News and views
A wary equity market took profit, the S&P500 closing 2.2% lower. The 930 resistance level is important, potentially marking the top of Thursday’s key reversal day. Switching out of banks and into tech shares was noted, the Nasdaq closing slightly firmer. Analyst Meredith Whitney said bank stocks are grossly overvalued. Copper fell 3.0% on concerns Chinese stockpiling is unsustainable. US 10yr treasuries posted a large 12bp gain on risk aversion and the Fed’s larger purchase of long bonds. US 3mth Libor was 2bp lower to 0.92%, converging towards the 0.80% implied by futures.
EUR drifted off the 1.3670 recent high early Europe to 1.3560, recovering to 1.3600. Currency speculator George Soros’ comment that the USD should not weaken much further against the EUR helped the stall in risk currencies. The ECB’s Trichet said that non-standard policies would remain for as long as needed. GBP was more heavily sold, 1.5235 to 1.5070, settling at 1.5131. News of a large looming M&A flow (France’s EDF selling 20% of British Energy) hit the wires. USD/JPY fell from 98.70 to 97.25 as stops were triggered on a dip below the 200 day moving average (i.e. the previous upside break of the m.a. was thought to be false).
AUD fell around a cent from 0.7700 to settle at 0.7600 this morning. Today’s budget should not impact until tonight’s European session, given its release time.
NZD made its 0.6130 high just after the NZ close, and pulled back to 0.6015 thereafter. AUD/NZD had already completed its fall during the domestic sessions, and simply ranged overnight between 1.2550 and 1.2650.
US White House growth forecasts optimistic. President Obama’s latest forecasts, underpinning the 2010 budget proposals, include a 1.2% contraction for the US economy in 2009. That compares to our forecast of a 3% contraction this year.
Canadian house prices down 0.5% in Mar. That is the sixth consecutive fall, the weakest string of price outcomes since the dark days of the early 1990s recession.
Outlook
Profit-taking today may pull NZD back further to the 0.5900-0.5950 area. Deeper corrections will hinge on S&P500 direction tonight – another down session tonight will add to the case that a medium term top in equities is in place, and support a negative NZD bias this week.
