Market wrap
Sentiment falls in choppy markets. New year rallies came to an abrupt end after midday London as stories of widespread European sovereign downgrades circulated and were gradually confi rmed by some European offi cials. Nine countries were downgraded, including France and Austria by one notch, Italy, Spain and Portugal by two notches, and 14 were placed on negative watch. Germany’s AAA remained intact. Additional negative news came from the talks between Greece and bondholders which appeared to break down over disagreement over the degree of write-off . The S&P500 lost 1.7% during the London session but partly recovered in NY, possibly on relief the downgrades were less severe than feared as well as a strong US consumer confi dence report. It closed down 0.5%, and the CRB commodities index closed down 0.7% (oil -0.4%, copper -0.3%, and gold -0.7%). US 10yr treasury yields closed 6bp lower at 1.86%.
The US dollar index rose around 0.8%. EUR was the under-performer of the day, falling from early London’s 1.2879 to 1.2624 during the afternoon, and then ranging between there and 1.2700. It formed a technically bearish outside down day (continuation) and opens in NZ lower at 1.2647. USD/JPY rose from 76.67 to 77.01 and then stalled. AUD initially fi rmed during the London morning to 1.0368 but plunged to 1,0232 on the European ratings rumours, rebounding to 1.0334 in NY with equities. It opens lower at 1.0301. Out-performer NZD similarly fell from 0.7955 to 0.7866 and rebounded to 0.7948. AUD/NZD fell with the decline in risk sentiment from 1.3050 to 1.2980.
Economic wrap
US trade defi cit widened by $4.5bn to $47.8bn in Nov, reflecting a 0.9% export fall and a 1.3% imports gain. Exports were down for the second month running and the decline was broad-based, suggesting some impact from the slowing global economy on the US. Imports were mixed but a turnaround in oil and auto imports accounted for much of the defi cit blow-out. Other data included a 0.1% fall in import prices in Dec, while export prices fell 0.5%, which will tend to weigh against the prospect of a narrower trade defi cit in next month’s data.
US consumer sentiment rose 4.1 pts to 74.0 in the preliminary reading for the Jan Uni of Michigan index. The fi fth straight monthly gain was fairly evenly split between the current conditions and outlook indices, and takes the index to just 3.5 pts below the post 2008/09 recession high.
Canadian trade back into surplus in Nov. Exports rose 3.2% (energy and autos were especially strong) and imports slipped 0.8% delivering a C$1.1bn balance, the second surplus in three months and the third for 2011 so far.
European sovereign rating downgrades. S&P was due to announce it was stripping France of her AAA rating and a range of other rating adjustments. Greek debt restructuring talks were reported as stalled, increasing speculation Greece could default by March.
Euroland trade surplus €6.1bn in Nov, the third in a row and the biggest on record, thanks to a 3.9% exports surge; imports were flat in the month.
UK PPI decelerated to 3.0% yr in Dec, on the core output measure.
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