News and views
A sea of red in the equities world last night. Indices were down across the globe, the S&P500 down 3.6% early NZT, the Eurostoxx and FTSE closing -5%, and the Nikkei -4%. This feels like a new wave of selling, as markets sense governments’ supportive measures to date are inadequate, and the bailout game continues, witness AIG’s return to ask for US$30 billion more yesterday. HSBC raised more capital via a 48% discounted rights issue, hurting bank equities in the UK. The IMF said it will probably join private forecasters in a negative global growth outlook. Asian currencies were battered further, their central banks selling USD in defence, and then rebalancing their reserves by buying USD against EUR, GBP etc. Oil fell more than one would expect, down 10% to $40, as OPEC cuts were seen to have little effect. US treasuries reasserted their risk-averse identities, 10yr notes rallying by 11bp.
NZD/USD was unusually subdued overnight, locked in the 0.4910 to 0.4970 range established late in the domestic session. Local traders wait for the RBA move at 16:30 NZT. Yesterday’s Mascot Finance failure will be watched closely for the manner and speed of resolution for deposit holders which have government guarantees.
AUD failed to make further headway down after the domestic session, supported at 0.63, and capped at 0.6390. With market forecasts for the RBA rate cut today spread between zero and 50bp, there is potential for an AUD reaction, and pre-positioning was likely light. AUD/NZD made an attempt on 1.29, but fell a bit shy, and seems more comfortable closer to 1.28 for now.
EUR’s tight 1.2545 to 1.2635 range suggested a market wary of the 1.25 support level. GBP displayed no such interest in consolidation, falling from 1.4290 to 1.3960 during Europe; the data was all weak, and HSBC’s issue spooked local equities. JPY was well contained by 97 to 98, Asian currency sellers crowding each other for now.
US factory ISM rose slightly to 35.8, consolidating the gain made in January. The rise was mainly due to an improvement in production. The employment indicator dropped to its lowest level since the survey began in 1948, further evidence that the pace of job losses is accelerating.
US construction spending fell 3.3% in January, and recent months were revised down, making the construction picture look even bleaker than before.
The US core PCE deflator continued its slide to 1.6% yr, its lowest since 2003. Personal income posted a surprise gain of 0.4%, and personal spending was stronger than expected at 0.4%, continuing the theme of relative stability in much of the data relating to January.
Euroland factory PMI was revised from 33.6 to 33.5 in Feb in the final estimate, setting a new low for the series.
Euroland CPI flash estimate was surprisingly strong at 1.2% yr, especially given base effects will have depressed the figure.
UK factory PMI fell to 34.7, just a whisker above November’s 17-year low, suggesting another savage negative for March quarter GDP.
UK net consumer credit expanded £0.4bn, while net mortgage lending grew just £0.7bn. Taken together, overall net lending to individuals increased by the smallest margin since records began in 1993.
UK HBoS house prices fell 2% in February, unwinding January’s surprise increase and bringing annual house price inflation to -17.8%.
Canadian GDP fell -3.4% annualised in Q4. Monthly GDP showed that each month of the quarter was weaker than the last, with a whopping 1% decline in December.
Outlook
The NZD has now arrived in the 0.45-0.50 window we forecast. The 0.50 level now becomes a strong cap on price action, and moves from here onward should be laboured. A 0.49 to 0.50 range best describes our expectations for today, but watch for any surprise move by the RBA.
