News and views
Greece’s rating affi rmation and the FOMC’s language retention boosted investor confi dence. Standard & Poor’s affi rmed the sovereign rating at BBB+ and removed it from negative watch, but left it on negative outlook (a milder watchlist), citing its fi scal improvement plan. US housing data earlier beat consensus (which had factored in weather-related weakness) and added modest support. The S&P500 opened higher, but dribbled off ahead of the FOMC meeting, only to bounce higher on the retention of the Fed’s accommodative language, and is currently up 0.6%. The FOMC statement did not alter the “extended period” language as some bond market participants had expected, and 10yr notes shed 3bp as a reaction for a 4bp move on the day. Commodities posted signifi cant gains in Europe citing a slightly weaker US dollar, oil +2.2%, copper +1.6%, and gold +1.3%.
The US dollar fell to 79.70 recent support on the better risk sentiment. EUR peaked at 1.3777 after the FOMC. German analysts’ expectations for the economy slipped slightly, but beat expectations. GBP outperformed from 1.4980 to 1.5245 in a bullish outside day. USD/JPY ranged between 90.20 and 90.75, currently stable at the week’s 90.40 average.
AUD ranged sideways between 0.9120 and 0.9165, spiking to 0.9178 on FOMC and settling at the week’s 0.915-0 average. Commentator McCrann said an April hike was a tad less than a 50% chance.
NZD rose to the upper boundary of the post-Feb range at 0.7094. AUD/NZD worked its way lower to 1.2911 on position unwinding.
The Fed left its funds target unchanged at 0-0.25% following last night’s FOMC meeting. The statement was very similar to that issued after the previous meeting on January 27, with no major tweaks in the economic assessment paragraph; the commitment to maintain “exceptionally low levels of the federal funds rate for an extended period” was in the statement again, as it has been for a year now. Also as in January, there was one dissenter, Tom Hoenig, who preferred to drop the “extended period” commitment. The remainder of the statement reiterated that the winding down of the Fed’s special liquidity facilities and mortgage-backed security purchases was underway.
US housing starts fell 5.9% in Feb, but this was from an upwardly revised January, and most of the weakness was in the volatile multiples component. Single family starts were little changed. There was probably some snow impact on the data. Building permits posted back to back falls mostly due to multiples but single family permits were only down slightly in Jan and Feb.
US import prices fell 0.3% in Feb, their fi rst decline since July, with the February report catching the recent dip in oil prices. The stronger US dollar of late might have contributed to the softer rise in ex fuel import prices, and would certainly be a factor constraining export prices, driven lower mostly by food commodities.
German ZEW headline expectations index fell to 44.5 in March, its sixth consecutive month of slippage consistent with the news that Q3’s GDP growth pace (0.7% in Germany; 0.4% in Euroland) was not sustainable in Q4 and heightening doubts about Q1. Also, Euroland infl ation was confi rmed at 0.9% in February, unchanged from the fl ash estimate, but the core CPI drifted to a new all-time low of 0.8% yr, providing further evidence that the weak economy is driving already soft infl ationary pressures even lower.
Canadian manufacturing sales rose 2.4% in Jan, their fi fth consecutive monthly gain, led by metals, plastics and petroleum. The value of sales, C$44.6bn, represents a new high for the series, beating the previous high in November 2008 just before the global trade slump bit. Also labour productivity rose 1.4% in Q4, effectively meaning that all of the 5.0% annualised GDP growth in the quarter was due to productivity, with hours worked unchanged.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD is locked in a 0.9100-0.9200 range, and needs a catalyst to break outside. The leading index is released today. NZD has tried to break above 0.7100 four times since February, so we will watch that level today.
