US dollar again consolidated. EUR fell from 1.3283 to 1.3180, but recovered to 1.3240 after the US data was digested. Eurozone debt continued to weigh on sentiment, Spanish and Portuguese 10yr government bonds underperforming Germany’s by 11bp and 16bp. USD/JPY surged from 83.50 to 84.00 after the US data.

AUD only dipped for a few minutes on the China RRR hike, continuing the domestic session’s rally to 0.9897, and finally succumbing to USD strength to 0.9838.

NZD similarly rose to 0.7529 and then fell to 0.7471. AUD/NZD firmed from around 1.3130 to 1.3186.

US trade defi cit narrowed $5.9bn to $38.7bn in Oct. This reflected a modest but reasonably broad-based 0.5% fall in imports (the only standouts were 9-10% gains for pharma and apparel), and a solid 3.2% exports surge. Exports have not posed a significant fall since June, rising 4.7% since then. In Oct, most export groups outside of aircraft and semi-conductors posted gains. Dollar depreciation and solid enough global growth/trade are clearly benefiting the US export sector for the time being. Then in November, import prices rose 1.3% (0.7% ex oil), while export prices rose a smarter 1.5%, also supportive of the export sector.

US Uni of Michigan consumer confidence jumped from 71.6 to 74.2 in the prelim Dec report. That’s the highest since June, mainly driven by current economic conditions but also supported by the outlook component. Inflation expectations fell however, both on a one and five year view.

US Federal budget deficit $150bn in Nov. The $30bn jump from Nov a year earlier reflected spending up 17.9% but receipts growth of 11.5%.

Japanese business conditions declined sharply in Q4 according to BSI business conditions survey. The large fi rm all industry diffusion index declined from 7.1 in Q3 to –5 in Q4 while the large firm manufacturing diffusion index fell from 13.3 to –8. The large non-manufacturers index declined as well though not by as much, from 3.8 to –3.4. Conditions for small and medium sized firms are weaker than for large firms.

Japanese domestic corporate goods price index rose by 0.1% in November to be 0.9% higher over the year, up from a revised 0.8%yr outcome for October.

UK producer prices slowed on most measures in Nov, the exception being core output prices which edged up from 3.2% yr to 3.3% yr.

Canadian trade deficit C$1.7bn in Oct. That was down about half a billion from Sep, as exports growth of 3.1% outpaced 1.2% for imports.

Outlook
AUD/USD and NZD/USD outlook next 24 hours: The China data’s implications for tightening there should cast a slight influence on commodity currencies this morning. AUD should be contained by 0.9760 and 0.9970. NZD continues to looks vulnerable to a break below the critical 0.7400 level, resistance on the day at 0.7530.
http://www.westpac.co.nz/