News and views
Risk markets recorded modest gains on better earnings results - GE beat expectations (0.26 vs 0.21), as did Citigroup (-0.18 vs -0.32) – as well as improved US consumer sentiment. The S&P500 rose 0.5% (banks +4.9%), oil +0.7%, copper +0.9%, and risk aversion barometer VIX improved to 34. US 3mth Libor also improved 1bp to 1.10%. Better sentiment hurt US 10yr treasuries, up 12bp, with similar moves in Bunds and Gilts. The US dollar currency, though, decoupled from risk, up 0.9%. In more peripheral news, Moody’s negative outlook for Ireland’s was a catch-up to S&P’s AA- rating; the Fed’s Bernanke commented on why credit products should be regulated; and the Californian unemployment rate rose from 10.6% to 11.2% in March.
After NZD closed in NZ at 0.5710, cross-selling (versus AUD, JPY, GBP) saw it break down to 0.5650, with a rebound to 0.5695 in the last hour of NY trading. Friday’s CPI report was bang on expectations at 3.0% yoy, and therefore had no market impact. It does, however, maintain the case for a 50bp OCR cut on 30 April.
AUD closed the domestic session at 0.7205, and then ranged around that level all night, closing in NY at the upper end, 0.7225. AUD/NZD broke convincingly through 1.26 to 1.2760, and opens in NZ at 1.2745 (via legs).
EUR was weak throughout the evening, from the 1.3100 area to 1.3020, ECB Trichet’s speech in Tokyo not adding clarity, and Germany’s Economic Ministry saying Q1 2009 GDP would be weaker than Q4 2008. JPY consolidated between 98.70 and 99.50.
US University of Michigan Consumer Sentiment rose to 61.9, its highest since last September. Confidence about current conditions rose to 66.6, and confidence about the economic outlook rose to 58.9. No doubt the 28% rally in share market prices since March 9, promises of fiscal stimulus and the improvement in the overall tone of economic news have outweighed the weak jobs market and conspired to lift the overall consumer mood. Inflation expectations rose a little, remaining within a range that will please the Fed.
Japanese data: The tertiary industry index reported a softening of services sector conditions during February, with the index falling by 0.8%, as expected. That followed a 0.4% rise in January. Consumer confidence, which is near an all-time low, edged higher to 29.6 in March, up from 27.6 in February. That was also in line with the market forecast of 30.0.
Eurozone trade deficit was modestly negative at –€4.0bn. Compared to a year ago, both imports and exports are down by around 25%, testament to the collapse in global trade. Eurozone construction output fell 1.8% in February.
Canadian CPI inflation rose only 0.2% m/m. The shelter component fell 0.5%, associated with the implosion of Canada’s housing market. Annual inflation is down to 1.2% on falling petrol prices. Core inflation rose 0.3% m/m, 2% y/y, with the downside limited by the low exchange rate.
Outlook
Momentum in NZD remains downwards, and a test of 0.5530 support is next on the cards, a break of which opens up 0.5450. Domestic data releases this week are lightweight, so that US equities and the EUR will be the best guides for daily direction.
