Below trend growth to continue
Almost without irony, we have to report that Friday’s US durable goods orders report was sufficiently weak to power US stock indices to new record highs, such was the ‘zero for longer’ interpretation of the data. Not the better than expected +4% headline read-out, but the core numbers for capital goods that exclude both (exceptionally strong) Boeing aircraft orders and also relatively strong auto orders.
Almost without irony, we have to report that Friday’s US durable goods orders report was sufficiently weak to power US stock indices to new record highs, such was the ‘zero for longer’ interpretation of the data. Not the better than expected +4% headline read-out, but the core numbers for capital goods that exclude both (exceptionally strong) Boeing aircraft orders and also relatively strong auto orders. The ‘Capital Goods orders ex-defence ex-aircraft’ series fell by 0.5% (+0.3% expected) alongside which February was revised from -1.4% to -2.2%. Ex-transport only, orders fell 0.2% (+0.3%E) with February now put at -1.3% not the -0.4% originally reported.
Following the data, the Atlanta Fed revised its Q1 ‘GDPNow’ estimate back down to 0.1% from 0.2%, having revised it up from 0.1% after the relatively strong existing home sales data a week ago. The official (Bloomberg) market consensus as of Friday sat at 1.0% (the Advance GDP estimate is due on Wednesday). The Atlanta Fed don’t claim a superior track record versus market consensus forecasts, but the average absolute error of their (final) estimate prior to the (Advance) GDP release is 0.68%, and the standard error 0.94%. What this does suggest is that risk to the market consensus sits to the downside.
Directly on the back of the data, the US Treasury two-year note yield fell by 2.4bps to 0.5041%, the 5yr an even bigger 5.1bps to 1.3141% and the 10yr -4.9bps to 1.9086%. Earlier the 10yr Bund held Thursday’s backup, closing down just 1bp at 0.155%. This though was prior to the conclusion of Friday’s EuroFin meeting in Riga, which failed to produce any progress towards a deal in front of upcoming Greek IMF debt repayments,. Rather, the highlight was more outpourings of frustration directed mostly at Greek Finance Minister Vardoulakis.
In stocks, the NASDAQ made its second consecutive record closing high, +0.71% to 5092, the S&P 500 added 0.23% to a new all-time closing high of 2117.7 and the Dow was +0.12% to 18080. Earlier the Eurostoxx 50 added 0.43% led by a 0.74% rally in the German Dax.
In FX, the US dollar was softer across the board with the exception of CAD (-0.25% to 1.2174). GBP (0.87%) and NOK (+0.71%) just pipped AUD to first place, but AUD/USD still added 0.59% to 0.7824. USD/JPY lost 0.5% to Y118.99 and NZD added 0.11% to 0.7602. A EUR/USD gain of 0.45% to 1.0873 together with Yen strength depressed the DXY by 0.37% to 96.92.
In commodities, iron ore continues its recovery from sub-$50 recent lows, +$2.99 to $57.81. Metals in general were stronger, the LMEX index +1.9% but gold lost $15 to $1179. Oil was mixed, Brent +$0.43 to $65.28 but WTI -$0.59 to $57.15.
Also out Friday was the German April IFO survey, where the headline Business Conditions reading just beat expectations at 108.6 (108.4) up from 107.9 in March. The Current Assessment reading rose to 113.9 from 112.1 (112.4E) but the Expectations index fell to 103.5 from 103.9 (104.5E) which most analysts were quick to attribute to Greece-related uncertainties.
Australia’s weekend housing auctions activity was very low due to Saturday’s Anzac Day commemorations. Just 550 auctions across the 7 cities, versus 2,541 the previous Saturday. Sydney recorded a record 91.1% clearance rate and Melbourne 87.4%. Prices were up 0.2% in Sydney on the week (+6.8%YTD) but down 0.2% in Melbourne (4.8% YTD).
Lots to look forward to this week, though nothing of note on Monday itself (and NZ is closed for the ANZAC holiday). Apple report earnings tonight, where scrutiny will include the impact of US dollar strength on top line revenue (back in January, Apple warned of a $2bn hit).
Australia: RBA Governor Stevens speaks Tuesday morning in Sydney, 08:40 AEST. Data includes RBA credit, Trade prices, house prices, RBA Commodity price and AiG Manufacturing PMI
NZ: RBNZ OCR Review Thursday, merchandise trade, ANZ Business Survey, building consents, credit aggregates
China: Official PMIs (Friday)
US: FOMC (Wed), Q1 GDP (Wed), Manufacturing ISM (Fri), March PCE deflators, consumer sentiment, house prices, Fed speakers post FOMC
Europe: Confidence readings, CPI, UK Q1 GDP
Japan: BoJ meeting with new economy projections (Thur), CPI (Fri)
On global stock markets, the S&P 500 was +0.20%. Bond markets saw US 10-years -4.91bp to 1.91%. On commodity markets, Brent crude oil +0.66% to $65.28, gold-1.6% to $1,175, iron ore +5.5% to $57.81. AUD is at 0.7823 and the range since Friday’s local close was 0.7771 – 0.7841. Indicative range today 0.7800 – 0.7850. (For more market prices, please see p.2 of the pdf).
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