News and views
Wall Street retreated slightly last night, analysts casting doubt on the health of US banks. George Soros went further and said the banking system as a whole was insolvent. The S&P500 is currently down 0.8%, banks down 5.4%. The sentiment pushed oil down 2.7%, and copper fell 1.8%. Deeper rooted optimism saw gold selling continue, -2.6%. US 10yr treasuries also lost the correlation with risk, weakening by 4bp, citing looming supply and disappointment over the amount the Fed bought yesterday. The US reporting season kicks off tonight, with a poor result expected from Alcoa, and this is likely to weigh on risk appetite.
NZD followed AUD down to 0.5850, and is currently consolidating around 0.5880. Positioning is light ahead of the RBA meeting, and expectations the QSBO survey this morning could dampen the mood has stalled the NZD rally.
AUD followed US equities throughout the evening session, falling to 0.7080, and recovering slightly to 0.7135 this morning. The odds of a 50bp cut have increased since the weekend, such a move likely to be negative for AUD. AUD/ NZD ranged between 1.2050 and 1.2150, this morning nudging the upper boundary.
EUR fell from 1.3550 to 1.3360, recovering to 1.3420. ECB’s Smaghi said, in theory, FX intervention is warranted. GBP was supported during early Europe by the successful HSBC rights issue, but then slipped from 1.4960 to 1.4670, recovering a cent. USD/JPY’s rise was checked at 101.44, followed by a yen fall and consolidation around 101.00.
No US data to report.
Euroland February retail sales fell 0.6%, substantially weaker than expected. Retail trade has now fallen 4% over the past year, and indicators such as consumer confidence suggest worse to come.
Euroland April Sentix Investor confidence rose to –35.3, from –40.7 in March. It has been bouncing around these low levels since November last year.
Euroland February PPI fell 0.5%. Revisions brought the annual figure to –1.8%. These falls are not surprising given that the PPI is more sensitive than the CPI to oil prices.
Canada March building permits fell 15.9%, even worse than Westpac’s bottom-of-the-market forecast. The fall was exaggerated by an outsized drop in institutional buildings. However, genuine weakness was widespread, including a 20% in commercial permits and a 5.5% drop in permits for single-family dwellings.
Canada March Ivey PMI fell to 43.2 from 45.2m, against market expectations of a rise to 47. This was the fifth consecutive decline.
Outlook
While the global backdrop has been positive during the past month, today’s QSBO should be a dampener. The RBA outcome is highly uncertain, so we refrain from making any predictions, other than to say 50bp should result in a lower NZD. A poor US reporting season will weigh on global equities, and in turn the NZD, during April. Today, 0.58 to 0.59 is our (low confidence) suggested range.
