News and views
Risk appetite directed at currencies. While US equities paused for breath, position squaring ahead of Thursday’s bank stress test results partly responsible, the likes of AUD, NZD, and GBP currencies closed the last 24 hours slightly firmer. US ISM data delivered a positive surprise, and the Fed’s Bernanke delivered a cautiously upbeat testimony, speaking of signs of bottoming in the US housing market. The S&&P500 closed down 0.4%, while commodities saw larger profittaking, oil -1.1% and copper -3.1%. The abatement of funding pressures in the US continues – 3mth Libor 2bp lower at 0.99%, and the TED spread poised to fall below 83bp technical support.
EUR spiked during Europe to 1.3430, before falling to the 1.3300 area, concerns that the ECB meeting on Thursday may reveal unconventional measures weighing. GBP ended the evening session slightly stronger, spiking from 1.5000 to 1.5160, and settling at 1.5070. UK construction PMI was a positive surprise, and the market is looking for a stronger consumer confidence number this morning. JPY tracked sideways just under 99.
After hovering around the 0.7400 level for most of the domestic session, AUD followed EUR to 0.7480 before falling back to the earlier level, currently at 0.7415.
NZD moved off 0.5750 support early Europe, and peaked at 0.5865 before slipping under 0.5800. AUD/NZD spent most of the evening under 1.2800, currently consolidating around that level.
US non-factory ISM up from 40.8 to 43.7 in Apr. The non-manufacturing PMI continued its uptrend from last October’s 37.4 low-point, though April’s 43.7 reading still implies a significant pace of services/construction contraction at the start of the current quarter. As with most of the regional and national factory surveys for April, the orders component was notably stronger, whereas the improvement in the jobs measure was less impressive. Even so, the weight of survey evidence supports the view that the monthly pace of decline in payrolls jobs has probably past its peak (of –741k in January).
Fed chairman Ben Bernanke testified before the Joint Economic Committee. Some of his comments were hopeful: “the recent data also suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing... the housing market, which has been in decline for three years, has also shown some signs of bottoming... we continue to expect economic activity to bottom out, then to turn up later this year.” But risks remain: “An important caveat is that our forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.” And when recovery arrives, it won’t be impressive: “We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly.”
Euroland producer prices –3.1% yr in Mar. The PPI has fallen for eight months running and their annual pace of contraction is the steepest ever recorded.
UK construction PMI up from 31 to 38 in Apr. As with most other PMIs around the world, the UK construction PMI posted a decent gain last month, indicating a slower pace of contraction in the building industry at the start of the second quarter.
Outlook
Upward momentum was checked last night, and a range of 0.5750 to 0.5850 is likely to contain action today. Event risk today stems from today’s private wages report, as well as Australia’s retail sales.
