News and views
Bankruptcy potential for US carmakers hurts equities. The US administration got tough, removing the GM CEO, and threatened bankruptcy for both, before the European session. The S&P500 gapped down at the open, and is currently -3.9%. Eurostoxx closed 5.3% lower, further battered by news of the first Spanish bank bailout, as well as a Scottish lender’s failure. S&P downgraded two sovereigns overnight: Ireland to AA-, their CDS 35bp higher on the day, and Hungary to BBB-. Safe-haven appeal sent the USD currency and US treasuries higher, the 10 year note rallying 5bp. Commodities were sharply down on the negative sentiment, oil -7.5%, and copper -4%.
NZD appeared unaffected by global factors, largely ranging between 0.56 and 0.5650. Yesterday’s building approvals release, while slightly stronger than expected, was ignored by the market.
AUD fell on the US auto news during early Europe, from 0.6830 to 0.6770, but then held a range between there and 0.6820 for the remainder of the session. AUD/NZD hovered along the bottom of its recent 1.21-1.22 range, but is probing below at 1.2080 as we write. The recent sustained boost in NZ interest rates has pressured this cross.
EUR was sold from 1.3230 to 1.3115, but has recovered to 1.32 this morning. ECB’s Trichet said no decision on central bank corporate bond purchases had been made, quashing the weekend’s media reports. USD/JPY was initially sold from 97 to 96 on the auto news, but then rebounded higher to 97.50.
The Dallas Fed manufacturing survey improved to –49 in March. The index is now well off the October to December lows, but nevertheless suggests manufacturing activity is still contracting fast. This month’s improvement was driven by the new orders component, same as other regional Fed indices. The outlook question was less pessimistic, with 40% of manufacturing executives foreseeing increased production in six months. But the employment component plunged to a new cycle low of –46.6.
Japan Feb industrial production fell in line with expectations, -9.4%mth drop exceeded only by the record -10.2%mth in Jan and -9.8%mth recorded in Dec. The annual rate has now slide to record -38.4%yr from -31%yr in January.
All European Commission March business and consumer confidence surveys slipped further to all time lows. It was not surprising to see industrial sentiment fall to –38 from –36. More disturbing was the further decline in consumer confidence from –34 to –33. The business climate indicator fell to –3.58 from –3.4.
Eurozone PMI improved to 44.1 from 42.3, slightly incongruous with the above.
UK BoE mortgage approvals picked up in Feb to 38k, the highest since May last year but still down by two-thirds from the boom days.
UK new mortgage lending exceeded repayments by just £1.5bn, while consumer lending fell short of repayments by £200mn. Good news for economic sustainability, bad news for retailers.
UK house prices fell by 0.6% in March, 10.3%yr, according to Hometrack.
Outlook
NZD has been well supported by the rise in swap yields recently. We don’t believe rates will remain at these elevated levels beyond a few weeks, and that should remove one supporting factor. Shorter term, it’s impossible to predict how long the rates volatility lasts, and accordingly, we have low confidence in our short term NZD forecast. Should we see an upward breakout of today’s range of 0.56 to 0.5650, we’ll be eyeing that as a medium term shorting opportunity. Today’s NBNZ business confidence report could be a market mover.
