News and views
Equity investor sentiment rose in the US after the Bush-era tax cuts were extended for two years, raising the prospects for US economic recovery. In addition, the US Government liquidated its equity stake in Citigroup for a net profit of around US$12bn. The S&P500 is currently up 0.6%, and has broken above the April and November highs to September 2008 levels. Commodities were initially strong, but retreated in NY to form a bearish key reversal. Oil is now down 0.8%, although copper is up 1.0%. US treasuries were sold aggressively, the 10yr yield rising from 2.95% in Asia to 3.13%, a five month high, in NY. The 3yr auction was unsurprisingly tepid, the 2.9 bid-cover ratio below average. The fiscal implications of the tax cuts were no doubt part of the reason for the treasuries moves, rating agency Moody's stating it has long-term concerns about the US sovereign rating, although it didn't expect any cuts over the next two years.
The US dollar benefited from the rise in treasury yields. EUR managed gains to 1.3400 in Europe on expectations Irish austerity measure would be passed today, but fell to 1.3285 in NY with the treasuries rout. USD/JPY rose from 82.50 to 83.40.
AUD rose from 0.9920 to 0.9960 in Europe and remained at the high until the US dollar move dragged it back to 0.9680.
NZD similarly rose to 0.7667 and fell back to 0.7600. AUD/NZD hovered around the 1.3000 level, briefly touching a 1.3030 high.
US IBD-TIPP economic sentiment slips from 46.7 to 45.8 in Dec. That is the first fall since August, and reflected weaker expectations for the economic outlook and federal policies; personal finances edged up slightly. In other news, Oct job openings rose 351k to 3.36mn, the highest in over two years.
German factory orders up 1.6% in Oct, only partially recovering September's 4.0% drop.
UK industrial production fell 0.2% in Oct but this was due to a 4% slump in mining; factory output actually rose 0.6%, its fastest pace since March.
UK BRC retail sales monitor shows same store sales growth down from 0.8% yr to 0.7% yr in Nov. This survey has been a better guide to the recent soft official retail sales data than the more upbeat CBI survey.
Bank of Canada on hold at 1.00%. The statement noted again that "any further reduction in monetary policy stimulus would need to be carefully considered" which we take to mean that the BoC still has the mildest of tightening biases.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: We expect a pullback in AUD to 0.9800 today, short term indicators showing an overbought and divergent condition. Similarly, NZD should pull back to 0.7550 today.
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