Reserve Bank of Australia kept its policy rate unchanged at 2.0%

Market Movers

• In the US, the most important release today is the ISM non-manufacturing index for March. The index has declined for four consecutive months reflecting the slowdown in the economy, which began by the end of 2015. While the index may have been a bit too high previously, we now think the current level is actually too low compared to other economic indicators. Thus we expect the ISM non-manufacturing index to have rebounded in March.

• In the UK, focus is on the PMI services index in March. While consensus is expecting a rebound, we expect it to stay weak suggesting that the economy has slowed ahead of the EU referendum in line with the latest NIESR GDP estimate, which indicated that growth has slowed to 0.3% q/q in Q1.

• We expect euro area retail sales were unchanged in February on the back of the mixed German and French retail sales data. Note that despite some weakness lately in data related to private consumption, it is not to the same extent as for the manufacturing sector and we expect private consumption to be the driving force of the growth in 2016. PMI services figures are released for Spain and Italy as well.

• In Sweden, PMI services in March and production figures for February are due.

Selected Market News

Yesterday, data for the Danish FX reserves showed that Danmarks Nationalbank (DN) did not need to make FX interventions in March. Focus is now on whether we will see DN buying EUR/DKK in intervention to cap EUR/DKK downside following the fall over the past week to currently 7.4410.

In Sweden, we are half way in the wage negotiations and the agreements so far are lower than what the Riksbank expected. If anything, there is now a clear risk of further stimuli.

We have seen some risk-off in the markets. US equities fell yesterday and also Asian stocks are flashing red at the moment. The oil price has dropped slightly below its previous range in USD38-42 per barrel as Brent oil is currently trading at USD37.61 per barrel, the lowest in more than a month. The JPY is the strongest in more than 17 months.

As expected, Reserve Bank of Australia kept its policy rate unchanged at 2.0%. RBA said that the AUD appreciation ‘could complicate the adjustment under way’, which was a new paragraph. Other key phrases in the statement were unchanged.

Bank of Japan Governor Kuroda has said that BoJ would not hesitate to add stimulus if needed and that the next move will depend on economic conditions. He said that the stronger JPY has had a negative effect on sentiment and that the BoJ monitors the development in the JPY although it does not target a specific level.

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