News and views
US equities slipped for the second day, after month’s 27% rally. The S&P500 closed down 2.4% on jitters ahead of the US reporting season. After the NY close, Alcoa was first to report, with its loss a penny below expectations. General Motors’ was said to be preparing for possible bankruptcy, and contributed to the mood. The US Treasury said it would delay the results of bank stress tests until after the earnings report season, fearing stock market reaction. Oil fell 4.0% on the equities move, but copper managed a 0.8% rise on reports of increased shipments to China. US 10 year treasuries gained by 3bp on safe-haven buying.
NZD fell through 0.58 support, following the equities move, as well as the residual effects of the weak NZIER business survey. It then sat in a 0.5750 to 0.5800 range, testing the bottom early this morning. Financial conditions are now estimated to be over 200bps tighter than on 12 March, the date of the last OCR review, and this will be of concern to the RBNZ.
AUD gyrated in a 0.7060 to 0.7190 range, unaffected by the bearish global environment. This was likely due to the RBA’s token 25bp rate cut yesterday, as well as articles last night from the two most influential writers on Australian monetary policy, both Mitchell and McCrann suggesting little further easing can be expected in this cycle. The AUD’s decoupling from US equities saw AUD/NZD post an impressive 1.2250 to 1.2390 rally, a 3% gain now in two days.
EUR tumbled from 1.3400 to 1.3225, with more ECB media comments on 1% not necessarily being a floor in rates, and purchases of corporate debt a possibility. GBP rebounded from a 1.4585 low to 1.4775, possibly assisted by a better than expected IP report. JPY was contained in a 100 to 101 range.
US IBD/TIPP consumer optimism survey rose to 49.1 in April, close to the level of net optimism for the fist time since last November. The economic outlook increased sharply, while the personal financial outlook increased a little. Both are now in optimistic territory. The assessment of Federal policies fell, and remains pessimistic than expected.
Bank of Japan left target overnight call rate at 0.10% at yesterday’s policy board meeting with little room to cut further. It continues to announce that it will widen the range of collateral it accepts from banks, to include municipal debt, in continued efforts to encourage bank lending.
Eurozone Q4 GDP was revised to –1.6% in the final estimate, from the previously estimated –1.5%. Revisions to previous quarters brought the annual growth figure down to –1.5%. There were large, offsetting revisions to the components. Household and government spending were revised up, while investment was revised down.
UK February industrial production fell a further 1.0%. Industrial production has fallen 12.5% in the past year, and has not posted a monthly gain for 15 months. Manufacturing contracted by slightly less than the mining and energy components, whereas for most of the past year it has been the other way around. The silver lining is that February’s decline in manufacturing and total industrial production was the smallest since the collapse of Lehman Brothers.
Outlook
Sentiment has turned, for the short term at least. US equities could be pressured while earnings reports are released this week, in turn weakening the NZD. Today, 0.58 is firm resistance, while 0.5750 has been tested a few times, and would be expected to give way.
