News and views
Risk markets partly rebounded after a barely changed stance by the Federal Reserve last night. US rates would remain low for an “extended period”, and there was no mention of asset sales, but the assessment of the labour market improved slightly. Even earlier, though, sentiment towards Europe had stabilised, investors seen buying the bonds of Greece and Portugal at stretched levels on expectations a bigger rescue deal would eventuate. A downgrade of Spain by Standard & Poor’s from AA+ to AA caused only a minor and temporary reaction. US company earnings continued to beat analyst estimates (Dow Chemical stock rose 6%), and the S&P500 is currently up 0.7%. Commodities fi rmed, oil (+0.9%) performing well despite an inventory increase. With safe-haven needs diminished, US treasuries were sold 7-8bp across the curve.
The US dollar is little changed from Sydney’s close, consolidating around 82.40. The EUR, too, started to form a base after Sydney, briefl y dipping to a fresh 12-month low of 1.3115 on the Spain news, but recovering to 1.3200 thereafter. Safe-haven yen was the day’s underperformer, the dollar rising from 93.00 to 94.30.
The AUD gained during a choppy evening, briefl y dipping to 0.9160 before recovering to 0.9260. Some volatility was attributed to misreporting of RBA-watcher McCrann’s thoughts on the May meeting, in the end both he and fellow watcher Mitchell saying a hike was likely.
Outperformer NZD gained to 0.7180, and has surged further this morning on RBNZ expectations to 0.7220. AUD/NZD ranged between 1.2840 and 1.2900.
The AUD was around 0.9245 at the Sydney close, falling to 0.9160 with the EUR, and slipping to 0.9136 at the NZ open.
NZD underperformed, falling from 0.7200 to 0.7100. AUD/NZD recovered from just above 1.2800 to 1.2900, then consolidated around 1.2870.
The Fed left its funds target unchanged at 0-0.25% following this week’s FOMC meeting. The statement was similar to that issued after the previous meeting on March 16, with just a few 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 more than a year now. Also as in January and March, there was one dissenter, Tom Hoenig, who preferred to drop the “extended period” commitment. The remainder of the statement was briefer than in March, dropping reference to the now completed mortgage-backed security purchases, though it reiterated that the Term Asset-Backed Securities Loan Facility is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities. One slightly odd note was that the comment “employers remain reluctant to add to payrolls” was retained as in March, despite the assertion “that the labor market is beginning to improve” just two sentences prior. But overall, steady as she goes for the Fed, with no fresh hints that we are getting closer to any sort of monetary tightening, whether via higher rates or asset sales.
Japanese retail sales rose by 0.8% in March, well above consensus expectations of a 0.6% fall in the month. Year-ended growth accelerated to 4.7% in Mar, from 4.2% in Feb. The gain in the month was broad based, with all but one sub-category of retail sales rising in Mar.
German infl ation eased slightly in April, in monthly (–0.1%) and annual (1.0% yr) terms.
Canadian house prices rose 9.9% yr in Feb, according to Teranet-National Bank. This series is only starting to gain widespread attention and we do not yet have access to back history so we will refrain from further analysis for the time being.
Spanish government debt was downgraded a notch top AA by Standard & Poor’s, following the Greek and Portuguese downgrades yesterday.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: Sentiment is weak this morning, and should limit any gains. AUD should be capped by 0.9250, at least until the important infl ation release (which will have implications for a May hike). The NZD’s break above 0.7200 proved false, and 0.7180 should cap action today. Business confi dence should be watched.
