Below trend growth to continue
Currencies are really where it's at this morning, with the US dollar smartly lower across the board and with losses led by the Aussie and Kiwi dollars.
An Asia-Pacific market coming in to work to read that US retail sales disappointed expectations, printing flat in headline terms in April and just 0.1% ex-auto (+0.2% and 0.5% expected, albeit there were some upward revisions to March) would be justified thinking the US dollar would be lower, bond yields lower and equities probably weaker for choice. If, so, they’d have scored two out of three, the surprise being that US Treasury yields are higher at 10-years at least (+4.5bps), though to be fair 2-year note yields are lower (-2bps). US equities were narrowly mixed, the S&P and Dow closing with tiny losses and the NASDAQ a very small gain.
Currencies are really where it’s at this morning, with the US dollar smartly lower across the board and with losses led by the Aussie and Kiwi dollars, up 1.73% and 1.63% respectively on Tuesday’s NY closing levels. Glenn Stevens and Graham Wheeler must be crying into their cornflakes this morning. We still think FX intervention prospects – from the RBA in particular – are very low, but that unless and until the US dollar perks up alongside better data, there is little prospect of a meaningful near term reversal in AUD or NZD.
Though still up on the night versus the beleaguered US dollar and where the narrow DXY dollar index is off almost 1% to 93.68, GBP is the underperformer in G10 currencies. This after the Bank of England downgraded its full year economic growth forecasts through 2017 in its latest Quarterly Inflation Report, citing higher (market) interest rates, a stronger Sterling, less home building and weaker productivity growth versus February. The Bank also sees downside risks to inflation over the first half of the 3-year forecast period. The Euro meanwhile came to no harm after Q1 GDP printed at 0.4%, in line with expectations (with overs and unders from France and Germany) but rallied back to its recent (7 May) highs just beneath 1.14 straight after the retail sales data.
As for those numbers, there is still plenty of commentary suggesting that the full effect of the harsh US winter weather has not yet played out, and that the dividend from lower gasoline prices may not show up until well into Q2. That may be so, but as things stand the Atlanta Fed’s latest ‘GDPNow’ estimate for Q2 GDP sits at just 0.7% post-retail sales. With Q1 GDP like to be revised down, there’s currently a decent chance the US economy will record no growth in H1 2015.
Also worth noting this morning, Saudi Arabia tells the FT that its strategy of squeezing high-cost rivals such as US shale producers is succeeding, as the world’s largest crude exporter seeks to reassert itself as the dominant force in the global oil market. “There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including US shale, deep offshore and heavy oils,” a Saudi official told the Financial Times in Riyadh.
The only known event on the Australian calendar today is NAB’s quarterly commercial property survey (and of interest insofar as this a sector identified by the RBA as exhibiting some bubble-like tendencies). For the currency, there may be stronger interest in the data from across the Tasman, such is the interest in the AUD/NZD cross at present and the feedback from volatility here to the AUD more broadly. Incoming NZ data will also get intense scrutiny in the run-in to the 11 June RBNZ OCR decision and MPS and where money markets currently ascribe almost a 50% chance to a 25bp cut in the OCR.
Today we’ll get the Business NZ manufacturing PMI (8:30 AEST) followed 15 minutes later by Q1 real retail sales. For retail, our BNZ colleagues look for a 1.3% increase in volume terms (similar to market). If so, it would be the ninth quarter out of the last ten that quarterly growth has been at least 1.0%. It would make for an annual expansion in real retail spending of 5.8% for Q1 of 2015.
Offshore tonight, we get US weekly jobless claims, and which of late have been running at level consistent with monthly payrolls gains in excess of 250k, and producer prices where the ‘Final Demand’ headline rate is seen holding steady at -0.8% Y/Y but with the core (ex food and energy rate expected to rise to 1.1% from 0.9%.
On global stock markets, the S&P 500 was +0.00%. Bond markets saw US 10-years +4.56bp to 2.29%. On commodity markets, Brent crude oil -0.58% to $66.47, gold+1.9% to $1,216, iron ore -0.5% to $62.58. AUD is at 0.8108 and the range was 0.7952 to 0.8124. Indicative range today 0.8060 -0.8135 (For more market prices, please see p.2 of the pdf).
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