But will it end prematurely? A few hurdles on the horizon later in the week


MAJOR HEADLINES – PREVIOUS SESSION

  • US Mar. Pending Home sales out at +3.2% m/m vs. flat expected and revised +2.0% prior

  • US Mar. Construction Spending out at +0.3% m/m vs. -1.6% expected and -1.0% prior

  • AU AiG Service Performance Index out at 39.8 vs. revised 35.5 prior

  • AU Mar. Building Approvals out at +3.5% m/m, -16.5% y/y vs. revised +8% m/m, -25.3% y/y prior

  • NZ Apr. ANZ Commodity Price Index out at +2.5% vs. +1.0% prior

  • AU RBA leaves rates unchanged at 3%


THEMES TO WATCH – UPCOMING SESSION

  • Sweden Riksbank Minutes (0730)

  • UK PMI Construction (0830)

  • EU Euro-zone PPI (0900)

  • Us Redbook Retail Sales (1255)

  • US ISM Non-manufacturing Index (1400)

Market Comment:

Money and energy continues to be poured into the recovery theory after US data again surprised to the upside yesterday. US pending home sales were up 3.2% m/m in March vs. an expected flat reading and construction spending also showed positive month-on-month growth in the same period versus an expected contraction. The resultant upswing in risk appetite benefitted the so-called “risk” currencies (AUD, NZD, CAD and GBP) to the detriment of the USD with AUD and CAD both hitting new highs for 2009.

The EUR was a definite laggard, struggling under the weight of early negatives from German retail sales data, a gloomy prediction from ECB’s Weber that German growth was unlikely to hit positive territory until the second-half of 2010, and EU downgrades to Euro-zone growth forecasts for this year and next.
Nevertheless, a late rally saw EURUSD regain the 1.34 handle for the first time in a month and looks poised to challenge the 200-day MA which currently stands at 1.3490.

As the delayed release of the US bank stress tests nears, there is a notable increase in speculation, leaks and headlines on the matter. The WSJ carries a story highlighting that about 10 of the 19 banks involved in the stress tests may be directed to boost their capital. Citigroup and BoA have been widely associated with a need to top up capital, but Wells Fargo was also identified as needing to boost capital. Maybe investment guru Warren Buffett will be the main “donor” as he reportedly viewed Wells Fargo as a “wonderful bank”. Citigroup noted that any additional capital would come from private investors while BoA suggested that they had no plans to raise capital. As discussions are on-going there is a risk that the matter will grab more headlines and prove to be a fly in the ointment of the current risk rally. On the other hand, watch for AIG results later this week which rumour has it will show that no new injections from the US government will be necessary.

Asia had another quiet session with Tokyo centre absent for the second day (not returning until Thursday), consolidating the overnight gains but not willing to push currencies further amid a more cautious approach. The WSJ article on stress tests served to cap gains and sent China and Hong Kong indices into the red at lunchtime, only to rebound in the afternoon session. The main event of the session was the RBA rate announcement which came in with a decision to leave rates unchanged at 3.0%, as expected. AUDUSD had a mini rally after the announcement, pulling up 20 ticks from the morning lows. In the accompanying statement, the RBA said monetary policy had eased significantly, and the full effect of the policy easing had yet to be seen. RBA also said there were signs that the Chinese recovery was picking up speed but that the global economy was still shrinking overall.

Earlier, other Australian data had matched the better economic data releases seen elsewhere. Building approvals showed another solid month-on-month gain, rising 3.5% m/m in March after February’s revised 8.0% rebound. This was the second consecutive monthly rise in 9 months and beat forecasts of +2.3%.
Elsewhere, the AiG service industry performance index indicated a smaller contraction in activity for the second month in a row. While still below the key 50.0 mark, the 39.8 reading could be giving signs of having hit a bottom. Sector-wise, weakness was mixed rather than being broad-based, with new orders rose 6.2 points to 37.6 while the employment component also recovered 4.5 points to 41.7.