News and views
USD debased by explicit quantitative easing. That was the story last night, with not only long-USD positions stopped out, but fresh USD-shorts seen entering the market. That other asset classes, apart from commodities, were relatively subdued backs up our view the move was USD inspired, rather than a shift to risk-loving. The USD index fell 2.2% from Europe’s opening. Equities, on the other hand, were muted in Europe, and are weaker, as we write, in the US (S&P500 down 1.1%, banks much worse at -8.4%). An announcement of US$5b in aid to US auto suppliers failed to lift prices, and the VIX risk-aversion barometer rose from the borderline 40 to 43.5. Oil and copper took heart from the Fed’s move, though, both up 6%, in perhaps a lagged response. US funding pressures dissipated further, 3mth Libor down 6bp to 1.23%. US 10yr treasury notes retraced some of yesterday’s gains, the yield up 6bp to 2.59%.
NZD outperformed most other non-USD currencies (NOK’s +4% a notable exception), 0.54 to 0.5610, partly reflecting the thinner liquidity in this currency.
AUD took another large step upwards after the domestic close, cleaning out a crowd of stops at 0.6830, the European move from 0.6750 to just under 0.6950. AUD/NZD fell from 1.25 to 1.2325.
EUR dispatched 1.3550 barriers en-route to 1.3740, and has consolidated under 1.37. GBP, which was afflicted with its own debasement on 3 March, performed well, 1.42 to almost 1.46. Similarly, JPY was a good place to avoid USD, 96 to 93.50.
The US Philly Fed survey saw an improvement in the headline measure to -35.0, from February’s record low of -41.3. The details of the survey weren’t nearly as encouraging though, with new orders, prices received, capital spending plans and number of employees all sharply lower. With the neighbouring NY Fed sliding further in March, the evidence suggests that the industrial part of the economy may have contracted even more steeply in Q1 than it did in Q4 last year.
US initial jobless claims eased by 16k to 646k last week, which coincided with the survey week for non-farm payrolls. The four-week moving average for claims rose from 620k to 655k over the same period. Continuing claims for the previous week surged from 5473k from 5288k, marking the eighth straight week of new record highs for this series.
The US leading indicators index fell 0.4% in February, and most of January’s 0.4% gain was revised away. Plunging share prices and rising jobless claims each detracted 0.3ppts from the index, while lower interest rates added 0.2ppts.
Japan all-industry index fell 1.7%mth in January. The all industry index was slightly stronger than expected (median: -2.1%), but nonetheless still a further steep decline following -2.7%mth in December and -2.4%mth in November. The all industry index was pulled down by another record monthly drop in industrial production.
The UK CBI industrial survey saw new orders fall to -58 in March, following a steep decline to -56 in February. Expectations of output for the next three months fell further, while expected prices picked up slightly but remained weak at -10. Data like these imply that Q1 GDP could contract at an even faster pace than Q4’s –1.5%.
The UK M4 money supply measure grew by 1.4% in Feb to be up 18.8% on a year ago. Recent interest rate cuts will have helped, but the most likely driver is the liquidation of riskier assets outside the M4 definition into cash or deposits captured by M4.
Canada’s CPI rose for the first time in five months, up 0.7% in February and 1.4% on a year ago. Higher fuel prices were partly responsible, but the core measure also recorded an unexpected 0.5% gain.
Outlook
The 0.56 level should mark the extent of this rally from 0.49, and we expect a pullback to at least 0.5450 during the next few sessions. Longer-term, we still expect to see the NZD below 0.49, but will wait for prices to settle somewhat before suggesting this rally has found a top and the weak-NZD trend has resumed.
