Forex Exchange Morning Report
Market wrap
Markets remained on a nervous footing. Although the Spanish 3yr and 10yr bond auctions went well (raising EUR2.54bn vs 2.50bn target) and more countries pledged contributions to boost the IMF's rescue firepower, markets focused on a Moody's warning that Spain and Italy are vulnerable to rising borrowing costs. There was also a US bank research note opining Moody's will probably place France's Aaa rating on review for a downgrade, and there was market chatter regarding the Netherlands' rating. US data (home sales, jobless claims, and Philadelphia manufacturing) was underwhelming. All this has left the S&P500 down 0.9%. Commodities are little changed, while the US 10yr treasury yield fell from 2.00% to 1.95% in London. There was decent demand at the US 5yr inflation-linked auction, awarded at a -1.08% (real yield) record low.
The US dollar index (DXY) is little changed. EUR carved a wide sideways range for little net change, between 1.3069 and 1.3166. USD/JPY ground a little higher, from 81.40 to 81.74. The commodity currencies responded most to the risk averse atmosphere. AUD fell from 1.0391 to 1.0314. NZD fell from 0.8198 to 0.8122. AUD/NZD extended its mutli-day corrective rebound slightly, from 1.2690 to 1.2705.
Economic wrap
US Philadelphia Fed index down 4 pts to 8.5 in April, its lowest reading since January. That is the fifth regional Fed factory survey in a row to fall away, following the Richmond, Dallas and Kansas City March surveys, and the April NY Fed reading, adding to the range of data pointing to some loss of economic momentum since the start of the year. The April Philly detail included modest declines in orders and shipments, both now sitting a little under 3; however jobs jumped for the second month running to their highest since May last year.
US existing home sales down 2.6% in March, further unwinding the 5.7% spike in sales back in January (highest since May 2010). Indeed sales have now fallen in three of the four most recent months. None of the four major regions of the US recorded a sales rise in March. This series measures previously agreed sale closings; next week's pending sales report for March will show how many sales were agreed last month: we expect a fall there too. Today's report also showed median house prices rising 2.5% yr in March, the first positive reading in over a year, but the National Association of Realtors noted that there were more higher-priced properties transacted in the month.
US initial jobless claims down 2k to 386k in week ended 14/4, but the previous week was revised up 8k to 388k, the highest since the first week of January. The BLS noted that it was trying to determine the cause of recent significant revisions to the series, but as the data stand they suggest that layoff s have increased sharply since March. Other US data included a 0.3% rise in the March leading index, down from 0.7% in Feb.
European consumer confidence slipped from -19.1 to -19.8 in the advance April report, its first fall for 2012. Between June and Dec 2011 the confidence index fell from -10.0 to -21.3.
Spain meets issuance target at bond auction, selling just over €2.5bn worth of 2 and 10 year bonds. While the investor appetite was there, the 5.74% yield on the 10yr was up from 5.40% at the previous auction in January - yet another reflection of the increased concern about the sustainability of sovereign debt in Europe, as the economy recedes, the banking system's fragility is exposed, and the policy response is feared to be sub-optimal.
