The RBA’s Financial Stability Overview painted a quite upbeat picture of the local banking system and, in a similar vein to member Debelle’s speech yesterday, offered assurance that the system was well-capitalized and well-positioned to meet the requirements of the Basel III accord.
Households appear comfortable in meeting debt obligations, with mortgage arrears low by international standards and repossession rates very low. Large banks have continued to post robust profits with low bad loan provisions, though the RBA warned about chasing unrealistic profits with higher risk attitudes, given the prospect of slower credit growth. The Review had little impact on the AUD which continued to appear top-heavy after last night’s reversal. Early in yesterday’s session the AUD staged a brief rally as Brazil noted there was still significant iron ore demand from China.
Currency markets were relatively range-bound overnight with a slew of Fed speakers keeping traders cautious in the early stages. In the end, comments from the speakers was mixed and in line with known dove/hawk leanings. Fed’s Rosengren echoed Bernanke’s doubts on the economy, adding that further stimulus would be needed if growth disappoints and even noted hawk Fisher commented that the tax uncertainty may weigh on growth.
From the UK, BOE’s Posen echoed fellow dove, Miles, by downplaying inflation and repeated that ongoing policy stimulus was needed. This knocked GBP back from its peep above 1.60 versus the dollar.
USD/JPY stormed higher for a brief period after a US think-tank suggested that the Bank of Japan would need to ease further in order to reach its 1% inflation target. However, the pair peaked at a near one-week high and, with US yields ticking lower, the pair reversed direction to finish just above the 83.0 mark. Further slippage ensued during the Asian session following a weak Nikkei performance.
On the easing note, Bank of Japan’s deputy governor Nishimura commented today that the Bank’s focus is on the long-term trend of prices, with the effect of any increase in sales taxes excluded. Colleague Miyao, an arch-dove, also added that the BOJ will continue with its powerful monetary easing to beat deflation but offered assurance that, as per Nishimura, the massive bond buying operation is not aimed at monetizing debt. USD/JPY still below 83.0.
Overnight US data releases were mixed, with US consumer confidence dipping to 70.2 in March from a revised 71.6 in February though the “expectations” index was weaker than the “present situation” index, largely weighed down by rising gasoline prices. The S&P Case Shiller reading on house prices showed further slippage, down 3.8 percent y/y in January. The Richmond Fed manufacturing index slid sharply in March, falling to +7 from +20 (+18 expected) and further indication of the mean-reversion tendency of this batch of indicators.
Data Highlights
- US Jan. S&P Case Shiller House Prices out at -0.04% m/m vs. -0.3% expected and revised -0.47% prior
- US Mar. Consumer Confidence out at 70.2 vs. 70.0 expected and revised 71.6 prior
- US Mar. Richmond Fed Manufacturing Index out at +7 vs. +18 expected and +20 prior