News and views
A quiet night, peppered with positivity. US housing starts provided a rare positive surprise, and tech equities were lifted by a positive report on Cisco. The S&P500 is currently up 1.2%, although European equities struggled, the Euro-stoxx closing down 0.6% as mining equities sagged. Oil rose on equities, as well as trying to reach $50 call strikes. Copper fell 2.2%, in the absence of stimulatory news. US 10yr treasuries were sold again, 5bp, to key resistance at around 3.00%. Global markets are waiting to see if the FOMC commits to purchase treasuries in their meeting tonight. The IMF revised its 2009 global growth forecast down, from +0.5% to -0.6%.
NZD did little, hugging the 0.53 (+/- 20 pips), waiting for an offshore catalyst. The government’s announcement yesterday it will relax rules for offshore investment in New Zealand had no discernable market effect.
AUD hugged its own 0.66 level (+/- 30 pips). A McCrann article overnight suggested the RBA will almost certainly cut by 50bp in April, but had no real currency impact. AUD/NZD was contained in a 1.24 to 1.25 range, offering no directional clues, but forming a short-term base.
EUR ranged sideways between 1.2930 and 1.3030, despite a less pessimistic outlook from the ZEW survey. GBP stuck out for its move down, from 1.4140 to 1.3970. JPY weakened slightly, from 98.50 to 99.00, after the BoJ said it would buy subordinated loans from banks.
US housing starts jumped 22.2% against an expected 3.5% decline. The headline was exaggerated by an 82% jump in the volatile multi-family component, and is likely to partially unwind next month. Even so, single-family units did manage 1.1%, the first increase since June last year. Building permits also registered their first increase since June last year. Given that permits have been stabilising for a few months, and single-family units were up 11%, it seems permits have found a floor. The recent pattern in starts and permits suggests that dwelling investment will be a lesser drag on GDP growth in Q1 than in recent quarters, and may make a small positive contribution in Q2.
US PPI outputs rose 0.1% in February, while core outputs rose 0.2%. Although gasoline prices rose, residential gas prices fell. Factory-gate prices have risen for a second consecutive month after a string of negative prints last year that were a consequence of falling oil prices. The low core PPI is consistent with our view that US inflation will be positive but low for the foreseeable future, once the effects of oil’s rise-and-fall have washed out.
Japanese tertiary industry posts 0.4% gain in Jan. This modest rise in services sector activity followed steep declines in Nov and Dec.
Germany’s March ZEW survey improved to –3.5 for Germany’s economic outlook. Expectations for the wider Eurozone outlook were also less pessimistic, at –6.7. However, analysts were more pessimistic about Germany’s current economic situation, and the assessment of Europe’s current economic situation was broadly unchanged at a very low level.
The UK DCLG (government) measure of annual house price inflation fell to –11.5%.
Canadian manufacturing shipments fell 5.4% in January, the third severe decline in a row. Manufacturing shipments have fallen 33% in six months.
Outlook
We favour a pullback today, to 0.5240, as the week-long rally starts to look tired. Any upside today should be contained by 0.5340, but later in the week, further strength to 0.54 is likely. All eyes tonight will be on the US FOMC’s statement regarding quantitative easing.
