Markets Today: Sitting, waiting, wishing

News on Apple’s earning report have hit the screen in the past hour showing revenue and iphone sales slightly missing expectations.

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Jack Johnson hit “Sitting, waiting, wishing” has nothing to do with markets but the chorus lines “must I always be waiting, waiting on you?” plays into the overnight price action as markets have been on a wait and see mode ahead of Apple’s results after the bell and the FOMC decision early tomorrow morning. US equities ended the day marginally in positive territory with technology share leading the way while the automobile sector underperformed following another disappointing sales update. The latter appears to have been a factor for the move lower in US Treasury yields with the fall in oil prices and Trump’s tweeting complains on the US political gridlock also contributing to Treasuries performance. Lower US yields have seen the US dollar underperform most G10 currencies with the New Zealand dollar close to the top of the leader board helped by a better than expected dairy auction overnight.

News on Apple’s earning report have hit the screen in the past hour showing revenue and iphone sales slightly missing expectations, although EPS of $2.10, beat analyst expectations of $2.02. Apple shares have fallen over 2% after hours and could set the tone when US markets open again tonight.

Looking at the data releases overnight is probably worth highlighting sales at all six of the biggest automakers in the U.S. dropped again in April, each company’s figures printed below analysts’ estimates resulting in the fourth consecutive month of falling sales in aggregate. On Monday, March US personal spending figures disappointed (0.0% vs 0.2% exp.) and now the new drop in car sales confirms the view that not all is well with the US consumer. The recent soft US data releases are challenging the view that a rebound in activity should be expected in Q2.

Looking at currencies in more detail, NZD is close to the top of the leader board, up 0.44% against the USD and currently trading at 0.6935. Overnight the GDT dairy auction was stronger than the flat outcome expected by our BNZ colleagues, average prices rose by 3.6% and whole milk powder climbed 5.2%. Our BNZ FX strategist notes that while some global commodity indices are trading close to their lows for the year, the NZ commodity price index such as the CBA version hasn’t fallen at all this year and this supports our NZD fair value estimate, which is around 0.7450.

In addition to SEK (0.48%) and CHF(0.44%), GBP has also been one of the outperformers against the USD overnight boosted by stronger than expected manufacturing PMI release. In April the survey jumped to 57.3 vs 54 exp; the 9th consecutive month of expansion and the highest reading in almost 3 years. Cable is currently trading at 1.2941 with momentum and technical indicators suggesting a move above 1.30 should not come as a surprise.

The AUD is little changed after yesterday’s RBA decision to leave the cash rate unchanged. The decision was unanimously expected and we now have to wait for the SoMP release on Friday for more details on the Bank’s outlook on the economy. After trading to an overnight low of 0.7511, the AUD is currently trading at 0.7538, essentially unchanged over the past 24hrs.

JPY and CAD are the two G10 underperformers against the USD. Of note JPY underperformance comes despite the move lower in UST yields, boosted by the softer tone in gold of late and the performance of Japanese equities. Late yesterday, USD/JPY traded above the ¥112 mark for the first time in more than a month and it has remained above the mark so far. Meanwhile CAD’s underperformance (-0.22%) has coincided with the move lower in oil prices. That said as we are about to press the send button oil is staging a bit of a recovery with WTI trading back above $48.

Coming Up

We have a busy calendar over the next 24 hrs with New Zealand’s Q1 labour market report the first cab off the rank this morning. Then later in Europe we get Germany’s labour market data for April, the UK releases its construction PMI (April) and the EU prints its advance Q1 GDP reading. Tonight the ISM non-manufacturing (Apr) and ADP report (Apr) are out in the US and early tomorrow morning (4:00 a.m Sydney time) we get the FOMC policy rate decision. Note too that the French presidential debate between Macron and Le Pen is also scheduled to start tomorrow at 4:00 a.m Sydney time (8:00 p.m France time).

Our BNZ colleagues expect New Zealand’s unemployment rate to remain steady at 5.2% against market’s expectations for a slide to 5.1%. Meanwhile the participation rate is seen unchanged at 70.5% and private wages ex overtime are seen steady at 0.4% (both in line with the market’s view).

The market is looking for the euro area to have grown by 0.5% in Q1, Germany’s unemployment rate is seen unchanged at 5.8% and the UK construction PMI is expected to print at 52 , unchanged from the previous month.

After printing at whopping 263k in March, the ADP employment report is expected to moderate to 175k in April. Last month’s the ADP report was a terrible predictor for the 89k private payrolls number. At this stage private payrolls (April) are expected to print at 190k on Friday, but a big deviation on the ADP outcome tonight could still influence expectations for Friday.

Despite of all the debate about soft data turning softer, the market is still looking for the ISM non-manufacturing PMI to modestly rise in April to 55.8 from 55.2 previously. The index was likely depressed in March due to severe weather and the late Easter, if so the risk is that we get a bigger rebound than expected by consensus.

As for the FOMC, no change is widely expected both in terms of the policy rate and language of the statement, however any comments on the Fed balance sheet will be closely monitor. NAB remains of the view that the Fed will hike in June and again later in the year. The market is currently pricing a 61% chance of a hike in June and 34bps by the end of the year.

Overnight

On global stock markets, the S&P 500 was +0.12%. Bond markets saw US 10-years -3.77bp to 2.28%. In commodities, Brent crude oil -0.82% to $51.1, gold+0.2% to $1,258, iron ore -0.1% to $68.72, steam coal -0.5% to $79.00, met.coal -5.7% to $190.00. AUD is at 0.7535 and the range since yesterday 5pm Sydney time is 0.7511 to 0.7556.

Good luck.

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