The fragility of the global economy was underscored by the need for further central bank cuts yesterday (Korea, Brazil), as well as underwhelming US corporate earnings for Q2. That sentiment carried over into the London session, pushing the S&P500 1.3% lower, although a NY rebound has it currently at -0.3%. There was little fresh news of note, save perhaps for the sharp drop in US jobless claims which markets largely ignored at the time. Commodities are slightly weaker, the CRB index down 0.2%, oil +0.5%, and copper -0.6%. Wheat extended a drought-inspired rally, up 3.1% for a total of 39% since mid-June. US 10yr treasury yields are 5bp lower at 1.47%, just 3bp shy of the record low.
The US dollar index (DXY) extended a 14-month rally to 83.8 – a two-year high. EUR conversely made a fresh two-year low of 1.2167 around midday London and then settled around 1.2200. USD/JPY was almost lifeless, stuck between 79.18 and 79.39. AUD underperformed following its disappointing labour report, extending the domestic session decline from 1.0160 to 1.0101 before recovering in NY with equities to 1.0150. NZD fell to 0.7862 and recovered to 0.7915. AUD/NZD, which fell from 1.2900 to 1.2840 following the labour data, slipped further to 1.2820 before consolidating
Economic wrap
US initial jobless claims fall 26k to 350k last week. Westpac's bottom of consensus 355k initial claims forecast attempted to capture reports from Ford some months back that summer auto plant shutdowns would be shorter this year than normal. The seasonal adjustment of this weekly data usually produces some big swings in claims around shutdown time in July, and our view that these would initially be to the downside was correct. The BLS later noted the shutdown issue and suggested claims would gradually correct higher in coming weeks. This number almost certainly does not refl ect any underlying improvement in the job market.
US import prices plunged 2.7% in June as petroleum prices dived 10.5% and ex petroleum prices were down 0.3%. Export prices fell 1.7% led by food, agriculture and industrial supplies.
Canadian new house prices rose 0.3% in May, a little above the recent trend pace though the annual rate of increase edged lower to 2.4% yr.
Euroland industrial production rose 0.6% in May, partially reversing the 1.1% April fall, but the annual pace of decline continued to steepen to –2.8% yr, weaker than in the two quarters of recession prior to the global trade collapse in Q4 2008.
UK public finances unsustainable says Office of Fiscal Responsibility in its annual Fiscal Sustainability Report. The aging population would put upward pressure on spending under current policy settings which would see net public debt rise to 90% of GDP by 2062, up from 40% of GDP prior to the recent financial crisis
