US Fed slightly more upbeat. The US Federal Reserve kept interest rates
unchanged, as expected, but their statement noted the pace of economic
contraction appeared to be somewhat slower, and the economic outlook had
improved modestly. Their statement gave support to those arguing the economy is
in a bottoming out phase, boosting risk markets, with the S&P500 gaining
2.0%, and risk aversion barometer VIX falling back 2 to 36. On the other hand,
the statement disappointed the US treasury bond market, which was hoping for an
expansion of the treasuries buying program, and 10 year notes weakened by 9bp
The DXY index broke a trendline support
line dating from mid December 2008. Rumoured EUR buying by some Asian
central banks pushed it up through the 1.3250 technical level, as far as
1.3340, although it fell back a cent near the US close, following the closing consolidation in
AUD continued its domestic session rally in Europe and NY, moving from 0.7150 to 0.7300, before
settling back at short-term support at 0.7250.
NZD's domestic strength also continued, with an
overnight move from 0.5670 to 0.5780, before settling just above 0.5700
support. The RBNZ meeting this morning has the market evenly divided on a 25bp
vs 50bp rate cut, so that a reaction either way is likely.
US FOMC left its target range for
the Federal Funds rate unchanged at 0-0.25%. The statement sounded a little less downbeat on the economy
compared to the March 18 release, noting that "the pace of contraction
appears to be somewhat slower". But the inflation comment was unchanged:
"the Committee sees some risk that inflation could persist for a time
below rates that best foster economic growth and price stability in the longer term."
The Fed's policy commitment was identical too, with respect to the funds rate
"economic conditions are likely to warrant exceptionally low levels of the
federal funds rate for an extended period", and support for mortgage
lending, housing markets, and private credit markets would be maintained as
US GDP contracted 6.1% annualised in
Q1, roughly the same pace as it
did in Q4, disappointing expectations of a slower pace of decline. Consumer
spending posted its first gain in three quarters, mainly due to auto sales
which levelled off during the quarter after falling sharply through late 2008,
and because lower gasoline prices freed up income for spending on other
non-durables. But business investment spending was exceptionally weak, down 38%
annualised; housing melted down at its fastest pace yet in this downturn (-38%
ann'lsd). Another source of spending weakness was the government sector which
posted its first quarterly fall for several years. Altogether spending in the
economy contracted 5.1% annualised in Q1. On top of that, inventory rundown
lopped another 2.7 ppts off GDP, but that was partially offset by a 2.0 ppt
contribution from net exports.
Euroland confidence surveys turn a
little higher in April. The
same day that the German government revised down its official forecast for GDP
growth in 2009 from -2.25% to -6.0% (!!), we see the first upswing in
Europe-wide business, retailer and consumer confidence surveys. We suspect
these surveys have found a premature wind-back in respondent pessimism, and
would expect to see renewed weakness in confidence in the months ahead. Also,
Euroland money supply growth decelerated rapidly in March and loans to the
private sector saw their growth rate ease from 4.3% yr to 3.2% yr. This
indicator still garners respect at the European Central Bank and this sharply
slower growth rate will add to the case for further ECB action.
While our official forecast is for the OCR to be
cut by 50bp this morning, which would see NZD fall in line with our core view,
we accept there is also a good case for a 25bp cut, which would have the
converse effect. Today's RBNZ announcement is one of the toughest to predict
during this easing cycle.
Release Last Forecast
NZ RBNZ OCR
Review 3.00% 2.50%
Consents s.a. 11.6% 0.6%
Aus Mar New
Home Sales 3.9% â€“
Credit flat 0.2%
Business Survey â€“42 â€“
Personal Income â€“0.2% â€“0.3%
Spending 0.2% â€“0.4%
Mar Core PCE
Deflator 0.2% 0.2%
Employment Cost Index 0.5% 0.4%
Jobless Claims 640k 650k
PMI 31.4 36.0
Industrial Production %yr â€“38.4% â€“34.7%
Meeting 0.10% 0.10%
Starts %yr â€“29.9% â€“22.6%
Construction Orders %yr â€“24.9% â€“
Eur Apr CPI
Flash %yr 0.6% 0.5%
Unemployment Rate % 8.5% 8.7%
Unemployment Change â€˜000 69k 85k
UK Apr GfK
Consumer Confidence â€“30 â€“28
Industrial Product Prices 0.4% 0.5%
Feb GDP %mth
Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
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