News and views
Sentiment still positive. US equities rose again at the NY open, and ranged sideways until a fall in the final 30 minutes, the S&P500 closing down 0.3%. Technology shares were bid, and JP Morgan’s comments that its commercial bank had a record quarter helped early session sentiment, but overall, banks were weak, down 4.4%. Fear index VIX dropped under 30, and appears to be heading into “calm” territory. US 3mth Libor’s 3bp fall to 0.75% continued an impressive rally, uninterrupted since 10 March; funding spreads, as measured by Libor-OIS, are the lowest since February 2008.
EUR gyrated a cent higher to 1.3660 last night, the ZEW survey headline number stronger than expected, and Russia’s central bank thought to be buying EUR; the Moscow Times reported the share of reserves in EUR has risen from 42.4% to 47.5%, largely at the expense of USD. GBP rallied strongly at the London open, from 1.5350 to 1.5510, partly on rumours the UK government is preparing to sell its stakes in partnationalised banks, prompting an official rebuttal.
AUD went with risk-sentiment, easily breaking 0.7700 resistance which became support later in the session, and currently sits near the 0.7785 high; a McCrann article reviewing yesterdays RBA and Treasury-speak (and minutes) said the RBA is on hold on a month by month basis.
NZD peaked earlier than AUD, around midday London, at 0.6065, followed by a 0.6000 to 0.6050 range. The AUD/NZD cross gained within the two-day old 1.28 to 1.29 range.
US housing starts down 13%, permits down 3%, April. Housing starts and permits both fell for the second month running in April but as was the case in March, the decline was entirely due to plunging activity in the multiples sector. Multiples starts dumped by 46% and permits by 20% last month and they are both in an ongoing steep downtrend. This could in part be related to developers having difficulty raising finance, or simply not wanting to take the risk in the current oversupplied market. In contrast, single family house starts have not posted a fall since January and single family permits, whilst more volatile, are not actually trending lower. This aspect of the report adds to the weight of evidence suggesting that the US housing market may be finding a bottom but the multiples story shows that there are still serious difficulties confronting the broader construction sector.
German ZEW expectations jump 18pts to 31, current down 1.2 to –92.8 in May. The 350 or so German analysts and economists surveyed by the ZEW continue to think things can only get better, just as they downgrade even further their assessment of the extent of economic weakness now confronting Germany and broader Euroland. The argument seems to be that things are so bad now, that in six months time, they surely can’t be worse. Well, we will see about that.
UK annual inflation posted another steep decline in April after several months stuck around 3% yr. The main reason for the 0.6pt decline to 2.3% yr was that the steep gains in energy prices through mid 2008 are now dropping out of the annual calculation. The old RPI inflation measure, which includes mortgage costs, dipped further into negative territory, due to the heavy downward impact of lower mortgage costs, however it is not yet clear that the CPI will dip that far; we see it bottoming in the 0-1% yr range later this year. There will be no surprises here at all for the Bank of England, whose minutes to the May policy meeting will be published tomorrow.
Outlook
Upside momentum was checked early in Europe, suggesting at least a minor pullback to the 0.5980-0.6010 area is likely today. Thereafter, US equities will set the tone, and with no economic data today, traders will watch S&P500 futures price action.
