News and views
A fresh twist to the Greek saga and widely circulated speculation of an imminent Federal Reserve discount rate hike (recall the last one occurred on a Friday, 18 Feb, after the NY close) hurt equities and supported the US dollar. Greek PM Papandreou was reported to be in discussions with the IMF regarding fi nancial support, an alternative should the EU be less helpful than desired. CNBC reported the Fed refused to comment on the discount rate speculation, which seems to have been born from an analyst’s opinion piece. The S&P500 is down 0.2%, having recovered some ground during the NY afternoon, the banks sub-index faring worst at -1.9%. Earlier, the Eurostoxx closed -0.6%, with the Greek index down 3.4%. Commodities were 0.3% lower overall, oil -0.9%, copper -0.6%, but gold +0.6%. US 10yr notes formed a bullish (yield) key reversal day, adding 3bp amid an improved jobless claims report and a strong Philadelphia factory survey. Three-month US$ Libor rose almost 0.5bp to 0.271%, 3bp above the JPY equivalent.
The US dollar consolidated around 80.00 before the discount rate rumours saw it spike to 80.44. EUR was weak all session, from 1.3700 to just below 1.3600, its trade balance lower than expected. USD/JPY is little changed at 90.30 after spikes in both directions.
AUD was consolidating under its recent peak, in the 0.9200-0.9230 area, when the rumours pushed it down to 0.9180, but it has recovered to 0.9220 for little net change.
NZD ranged between 0.7120 and 0.7175, little changed at 0.7150. AUD/NZD made a fresh two-week low at 1.2855 and consolidated 50 pips higher.
US CPI fl at in Feb, and the core CPI only just rounded up to 0.1% after falling more than 0.1% in January. That paints a benign infl ation picture at the start of 2010, supporting the view that a very wide output gap is imparting disinfl ationary pressure on the economy. Sharply lower annual rates of infl ation for both headline and core CPI back that message.
US Philly Fed headline edged up 1.3 pts to 18.9 in March, which is indicative of solid ongoing industrial activity in the northeast. However the latest report included much softer readings for orders and shipments, in contrast with the NY Fed index where that detail was more up-beat. Also, there was only modest further improvement in Philly jobs whereas the employment outcome in the NY survey was much stronger in March.
US leading index posted its eleventh consecutive monthly gain, although the Feb rise of 0.1% was the smallest of the latest upswing, with six components falling and only four rising. Even so, this index is still pointing to solid growth in prospect for 2010, though the question remains – is this growth self-sustaining without support from fi scal policy and near zero interest rates?
US initial jobless claims fell 5k to 457k last week, with no special factors cited by the Labor Dept. Last week was the March payrolls survey week, and with claims down from 474k a month prior, this result is consistent with a March payrolls gain (even outside Census hiring).
US current account defi cit widened to $115.6bn in Q4 from $102.4bn in Q3, mainly due to the recent acceleration in import growth relative to export growth, already revealed in the monthly trade data.
UK CBI industrial trends survey for March found an improving export story but a slight deterioration in total orders which implies a deterioration in the domestic demand picture. In other news, money supply growth continued to slow sharply in early 2010 (3.6% yr in Feb); new mortgage lending by the major banks fell for the third month running in Feb after recovering through most of last year; public sector net borrowing of £12.4bn in February was smaller than expected due to higher tax receipts (the January VAT hike was a factor) but still leaves the UK on track for a record annual defi cit.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: Immediate direction is unclear. AUD’s expected range today is 0.9180-0.9250, while NZD’s range should be 0.7100- 0.7180.
