April 15, 2016

Markets Today: Crazy little thing called ……risk

Risk sentiment took something of a breather overnight without going into reverse.

Risk sentiment took something of a breather overnight without going into reverse.  Even so, the AUD took centre stage, trading this morning at the door of 0.77, having tested above the figure during the New York session, after doing a lot of work in the lower 0.76s yesterday.

It’s been a somewhat choppy 24 hours or so for the AUD, buying appetite dented by a release yesterday morning on Australia’s sovereign rating from Moody’s and even in the wake of the strong employment report.  The note from the ratings agency commented that spending cuts would likely only be modest and of “fading prospects for tax reform” with a return to a balanced budget in FY2021 difficult to achieve without revenue tailwinds.  Countering the negatives, Moody’s also made note that Australia has favourable credit metrics relative to other Aaa peers.

Appetite for the AUD has re-emerged again overnight, thanks to the tailwinds already created this week by strong reports from the NAB Business Survey and yesterday’s labour market report revealing a push back down in the unemployment rate and ahead of today’s China data feast.  Commodity prices have also been adding to the risk-on move this week, iron ore for example pushing through $60/t on Wednesday, though it gave back half of Wednesday’s rise overnight, down $1.10/t to $59.38/t.  It’s still up 8.55% on this time last week.

The AUD has made some more gains overnight despite neutral risk sentiment, US equities struggling to make positive headway (the VIX though is somewhat lower), the LMEX base metals index down 0.17%.  Gold was down 1.66%, while oil prices were a little lower ahead of this weekend’s Doha major producer talks.  Overnight release of the IEA’s April Oil Market Report was followed initially by a slight bid tone that was reversed later in the session.  The IEA saw little impact on oil supply from a planned production freeze with inventories still rising.

The USD was dealt a little on both sides from US economic reports, the CPI a tenth softer than expectations for headline and core but weekly jobless claims printing at a very low 253K, equalling the March 4 week’s low and indicative of still low layoffs.  The USD eased back for a time before steadying late in the session.

The Bank of England left rates on hold again – no surprises there – but the Old Lady weighed into the Brexit debate with force, warnings on Brexit that caught the market’s attention.  Sterling was not unduly volatile as a result, trading this morning at 1.4154.  (It has of course already been reacting negatively to any polls suggesting a greater Brexit risk.)  The BoE noted that Brexit would result in an extended period of uncertainty with significant implications for asset prices, particularly sterling.  We await further polls of course and the June 23 referendum.

Fed President Lockhart (non-voter) has been speaking, opposing an April rate, changing his view from three weeks earlier when he supported a hike as early as this month amid signs of a softening in consumer and business spending. US Treasury yields ticked higher for the session, by 2-3 bps along the curve.

Coming up

It’s the multi key data hit from China today with the release of Q1 GDP (E: 6.7%; L: 6.8%) together with the March y/y and ytd growth rates for industrial production (L: 5.4% ytd; E: 5.5%), retail sales (L: 10.2%; E: 10.2%) and ytd Fixed assets investment growth (L: 10.2%; E: 10.4%), all out at midday AEST.  Recall that the official target for GDP growth this year is 6½-7%.  Those date points hit the screens at 12:00 AEST.  The ytd growth numbers for the monthly reports should provide the first indication for the year getting over shifting Lunar New Year timetables.

Also out this morning is the RBA’s Financial Stability Review at 11.30.  Obviously not a market mover but what they have to say about the housing/apartment market and the state of household and business balance sheets is always of interest.

While not the absolute top tier in terms of market importance, tonight sees release of US industrial production for March as well as the preliminary April reading from the UoM Consumer sentiment survey that should also reveal some nudge back up in 5-10 year inflation expectations following the lift in oil prices.  That measure is tracked pretty closely by the Fed, so a rise would not surprise given oil’s rally, while a pull-back would be a disappointment.  Fed President Charles Evans (non-voter) is speaking as well.

Also remember this weekend’s major oil producers meeting in Doha.


On global stock markets, the S&P 500 was +0.00%. Bond markets saw US 10-years +2.80bp to 1.79%. On commodity markets, Brent crude oil -0.75% to $43.85, gold-1.7% to $1,227, iron ore -1.8% to $59.38. AUD is at 0.7694 and the range was 0.7692 to 0.7696.

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