The newly-released minutes of the last RBA meeting, where a surprise 50bp cut was delivered, was not a real market mover during today’s Asian session, as we have already seen the BA’s monetary policy statement in the meantime. According to the minutes, the reasoning behind the 50bp move focused on the need to get borrowing costs lower for the “community” as major local banks had been edging rates higher with wholesale funding costs lower but above mid-2011 levels. Weakness in the housing sector was also a focus and members saw little prospect of an imminent recovery in housing construction. Meanwhile the mining sector continues to perform exceptionally strongly.
On the external situation, China’s growth has slowed to a more sustainable level while global growth sentiment is fragile with Europe still having a lot of work to do, despite some progress (this all before the French and Greek elections). Kneejerk reaction was a mild negative for the AUD, though AUDUSD only dipped 15 points to 0.9947 before consolidating.
The EUR traded heavily early in the Asian session as a broader risk-off mood continued form yesterday’s overnight session. A Moody’s downgrade of 26 Italian banks (2 largest banks by one notch, others by as many as 4) added to the negatives and we pushed down to a 4-month low of 1.2815 in EURUSD and 3-1/2 year low 0.7965 in EURGBP.
Foreign direct investment into China continues to face headwinds amid an uncertain external situation and growth potential for the Chinese economy. April FDIs were down 0.7 percent y/y and cumulatively for the first 4 months of the year are down 2.4 percent y/y. April’s inflows amounted to $8.4 bln bringing the total for 2012 to $37.9 bln.
EUR’s weakness had continued overnight as Greek coalition talks made no progress (another election looking increasingly likely), Euro-zone industrial production was weak and periphery Euro-zone debt yields started to tick higher. SNB reiterated its resolve to defend the 1.20 floor in EURCHF while SNB chief Jordan commented that EURCHF at 1.20 was still too low for the overvalued CHF. Commodities moved lower in the broader risk-off trade to the detriment of AUD and CAD. AUDUSD fell through parity for the first time since December 2011.
There was no US data or Fed speakers to influence the US session so markets took their direction from Europe. DJIA closed down 0.98 percent, S&P -1.11 percent and the Nasdaq -1.06 percent.
Data Highlights
EU Mar. Euro-zone Industrial Production out at -0.3% m/m vs. +0.4% expected and +0.8% prior
AU Apr. New Vehicle Sales out at -0.4% m/m, +7.3% y/y vs. +4.1%/+4.0% prior resp.
China Apr. Actual FDI YTD out at -0.7% y/y vs. +2.8% expected and -6.1% prior
NZ Apr. Non-resident Bond Holdings out at 62.1% vs. 60.9% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
JP Consumer Confidence (0500)
GE Q1 GDP (0600)
UK Trade Data (0830)
EU Q1 GDP (0900)
GE ZEW Surveys (0900)
EU Euro-zone ZEW Survey (0900)
US Advance Retail Sales (1230)
US CPI (1230)
US Empire Manufacturing (1230)
US Net Long-term TIC Flows (1300)
US Business Inventories (1400)
US NAHB Housing Market Index (1400)
Andrew Robinson,
SAXO BANK