News and views
Risk appetite remained strong last night, encouraged by a weak PPI report on the heels of an easy FOMC stance. The negative producer infl ation reading was seen by the market as depressive for interest rates, which is supportive of risk-taking. Yesterday’s FOMC result boosted equities in Asia (HK +1.2%, Shanghai +1.9%, Nikkei +1.2%) and Europe (Eurostoxx +1.1%), and the residual sentiment helped the S&P500, currently up 0.9%. Commodities are up 1.0% overall, copper +1.7% and oil +1.4%. US treasuries changed little across the curve, the effect of higher equities negated by the weakerthen- expected PPI, and seemingly subdued infl ation holding the curve’s recently fl atter shape.
The US dollar consolidated last night above the Sydney closing low of 79.50. EUR spiked through 1.3800 key resistance, to 1.3820, but did not follow through and retreated to 1.3730. GBP once again outperformed the majors, surging from 1.5200 to 1.5382 and holding most of the gain. Jobless claims fell. USD/JPY was choppy around the BoJ outcome (loans to banks double to ¥20trn) but remained directionless between 90.00 and 90.70, currently near the lower bound.
AUD broke above 0.9200 resistance to reach 0.9238, and sustained the move, currently around 0.9240. Commentator Stutchbury (The Australian) wrote that terms of trade suggest the new “normal” interest rate may be much higher than previously.
NZD broke its key resistance level of 0.7100 yesterday, and confi rmed its followthrough last night by reaching 0.7179 and holding above 0.7150. The two-week downtrend in AUD/NZD was maintained, a fresh low of 1.2871 made.
US PPI falls 0.6% in Feb. The PPI headline was pulled lower by energy prices which dipped during the survey period in early Feb but have since bounced higher again. Food prices were solid, up another 0.4%, but the core PPI was subdued at 0.1%, with the often volatile light truck component down 0.1%.
BoJ increases credit expansion efforts but with dissenters. The Bank of Japan fi nally made a response to signs of deepening defl ationary problems, raising its 3mth bank loan facility to ¥20trn in promote credit expansion. These efforts to boost liquidity came despite its retained assessment that the economy was picking up and despite formal dissent from two board members.
Japanese tertiary activity index provided a welcome upside surprise in Jan, rising 2.9% vs expectations of a 1.3% gain. The through the year change in the index improved to just -0.8% from -2.7% in Dec although it is being assisted by favourable base effects.
Euroland labour costs rise 2.2% yr in Q4 09, the equal slowest pace of gain since 1998, and a marked deceleration from 4.5% yr in late 2008.
UK unemployment falls 32k in Feb, and Jan’s 24k rise revised to just 5k. This outcome means claimant count unemployment has fallen in three of the last four months, a sign that the labour market might have turned after nearly two years of increasing joblessness. However the quarterly employment numbers showed a 54k decline in the three months to Jan, so that positive view is not yet fully confi rmed by the data.
Bank of England March meeting minutes 9:0. Another unanimous vote for no change in rates and no quantitative easing extension, although some members considered that upside infl ation risks had increased “slightly”.
Canadian wholesale sales jump 3.0% in Jan, the fi fth consecutive gain and the fastest rise in three years, driven by broad-based gains across all sectors, the strongest being autos.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD is looking stretched intraday, but pullbacks should fi nd support at 0.9200. Today’s ACCI business survey will be watched. NZD sustained its 0.7100 break, which suggests that should be a good support level on the day, and further gains to 0.7200 are possible this week.
