News and views
Economic data the main act. Weak US data on retail sales and the PPI put a dampener on the recent US equities rally, and risk-seeking in general, last night. Bernanke’s Q&A, noting a levelling of economic decline, engendered little enthusiasm. The S&P500 closed down 2.0%, banks down 8.0%. European indices were higher, the Eurostoxx up 1.4%. After the close, Intel reported and beat expectations, but their shares continued to be sold on earning quality questions. Industrial commodities behaved according to type, oil down 1.3% and copper slipping 0.9%. The US treasuries market took its cue from the data, rather than Bernanke, the 10yr rallying by 8bp. In credit-related news, a Kazakhstan bank, Alliance, defaulted on a bond payment.
NZD weakened from 0.5900 to the current 0.5825 level, propelling AUD/ NZD higher, from 1.2310 to 1.2450, in a reminder that NZD currently has a higher risk-beta than AUD. Yesterday’s mixed NZ retail sales report had minimal market impact.
AUD ranged between 0.7230 and 0.7300 last night, and is currently near the bottom of that range.
ECB’s Orphanides spoke of further Eurozone weakness and a lower policy rate, possibly helping depress EUR from 1.3350 to 1.3225, before a slight recovery to 1.3265. Against the wider currency trend, GBP remained strong, rising from 1.4850 to 1.4945, and settling at 1.49. JPY dusted off its safe haven cloak, and strengthened from 99.70 to 98.75 against the USD.
US March retail sales fell –1.1%, substantially weaker than expected. The sales decline was very broad-based across categories, including falls for auto and gasoline sales. Retail sales had been surprisingly strong over Jan and Feb, probably a consequence of cheaper petrol and increased Government transfer payments. These temporary influences have now passed, so retail sales have returned to their negative trend.
US March PPI fell 1.2% due to a 5.5% fall in energy prices, which in turn was due to a 13.1% fall in petrol prices (seasonally adjusted - actual prices were steady). The core producer price index was flat, with price weakness widespread.
US February business inventories fell 1.3%, after a 1.3% decline in January. Sales increased for the first time since June 2008, and the inventory to sales ratio fell to 1.43 from 1.45.
Outlook
NZD price action last night slightly strengthened the case for a move down towards 0.5700 initially. Yesterday’s peak at 0.5935 was lower than the 6 April’s 0.5980, offering one technical clue. Further, a raft of banks will report Q1 results during the next few weeks, with equity market expectations elevated by the Wells Fargo result, raising the potential for negative surprises.
