Markets Today: Strong

The German economy is continuing to out-perform. The run of better than expected data continued, this time from the German Ifo Survey for March.


The survey was the strongest since 2011 and also not far off the pre-GFC highs of a decade ago when the German economy was growing at 3%-plus.  The headline Business Climate Index printed at 112.3, up from an already high 111.1 (that was also the expectation), the Current Assessment and Expectations components all better than expected.  The German economy notched up 1.9% growth last year that was stronger than the 1.6% US growth.

German bunds under-performed and there was apparent appetite for the Euro that tested 1.09 overnight (before pulling back) keeping the USD DXY on the back foot that is down 0.41%.  US markets have been listless, Treasuries bid as the market resets after pulling of the health care bid, taking stock before entering any new Trump reflation trade positions.

Not doing the Euro too much harm, ECB Chief Economist Peter Praet noted that deflation risk in Europe was gone.  He did though say that it was premature to talk about a stimulus exit even though the ECB is this year starting to see light at the end of the tunnel.  Bundesbank President Jens Weidmann wasn’t so coy.  He would like less expansive policy, noting a danger QE will last too long.  He also mentioned that some of the more indebted countries are using QE for more spending rather than paying down debt.  European stocks were lower.  Even so, it’s hard to deny that positive European growth sentiment was also helped by Chancellor Merkel’s party’s strong showing in last weekend’s regional Saarland elections, coming just weeks ahead now of the first round of the French Presidential election (April 23).

The AUD has continued to trade in a restricted range, despite a further sizeable clean out of iron ore prices overnight.  The Qingdao 62% benchmark was down another $3.49 to $US81.57/t, back to early February levels, testing the faith of real money investors.  With Cyclone Debbie now crossing the north Queensland coast, we’ll be watching for news in coming days on the coal front.  (There was no refresh of coal prices overnight.)  Oil prices were also testing lower levels before support returned.

Chicago Fed President and 2017 voter Charles Evans was speaking at the same event in Madrid as Praet, Evans also doing an interview with Bloomberg TV.  He thought that 2-3 rate hikes this year would probably be appropriate, noting that three would be likely appropriate “to the extent that he gains confidence” in his forecasts.  He was also a little more illuminating on fiscal policy: “We probably got ahead of ourselves and thought that some of it would be showing up in 2017 in our first (December) forecast,” he said. “This last one in March, we moved much more of it to 2018.”

Coming Up

In a quiet week for scheduled events, it’s a quiet day.  RBA Deputy Governor Guy Debelle is speaking at 9.00 AEDT though don’t expect any market fireworks.  The market pays close attention to any comments on the Aussie or the market from Debelle (apologies if you’ve heard me say this before!) but expect him to stick to script on the Global FX Code of Conduct as he did to a conference in Singapore last week.  This one looks like a repeat, the speech having almost the same title and only a week out from next week’s Board meeting.

Whether the market gets anything new from Fed President Kaplan might also be a stretch (9.30).  He’s also a voter this year.  He’s only just spoken at the end of last week and then spoke of raising rates in a gradual, predictable way, that three hikes is a reasonable baseline, and that further economic progress still needed before announcing balance sheet plans.  The market will be much more interested – or hoping (vainly) for new insights from Fed Chair Yellen’s address tonight.  There is also US S&P/CoreLogic House prices and the Conference Board Consumer Confidence tonight along with the Richmond Fed Manufacturing index for March and the Advance US Goods Trade balance for February.  BoC Governor Poloz is also speaking tonight.  Given the strong run of European data of late, there will be close monitoring of ECB commentary, tonight from ECB French member Coeure and Slovak CB Governor Makuch speaking.


On global stock markets, the S&P 500 was -0.10%. Bond markets saw US 10-years -3.77bp to 2.37%. In commodities, Brent crude oil -0.06% to $50.77, gold+0.5% to $1,255, iron ore -4.1% to $81.57, steam coal +0.0% to $80.95, met.coal +0.0% to $156.75. AUD is at 0.7622 and the range since yesterday 5pm Sydney time is 0.7606 to 0.7648.

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