News and views
Canada unenthusiastic about QE. The US dollar came under pressure on most fronts (notably vs CAD), at least partly on the back of improved risk sentiment, as the S&P 500 closed on its highs, +1%. The banks index rose 5%. The NY Times claimed that Chrysler could file for Chapter 11 bankruptcy next week after a deal with unions.
NZD/USD traded 0.5559 to 0.5624 in London and steadied at the top end of that range in late NY.
AUD/USD was choppy in London but stabilized and headed more convincingly higher in NY, gaining about 60-70 pips to 0.7140/50. Copper slid -3% but gold recaptured $900/oz.
The euro enjoyed rare upside surprises from economic data, as various April German and French PMIs beat consensus. While still firmly in recession territory, the Eurozone manufacturing and services PMIs are at highs dating to Oct08. EUR/USD found buyers on dips towards 1.3000 then rallied firmly to above 1.3150 by late NY. This saw USD Index drop -1% overall in NY. USD/JPY remained muted, gyrating in the 97.80 - 98.45 area. A lot more exciting was USD/CAD, as the Bank of Canada downgraded its GDP forecasts but argued that current monetary policy was sufficient (0.25% overnight rate). Quantitative easing was not seen as necessary at this point though it remains an option. USD/CAD sank from 1.2360 to 1.2235 in 7 minutes.
US existing home sales down 3% in March, but have essentially been seesawing about a flat trend since November last year. The prices data were less weak on an annual basis. Although not a solid report by any means, sales do appear to be finding a base and with prices not dipping further that positive signal is somewhat enhanced. US housing is not entering the recovery phase but evidence is mounting that the meltdown phase mighty be drawing to a close.
US initial jobless claims up 27k to 540k. This probably reflects a correction from the previous week’s low figure which we think was distorted by the timing of the Easter break. Continuing claims soared to yet another record high (they have risen by 33% since the start of this year), consistent with the view that a slower pace of deterioration in the economy won’t prevent the unemployment rate from rising further.
The Bank of Canada’s monetary policy report detailed a framework for running monetary policy at (effectively) zero rates. Instruments at the Bank’s disposal include conditional statements about the future path of policy rates (as provided in Tuesday’s statement); quantitative easing; and credit easing. However at this stage the BoC has not actually begun a quantitative easing program
Euroland advance PMIs showed a further improvement in April, still consistent with declining activity, but less steep compared to in the first quarter. Back in February, industrial production shrunk at around the expected pace of 0.6% in the month, –34.5% yr.
UK CBI industrial survey remained weak in April, with orders little changed, output expectations less soft compared to March, but pricing expectations sharply weaker. The quarterly survey found business not as pessimistic as three months ago but the –40 reading is still very low by historical standards.
Canadian retail sales rose 0.2% in Feb, weighed down by lower auto sales, excluding which sales were up 0.6%. However prices paid a significant role in that rise, with retail sales volumes down 0.3% in February (recall that the CPI jumped 0.7% that month). The underlying retail story in Canada remains subdued with further softness ahead as mounting job losses really start to bite.
Outlook
The market is clearly looking forward/positioning for the RBNZ next week. We would expect to see this theme continue into next week, with the OIS market pricing in 40bps for the RBNZ, the NZD is set to trade heavily ahead of the policy meeting a week today.
