News and views
Pre-weekend profit-taking limited gains in risk, global equities closing only slightly higher. The S&P500 closed up 1.0%, but Europe was weaker, the Eurostoxx down 0.8%. Risk aversion measure VIX closed slightly below the pivotal 40 level, at 39.70; a sustained fall should see model traders increasing long risk positions further. Oil and copper were little changed, but gold lost 1.2% on the aversion to risk aversion. US 10 year treasuries weakened considerably, 12bp to 2.89%, partly on investors switching to equities, and partly on the Fed’s Bernanke saying they must be ready to unwind their stimulus programs when the crisis abates. US payrolls were as expected, resulting in a small boost to risk. North Korea’s planned rocket launch was delayed due to unfavourable weather.
NZD was contained within a 0.58 and 0.59 range, apart from brief a dip to 0.5774. Wednesday’s RBNZ verbal intervention has been more than nullified by global factors.
AUD gyrated sideways between 0.71 and 0.72, apart from a brief dip to 0.7060 on an Alan Mitchell article suggesting the OECD global downgrades for 2009, and negative GDP tipped by the RBA for Australia, had shifted the odds in favour of a rate cut on Tuesday. AUD/NZD sat in a tight 1.2170 to 1.2265 range.
EUR ranged between 1.34 to 1.35, payrolls lifting it to the upper end, before dipping briefly to 1.3365. It opened this morning above 1.35. GBP continued higher from 1.4650 to 1.4845, its current level. USD/JPY stepped higher, 99.35 to 100.40.
US non-farm payrolls fell 663k, close to market expectations. A large revision to January made that the worst month of payrolls decline, at –743k. Even if February and March are eventually revised to larger declines, it does appear that the monthly rate of job losses has stabilised since the start of the year. There was no letup for the construction industry, which shed another 126k jobs. However, manufacturing job losses do appear to be past their peak. The industry breakdown of job losses is now very broad, with only education and health posting an increase. The separate household survey found 861k job losses, taking the official unemployment rate to 8.5%, the highest since 1983. Hourly earnings growth remained slow at 0.2% which indicates that high-paid as well as lower-paid workers losing their jobs. Average weekly hours remained rock-bottom at 33.2.
US March non-manufacturing ISM fell to 40.8 from 41.6 on the composite index. Business activity actually increased, but this was offset by falls in employment and new orders. Prices paid fell sharply, underscoring ongoing generalised disinflationary pressure.
Euroland March services PMI was revised up by 0.8 pts to 40.9. While that represents a decent improvement on February, the Services PMI is still well below the miserable December and January levels.
UK Services PMI stepped up to 45.5, the fourth consecutive month of increase. UK HBOS measure of house prices fell 1.9% in March, to be 17.5% lower than a year ago.
Outlook
Global influences continue to dominate the NZD. Should risk-buying continue this week, the NZD will likely reach 0.60 and beyond. Today’s tone will be determined mainly by EUR/USD, as well as S&P500 futures.
