A EUR evening. The ECB cut rates 25bp, as expected, to 1.00%,
but didn't really satisfy the market's expectations regarding quantitative
easing. It said it would buy covered bonds (e.g. mortgage backed), but that they
would sterilise the purchases, preventing an expansion of the money supply. The
EUR60 billion involved equates to a paltry 0.6% of GDP (compared to the Fed's
12.5%, and BOE's 8.7%), such stimulus relatively tiny, and not supportive of
USD versus EUR as the market had earlier expected, seeing EUR buying after the
meeting. The BOE, on the other hand, paused as expected at 0.50%, but increased
the size of their QE program by GBP50 billion, depressing the sterling. The
S&P500 closed down 1.7%, despite generally better data, partly attributed
to Fed Bernanke's comment that exit strategies have been considered. Worthy of
note, too, is the S&P500 forming a key daily reversal, warning of an end to
this risk-rally. China's central bank said in its quarterly report
that the massive amount of QE could raise inflation and hurt bonds. US 10yr
treasuries tumbled by 14bp to 3.30%, while 3mth Libor chugged 2bp lower to
0.96% as funding pressures ease.
EUR rocketed off 1.3250 support to 1.3470 on the
ECB's lack of QE, settling in the high 1.33's. GBP weakened from 1.52 to 1.50
on the BOE's increase in QE.
AUD ignored the S&P500 and ran up with the EUR
to 0.7615, pulling back to 0.7540. Yesterday's better employment report likely
supported the currency throughout the evening.
NZD is broadly unchanged at 0.5900, after an
overnight high of 0.5990. AUD/NZD is slightly weaker at 1.2750. Yesterday's NZ
employment report, as well as Australia's, contributed to support of the NZD.
US Q1 productivity growth 0.8% annualised, reflecting a slightly steeper 9.0% fall in
hours worked compared to an 8.2% fall in non-farm output. Unit labour costs
growth slowed from 5.7% to 3.3% annualised.
US initial jobless claims fell 34k
to 601k last week, further
evidence that the pace at which employees are being laid off has past its peak.
However in the previous week continuing claims rose to a new record high of
Fed chair Bernanke delivered a speech about banking supervision
but did not touch directly on the current state of the economy or monetary
The European Central Bank cut its
key repo rate by a further 25bp to 1.00%; announced a decision to conduct liquidity-providing longer term
refinancing operations with a maturity of one year; and announced a EUR60bn
program of covered bond purchases (i.e. debt securities backed by cash flows
from mortgages or other assets but that remain on the issuer's balance sheet).
ECB president Trichet said that "we are not at all embarking on
quantitative easing" and seemed to say that these asset purchases would be
sterilised but as we go to press there is still some confusion about the exact
nature of the stimulus this program will provide. The technical details will be
provided at the June 4 Council meeting. Nevertheless, the ECB clearly
recognises the "marked weakening of economic activity in the euro area and
globally". Trichet emphasised that the Council had not decided that the
repo rate could not be lowered further (his double negative!), but gave no
explicit hints about any further moves as soon as June.
German factory orders jump 3.3% in
Mar. This surprise rise was the
first in seven months. Annual orders growth remains weak at -26.7% yr.
The Bank of England left its official rate at 0.50%, but voted to continue with its quantitative
easing program, and increase it by a further GBP50bn to GBP125bn. The Bank will
present its latest quarterly growth and inflation forecasts on May 13.
The NZD almost reached 0.6000 last night, but
the correlation with the S&P500 reasserted itself and dragged it back. If
the technical reversal indicator in the S&P500 does prove prophetic, look
for a significant pullback in NZD to 0.55.
Country Release Last Forecast
8 May Aus
RBA Statement on Monetary Policy
Non-farm Payrolls Change β663k β650k
Unemployment Rate 8.5% 8.8%
Wholesale Inventories β1.5% β1.0%
Jpn Apr BoJ
Policy Meeting Minutes
Industrial Production β2.9% β4.0%
Producer Prices %yr 3.3% 2.3%
Employment Change β61k β65k
Starts 13.7% β1.4%
11 May NZ
Apr Electronic Card Transactions β0.5% β
House Prices %yr β4.0% β
Aus Apr NAB
Business Confidence β13 β
β’ NZ Q1 HLFS
Review (7 May)
β’ NZ Weekly
Forex Outlook (4 May)
Economic Overview May 2009 (1 May)
β’ NZ Q1
labour market preview (30 April)
β’ RBNZ OCR
Review (30 April)
papers/publications are available on Online Research on Westpac
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