News and views
Main centres closed. London and NY holidays made for quiet evening sessions in most markets. The S&P500 futures did trade yesterday, largely unchanged. In the only economic release of note, Germany released its IFO report, which continued the theme of recent months – downbeat current assessments but improving future expectations. The headline number was slightly worse than expected, but German bunds noted the detail and were sold; the DAX was unchanged. Korea conducted a nuclear test, only temporarily frightening Korean equities. Commodities were stable, oil down 0.75% and copper up 0.2%.
EUR hugged the 1.40 level all night, straying no more than 40 pips in either direction. GBP formed a narrow ascending triangle with resistance at 1.5925. USD/JPY ranged sideways between 94.65 and 95.20.
AUD was stuck around the 0.7800 level +/- 25 pips.
Ascending triangles were in fashion for NZD too, with vulnerable resistance at 0.6205. The attempted break below 1.26 support in AUD/NZD just after the Sydney close failed, the cross well confined by 1.2600 and 1.2650 overnight.
Japan’s March all-industry index broadly confirms the national accounts view of Q1 activity. The AAI fell 2.4% in March, and February was revised down to -2.3% from 2.0%. For the quarter the index declined by 6.6%, following a 3.4% fall in Q4. There is not a lot of new information in this update. We await industrial production figures on Friday for the latest on inventory adjustment.
German Ifo rose in May, though by less than expected. The headline index recorded its second straight gain, from 83.7 to 84.2. However, all of the improvement was once again in the expectations component, rising from 83.9 to 85.9, while current conditions slipped back from 83.5 to 82.5. The survey is consistent with a further contraction in GDP in Q2, but the clear upturn in expectations sets the stage for a stabilisation of the economy in the second half of the year. Ifo economists noted that the ECB has scope to cut rates further if necessary, in contrast to the ECB itself, which has suggested that there are operational problems with taking the policy rate below the current level of 1%.
Outlook
The ascending triangle formed over the last 24hrs in NZD argues for an upside break today, above 0.6205. The underlying tone remains bullish, and today’s April trade balance should support that sentiment, with a record April surplus expected (mainly due to imports falling). This afternoon’s Q2 inflation expectations survey could have an impact on monetary policy if it is significantly different from the 2.1% we expect. An extremely low reading could be negative for NZD today.
