Risk markets ground a little higher during a fairly uneventful evening. Continuing to fuel the rallies were expectations of central bank stimulus (ECB and BOE tomorrow), residual optimism from the recent EU pact, and a consensus-beating US factory orders report. The IMF slightly downgraded US growth forecasts but markets were unfazed. The S&P500 is currently up 0.6%. Commodities are much stronger, led by oil (+4.5%) which is benefitting from rising Iranian-US tensions, with copper up 1.9% and gold +1.4%. US 10yr treasury yields rose from 1.59% to 1.63%. Eurozone peripheral bonds, apart from Greece, improved.
The US dollar index (DXY) is little changed. EUR fell from 1.2615 to 1.2560 in London but recovered to 1.2628 in NY. USD/JPY was contained between 79.70 and 79.95. AUD dipped to 1.0245 in London but made a fresh two-month high of 1.0297 in NY. NZD initially fell to 0.8014 but recovered to 0.8062. The fortnightly GlobalDairyTrade auction saw spot whole milk powder prices fall 6.7% but there was no market reaction. AUD/NZD ground higher from 1.2760 to 1.2790.
Economic wrap
US factory goods orders rise 0.7% in May. The detail behind the first rise in three months included an upward revision from 1.1% to 1.3% in the previously reported durables component (from 1.1% to 1.3%) and a 0.2% rise in non-durables. Factory inventories fell 0.2%, replicating April’s decline, mainly due to lower valuations for non-durables. Separately, the NY ISM survey slipped 0.2 pts to 49.7, its second sub 50 reading in a row after a brief spike to 67.4 in March, more or less replicating spikes in early 2010 and 2011 (as with many other US business surveys that have failed to maintain early year spikes).
IMF nudges down US growth forecast. They now expect 2% this year and 2.25% in 2013, down from 2.1%/2.4% in April, but still above Westpac’s 1.8%/1.9% forecasts. Next year’s 'fiscal cliff ' seems to be more of a downside risk to the |IMF view, than part of their baseline scenario.
UK PMI construction drops from 54.4 to 48.2 in June, its lowest reading since Dec 2009. In May, net consumer credit rose £0.7bn (at the upper end of the recent lacklustre range) and mortgage lending by £0.6bn (middle of the low range of recent monthly outcomes). New mortgage approvals fell from 51.6k to 51.1k, a little lower than the pace they were running towards the end of last year: a spike in home loan approvals earlier this year was not sustained.
Ireland will return to the sovereign debt market for short-term bills. This will be the first time they have been able to issue in their own name since 2010 and shows there can be a life after a bail out.
