Below trend growth to continue
Watching the horrific wind and rain maps of the Sydney area must have seen many planes circling and hoping to land or simply stuck on the tarmac. Markets were also in a holding pattern overnight.
Watching the horrific wind and rain maps of the Sydney area must have seen many planes circling and hoping to land or simply stuck on the tarmac. Markets were also in a holding pattern overnight. The German ZEW Survey for April came and went without fanfare, despite its current conditions index spiking sharply higher as the survey’s respondents (investors) rejoiced at the sight of the DAX soaring this year (+22%). But the sting in the tail was a fall in expectations, so hardly a glowing endorsement of the outlook. Friday’s German Ifo survey of German business is a more reliable reflection of the German economy than current investor spirits and expected to be marginally better.
There’s been continuing Greece news wire coverage, ECB President Juncker saying “a bigger effort is needed by the Greeks”; EuroGroup Finance Ministers head Dijsselbloem also pointed to the need for a “concentrated” effort. More telling for markets was an unsourced and unconfirmed story the ECB was/is considering greater haircuts for Greek banks to tighten up on its Emergency Liquidity Assistance program. In the end, the Euro has been a tad stronger overnight in net terms in the wake of a decline in the Dow and the S&P while European stocks closed higher, though not Athens’ SE that fell 3.33% with Greek 10y bonds jumping 35 bps and a sell off in Greek bank credit.
The AUD regained a little composure overnight, trading to a high of 0.7754, after falling in our session yesterday after Stevens’ Monday night speech in New York and yesterday’s RBA April Minutes confirming the RBA’s continuing easing bias. The AUD/USD trades at just over 0.77 in early Asia trade. One followed RBA watcher, Sophia Rodrigues (MNI) said that the arguments for another cash rate cut remain strong but concerns that the next cut would be the last in the cycle could tip the Reserve Bank of Australia into standing pat at its May meeting. She also went on to say the RBA could delay a month or two, keep the A$ dollar under pressure and give policymakers time to weigh up more data. One point the Minutes did say yesterday is that that today’s CPI (price information; see below) was in the frame for the RBA’s assessment of whether the economy is on its forecast lower path or not.
First up today are Japanese merchandise trade figures for March (9.50 AEST) with a seasonally adjusted trade deficit of ¥-409bn after a ¥-639bn in February from stronger export growth and further contraction in nominal imports, no doubt Japan enjoying the terms of trade boost from lower resource commodity prices.
Then after the Westpac leading index (10.30) and Skilled Vacancies (11.00) we have the Q1 CPI that’s taken on more market sensitivity since the yesterday’s RBA April Minutes noted that “the Board saw advantages in receiving more data, including on inflation (our emphasis, and this part was added from March), to assess whether or not the economy was on the previously forecast path.” In this connection, the RBA’s February (lower forecast path) forecast of underlying CPI embodied an average q/q rise in underlying inflation of 0.5-0.6% to get to their year-ended Q2 15 forecast of 2¼%. Something lower, say up to or maybe even a low 0.5% might re-open prospects of a May easing somewhat. A reading of 0.6%-plus though would likely convince them that the likes of retail sales, employment and the NAB Survey upticks have substance and a less worrisome economic performance and thus arguing for the RBA to sit pat in May and support the $A today. NAB’s forecast is 0.35% for underlying is thus more tilted to the former, weaker growth path tilt message from the CPI. We also note that while our models point to 0.35% for underlying, other partial price data points to some offsetting risks. All will be revealed at 11.30.
Also, keep an eye on the AUD/NZD in the light of today’s CPI, the cross now getting very close to parity, having already traded within 37 pips of that level and a little above that this morning.
BoE Minutes and EC Consumer Confidence are released tonight as well as US House prices and Existing home sales reports.
AUD/NZD knocking on the door of parity: Eurostoxx 600 +0.6%, Dax +0.4%, CAC +0.1%, FTSE +0.2%. Dow -85 points to 17,950, -0.5%, S&P 500 -0.5%, Nasdaq -0.1%, VIX 13.25 -0.4%. Mumbai +1.8%, Nikkei 225 +0.4% and ASX 200 -0.8%; ASX SPI futures this morning -0.3%. US bond yields: 2s at 0.52% (0), 10s at 1.91% (+2). WTI oil at $55.26 (-2.0%), Brent at $61.87 (-2.5%), Malaysian Tapis (yesterday) $62.99 (-1.6%). Gold at $1201.80/oz (+0.7%). Base metals: LME copper -0.6%, nickel -1.0%, aluminium +0.3%. Iron ore $51.0/t -1.0% Chinese steel rebar futures +0.2%. Soft commodities spot futures: wheat +0.4%, sugar -2.3%, cotton -0.6%, coffee 1.0%. Euro Dec 14 CO2 emissions at €7.12/t (-0.7%). The AUD/USD’s range overnight 0.7691-0.7754; indicative range today 0.7675-0.7750; the AUD/USD is 0.7714 now
German ZEW Business Survey, current situation (Apr) 70.2 (L: 55.1; E: 56.5); Expectations 53.3 (L: 54.8; E: 55.3)
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