A night of recent ranges as far as the major currencies was the order of the overnight session, the AUD/USD marking time ahead of the RBA decision today at 2.30pm.  As background to the $A, iron ore spot prices pulled back again yesterday by $0.95 to $56.18, gold rose 1.13% and LME copper by 1.0%.  The VIX volatility index was little changed at 12.85, well within recent ranges.  Equity markets were higher as were government bond yields, German 10y bunds up 8 bps to 0.45% and US 10y Treasuries up 3 to 2.14%.  The final EZ Manufacturing PMI (April) was revised fractionally (higher).  There was continuing commentary on Greece and almost a blaze acceptance that Grexit, should it arrive, might cause little market disruption.

We also had a speech from FOMC voter Chicago Fed President Charles Evans (monetary policy dove) who continued to offer his view that the Fed should delay raising rates until 2016.  He sees the Q1 growth as likely mostly transitory but wants evidence that is the case.  The Fed need not hurry to raise rates.  John Williams, San Francisco Fed President (more neutral, also a voter this year) said it was good news that the economy was making “amazing progress”, speaking to an audience on small business developments.

The Fed’s quarterly Senior Loan Officers’ Survey reported little net change in loan demand from business.  A special survey question on lending to the oil and gas sector reported some deterioration in loan quality, though for more than 80% of banks with such exposure, such lending is less than 10% of such loans.

Coming up today/ tonight

First up this morning, there’s a 7.30 speech from RBA Chief Information Officer Sarv Girn at a CEDA Digital Bytes Breakfast in Sydney.  Clearly not market sensitive.  Then, ahead of the March International Trade report and of course the RBA this afternoon is the weekly ANZ-Roy Morgan Consumer Confidence that rose 3.5% in the week to 26 April.  There’s also the AiG PMI Services Index for April (L: 50.2).  As for the 11.30am trade report for March, we look for the trade deficit to shrink to $A-1.0bn from $A-1.256bn, benefiting from a 4% fall in already published merchandise imports, a counter to the fall in commodity price receipts.  Bear in mind that NAB will be releasing its March NAB Online Retail Sales index too at 11.30 ahead of ABS Retail Trade for March tomorrow.

We also have the Victorian Government’s Budget today.

As for the RBA we’ve written and spoken on our view of the economy in recent months, how it has held up, and our view that this argues for the RBA to leave rates on hold in May.  The transition to the domestic economy has shown more signs of gaining traction, evident also in yesterday’s building approvals and ANZ Job Ads reports.  So, as recent press reports suggest, there will be a recommendation to the Board to ease but will the Board accede to this recommendation and cut?  We are the first to recognise the risk of a further move, but we would contend that the Bank should again hold fire, given emerging more favourable economic trends.

The market closed yesterday 75% priced for an easing today so the price risk would be more on the upside of yields and the $A in the event the RBA holds fire.  In April, the market was 75% also priced for a cut, the RBA did not move and the AUD bounced ½ US cent from 0.762 to 0.767.  And that was with a still evident strong easing bias, the Board judging then “that it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead……(our emphasis)”  In the event the RBA cuts, we would expect the RBA to adopt a downplayed easing bias, suggesting another cut might be out there, but not likely anytime soon.

Tonight sees the EC’s latest economic forecasts ahead of the US ISM Non-manufacturing that’s expected to tick down to 56.0 from 56.5.

Overnight

US Treasury yields continued climbing: Eurostoxx 600 +0.5%, Dax +1.4%, CAC +0.7%, FTSE +0.4%.  Dow +46 points to 18,070, +0.3%, S&P 500 +0.3%, Nasdaq +0.3%, VIX 12.85 +1.2%.  Mumbai +0.9%, Nikkei 225 +0.2% and ASX 200 +1.8%; ASX SPI futures this morning +0.5%.  US bond yields: 2s at 0.60% (0), 10s at 2.14% (+3).  WTI oil at $59.03 (-0.2%), Brent at $66.48 (+0.0%), Malaysian Tapis (yesterday) $68.35 (+2.7%).  Gold at $1187.50/oz (+1.1%). Base metals: LME copper +1.0%, nickel -1.4%, aluminium -0.8%. Iron ore $56.2/t -1.7% Chinese steel rebar futures +0.6%. Soft commodities spot futures: wheat -0.3%, sugar -3.1%, cotton +0.1%, coffee -1.0%.  Euro Dec 14 CO2 emissions at €7.62/t (1.3%). The AUD/USD’s range overnight 0.7818-0.7852; indicative range today 0.7800-0.7850 ahead of the RBA; the AUD/USD is 0.7839 now

Euro-zone Mfg final PMI (Apr) revised up trivially to 52.0 from the prelim 51.9; EC Sentix Investor Confidence (May) 19.6 (L: 20.0; E: 19.1)

US ISM New York (Apr) 58.1 (L: 50.0); Factory orders (Mar) +2.1% (L: 0.2%; E: 2.0%)

For full analysis, download report:

• Markets Today: 5 May 2015 (PDF, 410KB)

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