Market Outlook
I expect all four currency should open up today.
Market wrap
Expectations the Fed will deliver further stimulus tomorrow drove risk sentiment higher. The 2-day FOMC meeting ends with an announcement by Chairman Bernanke at 4:30am NZT, markets expecting further support for bond markets plus an extension of the on-hold timeframe beyond 2013. Also helping sentiment was a Guardian article suggesting that at the G20 summit, Germany had softened its opposition to the use of the EFSF/ESM bailout funds to directly intervene in Eurozone bond markets (although German officials later denied this). Greece is reportedly close to announcing a tri-party coalition. And the fall in UK CPI raised expectations of more QE there. The S&P500 is up 1.1%, following a 2.0% gain in European stocks. Commodities (CRB index) are up 1.3%. US 10yr treasury yields bounced from Asia's 1.56% to 1.64%. Spanish 10yr bonds rallied 12bp.
The US dollar index (DXY) fell around 0.9% during the London session. EUR rose from early London's 1.2569 to 1.2728. USD/JPY ranged sideways between 78.85 and 79.10. AUD rose from 1.0113 to 1.0201. NZD rose from 0.7909 to 0.7990.The GlobalDairyTrade auction saw whole milk powder prices rise 5%, causing a 15 pip rally immediately. AUD/NZD consolidated between 1.2760 and 1.2790.
Economic wrap
US housing starts fall 4.8% in May. The fall was due to a 21.3% drop in the volatile multiples component, but single family house starts rose 3.2%, a third straight gain which means their Jan-Feb declines have now been almost fully reversed. Indeed, single family starts are now up 26%yr compared to May last year. Meanwhile, housing permits rose 7.9% with single family up 4.0% and multiples bouncing 15.3%. Those numbers are impressive sounding although the absolute level of housing activity as measured by starts is still down 68%from the 2006 peak.
Canadian wholesale sales rose 1.5% in Apr, their third straight gain, driven by a surge in fertilizer sales (without which sales would have been unchanged in the month).
German ZEW analysts' economic sentiment fell from 10.8 to –16.9 in June, the steepest one month drop yet this century. The current index also fell quite sharply from 44.1 to 33.2 - German economists/analysts now see evidence that even their economy is taking a hit now from the sovereign debt crisis (as austerity elsewhere in Europe hits trade, perhaps), and they are very concerned about the outlook.
UK CPI falls from 3.0% yr to 2.8% yr in May, as lower fuel and food prices fed through. The BoE might be a little more inclined towards further QE now that inflation is less than 1% above the 2% target for the first time since 2009, a little earlier than implied by their most recent central projections. Meanwhile in April the ONS house price index rose 1.4% yr, its fastest in a year
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