News and views
Quarter-end dynamics push sentiment higher. A feature of yesterday’s afternoon and evening sessions was the bounce in risky currencies around the quarter-end fixings. Equities rebounded on seemingly little more than a broker upgrade for Microsoft and abating nervousness regarding the banking sector. The Eurostoxx closed up 4.1%, followed by the S&P500 currently 1.1% higher. Copper followed equities sentiment and stories of Chinese inventory building, up 4.8%. US treasuries took its cue from economic data, rather than equities, the weak Chicago PMI helping 10 year notes firm by 2bp.
NZD firmed slightly, from 0.5690 to 0.5730 overnight, and was hovering within that range at the NZ open.
AUD firmed around the fixing, but also took heart from McCrann and Mitchell comments that another pause is on the cards. RBA’s Battellino gave no official guidance, but personally opined that another pause would preserve firepower for later use. Short-term interest rates rose 10bp, supporting the AUD from 0.6880 to 0.6970 overnight, and that gain has been largely held this morning. AUD/NZD showed signs of bottoming, with a sustained rise from 1.21 to 1.22.
EUR posted a 1.3210 to 1.3340 rally, but perhaps the weak German unemployment and low Eurozone CPI estimate weighed later, as it drifted back to a 1.3230 to 1.33 range. JPY weakened around year-end, as expected, USD/JPY rising from 98 to 99.35.
US March Chicago PMI plunged to a new cycle low of 31.4, against the grain of most regional surveys. But then, Chicago rose in Feb while moist others fell. Employment intentions improved slightly, while new orders fell.
US March Conference Board Consumer Confidence Index was 26.0, only slightly above the all-time low set in February. Weakness was led by dismal job market expectations and present economic situation, while responses to the 12-month economic outlook question were slightly less pessimistic.
The S&P Case Schiller House Price index fell 2.8% in January after falling 2.6% in December, marking the seventh consecutive acceleration in the downtrend. The annual pace of decline fell to 19%, which is the fastest drop this cycle.
Busy Japanese data day. This included a higher than expected jump in the jobless rate from 4.1% to 4.4% in February, a steeper than expected 25% yr plunge in housing starts, but a less steep than expected fall in household spending, down 3.5% yr. Business surveys for March included a rise from 31.6 to 33.8 in the factory PMI and a rise from 25.0 to 30.4 in small business confidence.
Eurozone March flash CPI estimate fell to 0.6% yr as last year’s energy price increases began to drop out.
German unemployment increased to 8.1%, with the number of unemployed increasing by a higher-than-expected 69,000.
UK March consumer confidence leapt to –30, its highest since May last year. The improvement was led by reduced pessimism around the economic situation over the next 12 months, suggesting consumers have been buoyed by the stock market rally. However, consumers still had plenty to worry about right now, with falling house prices and mounting job losses.
Canadian GDP fell 0.7% in January, the third consecutive month of precipitously declining production.
Outlook/Update
The RBNZ surprised the markets a few minutes ago (around 9:10 NZT) by saying term interest rates were too high. NZD plunged from 0.5720 to 0.5650 in a few minutes. We think this comment is significant, and will weaken the NZD further. We will refrain from suggesting a daily range today, other than to say 0.56 is vulnerable.
