RBA Poised To Cut
The Australian dollar fell sharply overnight after Australian Q1 PPI inflation came in well below consensus. Our Australian economics team reacted by lowering their forecast for tomorrow’s headline CPI reading. They see this as not only bolstering the case for a 25bp RBA rate cut on May 1, but the soft PPI print also raises the risk of a follow-up cut in June. Over the weekend the IMF received pledges of “over $430 bn” from IMF member countries to boost its crisisfighting resources. Although the G20 statement made it clear that the additional funds will not be ear-marked for any particular region, the intention is to have enough resources on standby to deal with any potential escalation in Europe. We doubt the euro will get much support from this news however given the final sum is very much in line with comments by IMF Managing Director Lagarde over the past week – remarks which the market didn’t react to at the time. There also appears to be an element of double-counting here given that Eurozone central banks had already announced their intention to contribute $200 bn back in December. Finally, investor attention is currently more focused on whether additional Eurozone countries will need external financing and whether the Eurozone’s own rescue facilities have the means to offer it. This week yen-watchers will focus their attention on Wednesday’s FOMC and Friday’s BoJ policy decisions. Our US economists believe it is too early for any directional change from the Fed, though the quarterly forecasts may be revised up by some of the hawkish members in a manner consistent with the less-dovish commentary seen of late. Our Japan economists expect a JPY 5 trn expansion to the BoJ’s asset purchase program. In France, initial poll results suggest Socialist Party candidate Hollande is on track to win the first round of the French Presidential elections with 28% of the vote. The second round will be held on May 6.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank