News and views
More bears growing horns. Some US bank stress test headline results managed to reach the media last night (despite the official release being tonight), and they were not as dire as the market expected. Several banks (Goldman, Morgan Stanley, Bank of NY) were said to be sound enough not to require new capital, and those which do, such as Citigroup and Wells Fargo, need much less than expectations had priced in. Yesterday’s news that BofA needs $34 billion was perversely followed by a 16% rise in its shares last night. The S&P500 closed up 1.2%, banks having another stellar performance at 9.6%.
EUR failed to follow equities higher, possibly weighed by concerns the ECB may at least start talking about QE at tonight’s policy meeting, and Standard & Poor’s cutting the ratings on five German landesbanks. A range of 1.3270 to 1.3370 contained action. GBP, on the other hand, found support at 1.50 to launch a move higher to 1.5140.
AUD gained over a cent to 0.7500 and made a new 2009 high as risk buyers targeted this particular currency, both against the USD as well as the EUR. Yesterday’s strong retail sales and trade number probably helped.
NZD failed to keep pace with the AUD, gaining half a cent to around 0.5850. Yesterday’s March statement of government finances reminded the market of the hole expected in the 28 May budget. AUD/NZD gained from 1.2750 to 1.2850, but has slipped in the past few hours to under 1.2800.
US ADP private payrolls down 491k in Apr. This compares to a revised 708k fall (was 742k) in Mar. Despite a methodology revamp a few months ago, ADP does not yet have a reliable track record as a predictor of surprise monthly payrolls outcomes. So we are not revising our forecast of a 650k April payrolls decline, although risks that we see a smaller fall have increased somewhat. Also on the labour market, corporate layoff announcements were up 47% yr in April.
Euroland April PMI services revised higher. The services PMI was revised up from the flash estimate of 43.1 to 43.8. However March retail sales fell 0.6%, the sixth consecutive month of decline.
UK house prices down 1.7% in April. The HBoS measure was weaker than the Nationwide BS house price index for April, which only fell 0.4%. The annual pace of decline of the HBoS index is now –17.7% yr, from –147.5% yr in Mar. In other news, the PMI services rose from 45.5 to 48.7 in April, another sign that the economy might be contracting at a slower pace heading into Q2.
Stronger than expected Canadian data. The Ivey PMI survey jumped from 43.2 to 53.7 in April, a month when it normally declines. Building permits surged 23.5% in March after five consecutive declines in Oct-Feb. Non-res jumped 48% but residential was up only 5%.
Outlook
The Q1 unemployment rate reported this morning is expected to be 5.3% (from 4.7%), although a much worse number would be needed to pressure NZD. Global sentiment remains strong, and dominates local fundamentals as far as driving the NZD goes. Today’s resistance at 0.5870 is vulnerable, pointing to 0.5900.
