Minutes from the March 18 Fed meeting the next focus but sentiment unlikely to get a lift


MAJOR HEADLINES – PREVIOUS SESSION

  • US IBD/TIPP Apr. Economic Optimism out at 49.1 vs. 45.8 expected and 45.3 prior

  • US Feb. Consumer Credit out at -$7.5b vs. -$3.0b expected and revised +$8.1b prior

  • US ABC Consumer Confidence out at -50 vs. -49 expected and -49 prior

  • UK Mar. Nationwide Consumer Confidence out at 41 vs. 45 expected and 43 prior

  • UK NIESR Mar. GDP estimate out at -1.5% q/q vs. -1.6% prior

  • JP Feb. Current Account Balance out at Y1.1169 tln vs. Y1.034 tln expected and –Y172.8b prior

  • JP Feb. Trade Balance out at +Y202.1 bln vs. +Y125 bln expected and –Y844.4 bln prior

  • AU Apr. Consumer Sentiment Index out at +8.3% vs. -0.2% prior

  • AU Feb. Home loans out at +0.4% m/m vs. +2.0% expected and +4.3% prior

  • GE Feb. Trade balance out at EUR8.7b vs. EUR7.5b expected

  • GE Current Account Balance out at EUR 5.6b vs. EUR5.8b expected


THEMES TO WATCH – UPCOMING SESSION

  • UK BRC Shop Price index (0930)

  • GE Factory Orders (1000)

  • US MBA Mortgage Applications ((1100)

  • CA Housing Starts (1215)

  • US Wholesale Inventories (1400)

  • US Fed’s Fisher speaks (1635)

  • US FOMC Minutes (1800)

Market Comment:

An article in the UK Telegraph announcing that Ireland had been forced to introduce the harshest austerity measures in the country’s history grabbed the attention in Asian trading. The article reveals that Irish finance minister Brian Lenihan outlined packages of retrenchment, reduced child benefits and allowances for job seekers. In addition, numerous infrastructure projects would be mothballed and even junior minister positions in the government would be culled. Tax rises and increased levy on pensions were also planned in an effort to prevent the budget deficit spiraling to 13% of GDP. The emergency budget included the creation of a so-called “bad bank” to buy up to a maximum of EUR80-90 bln worth of bad loans off banks’ books. It may be noted that the problems that Ireland face are inherent in the inflexible EU framework and Ireland is already in breach of Maastricht fiscal deficit limit and faces EU legal proceedings. The EUR was on the defensive from the word go this morning, slipping to a 1.3185 low as stops were triggered.

The theme of competitive devaluation was again in the headlines, with an FT commentary suggesting EU partners were again concerned about sterling’s slide against the EUR. ECB’s Bini Smaghi on Monday reminded EU states outside the common currency to treat their exchange rates as a “matter of common interest”, as spelled out in EU treaty article 124. The Irish finance minister blamed a portion of Ireland’s problems on the GBP’s fall considering half of its exports go to the UK and US.

The data releases so far today have been mixed, with Australian consumer sentiment recording a strong rebound for April, up 8.3% to 92.7 after a 0.2% fall the previous month. The survey also showed a more positive outlook for the economy in the next 12 months and was quite a surprise considering the timing of the poll coincided with downbeat assessments of the economy by both the RBA and government. On the other hand, home loans data came in below expectations, registering a mere 0.4% increase from a month earlier vs. a 2.0% forecast.

Japan’s current account balance staged a comeback from its record deficit in January, according to February’s data, posting a JPY1.1169 tln surplus from a JPY172.8 bln deficit and even beat forecasts of a JPY1.078 tln surplus. However, the export side of the trade equation still disappointed, with a 4.9% dip m/m, but an even greater collapse in imports saw a trade surplus of JPY202.1 bln recorded in February.

Asia basically embraced the risk-aversion trade with JPY crosses hard-hit. Most Asian bourses were down over 2% on the day, echoing the losses on Wall St, and FX markets were in accord. EUR looking particularly vulnerable to a sell-off as outlined above, while EURJPY is also looking soft below key 200-MA levels on short-term charts.

The highlight of today’s data releases will be the FOMC minutes from the March 18 meeting. Recall at this meeting the Fed surprised markets by announcing a decision to buy $300 bln of Treasury securities and an additional $580 bln in agency bonds. Expect the minutes to show the depth of discussion that went into the decision and its expected/intended impact. It is interesting to note that the kneejerk surge in 10-year US Treasuries saw yields dip to 2.5% from 3% yet today, three weeks later, yields have recovered back to 2.9% and swap rates are almost back to pre-announcement levels.