News and views
May Day rest. US equities opened around where they closed previously, and mounted a small rally, but failed to reach Thursday’s peak. The S&P500 ended up only 0.5%, with banks losing ground by 2.4%. The banking sector was clouded by uncertainty, after US regulators said the eagerly awaited stress tests will be delayed to 7 May (after the markets close). Apparently there is debate over valuation methods. With European markets closed for the holiday, the US session was fairly subdued. WTO oil rose 4.1%, and copper gained 2.6%, partly on the better US ISM and consumer sentiment revision. The surge in the new orders component, relative to inventories, points to stronger ISM numbers ahead, in turn pointing to stronger PMI’s – a positive for equities markets ahead; on the other hand, we have had so many positive data surprises recently that expectations may start to leapfrog reality, setting up for disappointments – a negative for equities markets and risk.
EUR tracked sideways, for no net change during the UK and US sessions, ending at around 1.3270. GBP was livelier, stronger PMI numbers helping boost the sterling from 1.48 to 1.4920.
AUD ranged sideways between 0.7250 and 0.7350; a Terry McCrann article was noted late Friday, saying the RBA would pause on Tuesday, already consensus.
A NZD short squeeze spiked the kiwi from 0.5660 to 0.5743, continuing a succession of lower peaks since Wednesday. Profit-taking saw AUD/NZD dribble lower to 1.2800.
US UoM consumer sentiment revised higher in April. The headline was revised up by 3.2 pts, reflecting a 1.7 pt revision to the current measure and a 5.2 pt revision to expectations. At the new higher level, the UoM April reading is the strongest since September last year (70.3), when Lehman Bros went under. Shorter term inflation expectations were revised lower but 5 yr expectations were nudged higher. The upswing in equities through to late April and very steady gasoline prices, seem to have been more dominant factors than the latest concerns about swine flu and the bankruptcy of Chrysler (which might impact more in the May data).
US factory ISM up from 36.3 to 40.1 in Apr. The ISM is now back above 40, its strongest result since 43.4 in September last year. That still means the industrial sector is contracting, but at a less steep pace than in Q4 and Q1. The surge in the orders component was particularly steep (though 47.2 still implies a decline). The ISM jobs measure improved somewhat too, which is a signal that the pace of job losses in the factory sector might be abating.
US factory orders down 0.9% in Mar. Continued softness in non-durable orders and an unrevised fall in the durables component delivered a broadly as expected moderate decline in total factory orders back in March. That is consistent with the industrial sector still contracting, but not as steeply as at the start of the year
Japanese workers crunched; unemployment rate jumps to 4.8% but household spending holds the line. The export-led collapse in industrial production continues to radiate through Japan’s through Japan’s household sector. Unemployment jumped sharply in March, from 4.4% to 4.8%, well above market expectations of a more incremental increase to 4.50%. Household spending continues to contract sharply, albeit less sharply than had been feared for March – real spending slipped 0.4% in the month. There were more signs of slippage in consumer prices, with a flat outcome for Tokyo CPI ex-fresh food in April dragging the annual core inflation rate down to –0.6%yr.
UK PMI factory up from 39.5 to 42.9 in Apr. As with most factory PMIs from around the world (though not Australia’s), the UK index was stronger in April, for the second month running, implying a slower pace of contraction in the industrial sector at the start of Q2, compared to earlier this year.
UK Mar lending update. The recent upswing in mortgage lending from economy-throttlingly low levels to merely extremely weak levels was sustained in March but not really built upon. The number of new loans rose slightly but the value of outstandings growth at £0.76bn was the second lowest on record (after £0.43bn in August last year), probably due to increased pay-down of debt. Consumer credit outstandings growth of just £130 million in recent months is running at about one tenth of the growth pace seen back in 2007, reflecting tighter lending standards, less spending and increased debt repayment.
Outlook
Price action since Thursday favours a test of 0.5620 during the next session, followed by 0.5450 later this week. Today’s Q1 hourly earnings report will add colour to Thursday’s important Q1 employment report.
