April 24, 2015

Markets Today: The battle for the low end

It was a case of softer than expected readings on both sides of the Atlantic overnight, but in the wash up, the market was inclined to give more credence to the softer suite of US economy reports than for Europe’s.

It was a case of softer than expected readings on both sides of the Atlantic overnight, but in the wash up, the market was inclined to give more credence to the softer suite of US economy reports than for Europe’s.  The Bloomberg spot dollar index in net terms is off by 0.61%, with major currencies, including the AUD making gains against the big dollar.  In the wake of all the data, the AUD/USD has been trading up toward 0.78 again in late New York/ early Asia trade.

The ANZAC currencies are not quite at the top of the pile this morning, but have made a good fist of it.  In the background for the Aussie, iron ore prices rose again yesterday, as did LME copper, while the VIX is lower as US stocks closed higher.  And the Kiwi has also made some headway against the softer USD notwithstanding a speech from RBNZ Assistant Governor John McDermott leaving the market with the impression that the bias for the NZ cash rate between now and the end of the year is likely to be down not up.

The preliminary PMIs for France and Germany both missed expectations and March readings, initially seeing the Euro pull back to below 1.07, but this proved to be a buy area on the day.  The pull back had analysts scratching their heads, the single currency economy appearing to slow despite the benefit of a lower currency and ultra-low/negative bond yields.  ECB Chief Economist Praet said in the aftermath that the Euro-zone economy was turning the corner (German consumer confidence was also resilient) and the market seemed to take some comfort from that, the EUR/USD rallying even in the lead up to the US data points. Other headlines from Europe ahead of the EU Finance Ministers meeting in Riga tonight have centred on talk of “Grimbo”, yet another catchphrase for Greece, this one a period of limbo for Greece, another update to Grexit and Graccident.

Though far from the most market sensitive data, weaker-than-expected US New Home Sales, an uptick in jobless claims and a pull-back in Kansas City Fed manufacturing played to the softer US growth thematic.  US Treasury yields eased as did the US$.

The RBA’s Guy Debelle was speaking in London overnight on a FX panel, lamenting the compression of bond market term premia and little overall compensation for risk.  He did however report that the RBA, ASIC and AFMA are working on the development of “a robust risk-free interest rate benchmark in the local market, likely based on overnight indexed swap (OIS) rates” as opposed to a credit benchmark such as the bank bill swap rate.  He expects progress in coming months.

Coming up today/ tonight

Quiet data-wise through our local session today.

Most of the attention of the pointy heads tonight will be on the German Ifo Business Survey that’s regarded as one of the best monthly indicators of Germany’s economic performance.  The Current Assessment  index – a coincident indicator of the economy’s performance – is expected to increase to 112.4 from 112, a level that is consistent with if not a little above Germany’s current 1.4% growth rate.  The EuroGroup Finance Ministers meeting tonight will get plenty of press coverage; ”kicking the can down the road” will likely get a run on the wires.  Then the focus will turn to the US durable goods orders report, orders having softened, and in part from the downturn in oil and gas exploration and drilling machinery requirements.  This report is for March and headline orders are expected to rise 0.6% with core orders up 0.3% after February declines.  March saw steadier WTI so it will be interesting to see whether this was reflected in any further pull back in development activity.


The US$ loses a little grip: Eurostoxx 600 -0.4%, Dax -1.2%, CAC -0.6%, FTSE +0.4%.  Dow +20 points to 18,059, +0.1%, S&P 500 +0.1%, Nasdaq +0.2%, VIX 12.48 -1.8%.  Mumbai +0.4%, Nikkei 225 +0.4% and ASX 200 -0.6%; ASX SPI futures this morning +0.5%.  US bond yields: 2s at 0.53% (-2), 10s at 1.96% (-2).  WTI oil at $57.48 (+2.4%), Brent at $64.73 (+3.2%), Malaysian Tapis (yesterday) $63.10 (+1.7%).  Gold at $1193.30/oz (+0.5%). Base metals: LME copper +0.5%, nickel +0.2%, aluminium -1.6%. Iron ore $54.8/t +1.4% Chinese steel rebar futures +2.1%. Soft commodities spot futures: wheat +0.5%, sugar +3.5%, cotton +4.0%, coffee -1.5%.  Euro Dec 14 CO2 emissions at €7.29/t (2.4%). The AUD/USD’s range overnight 0.7711-0.7790; indicative range today 0.7750-0.7800; the AUD/USD is 0.7778 now

Euro-zone Manufacturing PMI (Apr, prelim) 51.9 (L: 52.2; E: 52.6); EZ Services PMI (Apr, prelim) 53.7 (L: 54.2; E: 54.5); UK Retail sales (Mar) -0.5%/4.2% (L: 0.7%/5.7%; E: 0.4%/5.4%)

US initial jobless claims (w/e 18 Apr, payroll survey week) 295K (L: 294K; E: 287K); New home sales (Mar) 481K/-11.4% (L: 539K/7.8%; E: 515K/-4.5%); Kansas City Fed mfg (Apr) -7 (L: -4; E: -2); Markit Manufacturing (Apr) 54.2 (L: 55.7; E: 55.7)

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