USD and GBP still well supported for now ahead of latest US Consumer Confidence data.
MAJOR HEADLINES – PREVIOUS SESSION
- New Zealand Mar. Trade Balance out at -50M vs. +395M expected
- Australia Feb. Leading Index out at -0.2% vs. -0.5% in Jan.
- Australia Q1 NAB Business Confidence out at -4 vs. 6 in Q4
THEMES TO WATCH – UPCOMING SESSION
Key Risk Events (All times in GMT)
- Sweden Apr. Consumer Confidence and Q1 Manufacturing Confidence (0715)
- Sweden Mar. Retail Sales (0730)
- Switzerland Mar. UBS Consumption Indicator (0800)
- UK Mar. Mortgage Approvals (0830)
- UK BOE's King to speak on Reappointment as Governor (0845)
- UK Apr. CBI Distributive Trades Report (1000)
- US Feb. S&P/CaseShiller Home Price Index (1300)
- US Apr. Consumer Confidence (1400)
- UK BOE's Blanchflower to Speak (1700)
- US Weekly ABC Consumer Confidence (2100)
- New Zealand Mar. Building Permits (2245)
- UK Apr. GfK Consumer Confidence (2301)
- Japan Apr. Manufacturing PMI (2315)
- Japan Mar. Jobless Rate (2330)
- Japan Mar. Household Spending (2330)
- Japan Mar. Industrial Production (2350)
- New Zealand Apr. NBNZ Business Confidence (0300)
- Japan BoJ Target Rate (no time given)
- Japan Mar. Housing Starts (0500)
Market Comments
Traders seemed unwilling to make a statement yesterday as the market largely remained rangebound. One of the bigger movers was GBP, which posted new recent highs against the EUR and CHF. We have a decent batch of UK data rolling in over the next 24 hours, including mortgage data for March, the latest CBI report, a speech by King (which may not contain heavy policy-related rhetoric) and a speech by Blanchflower, whose comments will likely be thoroughly discounted as he is a known dove, have been the lone voter for a 50 bp cut at the last BOE meeting.
The market is leaning for a 25 bp rate cut from the Fed tomorrow, though only about 20 bps of that is priced in. Again, the key will be the guidance from the monetary policy statement. The USD strength of late is largely based on the bet that the Fed is going to position the market for a neutral stance from tomorrow's announcement. But also important for a strong USD will be further signs of relative slowing elsewhere in the world, especially in Europe.
With inflation at current levels, credit markets having stabilized remarkably in recent weeks, and equities trading close to the highs since mid-January, it's difficult to understand why the Fed needs to signal further interest rate easing. Yes, the real numbers rolling in are quite ugly, but sentiment is very high as the market is betting on a V-shaped recession. Again, we suspect the next cycle will show the market moving to fears of a U-shaped recession, which may or may not require further easing down the road - all dependent on the inflation outlook. For now, the market is justified in the Fed indicating a move to neutrality.
A note about the Japanese Housing Starts number out tonight. Last summer, strict new rules went into affect related to the seismic data of new developments (for withstanding earthquakes). Within 2 months of these measures, housing starts had dropped over 40% YoY. This has acted as a large drag on the overall growth data from Japan. But since the end of last year, the starts data is recovering rapidly and may help Japan's growth picture in this quarter, especially as such a sharp drop has likely led to some pent up demand in housing.
NZD looks weak again after a bad Trade Balance number that reminds us of the kiwi's vulnerability if more risk aversion is to materialize. Watch the 0.7780 level in NZDUSD as a possible trigger for a further large downside move.
Chart: EURCHF
EURCHF has risen sharply as the avoidance of the systemic meltdown scenario provided grounds for a sharp rally in this classic barometer of market risk in recent weeks. The rally is way overdone, and it may be time to establish strategic short positions ahead of the 200-day moving average, looking for a return to the lows from earlier this year. Most carry/JPY crosses have essentially the same outlook.