Early in the Asian session RBA’s Debelle gave an additional prop to the AUD’s revival overnight by saying that the AUD is in the “right balance” relative to the (near record high) terms of trade while adding that Australia’s mortgage rates are about where the central bank wants them to be. On the local liquidity scene he added that Australian banks had more than enough collateral to deal with any liquidity event – no doubt there are some envious eyes from Europe!
In other central bank utterings, Bank of England’s Miles maintained his dovish stance (he, along with Posen was one who voted for an extra £25 bln worth of QE at the March meeting) saying slack in the economy would likely keep inflation contained, with growth staying pretty close to zero over the past 6 months. Looking ahead, Miles said policy tightening would begin with rate increases followed by “orderly” sales of Gilts over a period of time. However, the BOE’s balance sheet would remain “permanently higher”.
Data releases in Asia were second-tier and had zero impact on activity. Japan’s service sector prices remained weak in February, falling 0.6 percent y/y but nudged just a tad higher on a monthly comparison, rising just 0.1 percent. There appears no response yet to the BOJ’s last easing and the 1 percent target inflation rate is a longer-term achievement.
We saw an impressive rollercoaster ride for the EUR in the overnight session with a sharp early sell-off following the release of the German IFO surveys smartly reversed after a surprisingly dovish speech from Fed chairman Bernanke. The sell-off was a tad surprising given that the IFO surveys were more-or-less in line with forecasts, and marginally better than last month’s, but EURUSD held above the 100-day MA and rallied 150 points on the back of Bernanke’s comments.
Bernanke said he was unsure if the recent gains in employment numbers were sustainable and repeated that labour market conditions were “far from normal”. The comments appeared as if he was trying to downplay the recent breakout in US yields and reinforce the Fed’s commitment to “lower rates for longer”. The reaction in interest rate markets was rather muted however, with 2-year yields edging down 1bp by the close and 10-years even backing up 1bp. The reaction in currency markets was more pronounced with the USD retreating 1 percent from the day’s highs.
On the data front, both of the activity indices showed further deceleration, with the Chicago Fed index sliding to -0.09 from an upwardly-revised 0.33 and the Dallas equivalent falling to 10.8 from 17.8. Pending home sales extended the recent run of corrective levels seen in the housing sector this month, with a 0.5 percent m/m decline. Wall St took heart from Bernanke’s dovish words and started the week off strongly, with the DJIA rising 1.23 percent to 13,241, S&P up 1.39 percent to 1,416 and the Nasdaq rising 1.78 percent to 3,122.
Data Highlights
US Feb. Chicago Fed Activity Index out at -0.09 vs. 0.00 expected and revised +0.33 prior
US Feb. Pending Home Sales out at -0.5% m/m, +13.9% y/y vs. 1.0%/9.7% expected and 2.0%/10.3% prior resp.
US Mar. Dallas Fed Manufacturing Activity out at 10.8 vs. 17.0 expected and 17.8 prior
JP Feb. Corp. Service Price Index out at -0.6% y/y vs. -0.4% expected and revised -0.4% prior
China Feb. Industrial Profits YTD out at -5.2% y/y vs. +25.4% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
JP Small Business Confidence (0500)
GE GfK Consumer Confidence (0600)
GE Import Price Index (0600)
Swiss UBS Consumption Indicator (0600)
Sweden Household Lending (0730)
Sweden PPI (0730)
Sweden Trade Balance (0730)
UK CBI Reported Sales (1000)
US S&P CaseShiller House Prices (1300)
US Fed’s Dudley to speak (1400)
US Fed’s Kamin to speak (1400)
US Consumer Confidence (1400)
US Richmond Fed Manufacturing Index (1400)
UK BOE’s Fisher, Broadbent to speak (1400)
UK BOE’s Dale to speak (1630)
US Fed’s Rosengren to speak (1635)
US Fed’s Bernanke to speak (1645)
UK BOE’s Posen to speak (1700)
US Fed’s Fisher to speak (1720)
Andrew Robinson,
SAXO BANK