Sentiment remained elevated amid prospects for more US fiscal stimulus and a solid US GDP result. The S&P500 is currently up 0.7% and at a fresh record high. Bond yields are slightly higher, while currencies were mixed. Commodities, Brent crude oil futures rose 2.0% to $68.60, copper fell 0.1%, and gold fell 0.4%, while iron ore rose 0.1% to $191.30.
Overnight Currency Ranges
AUD/USD 0.7751 0.7818 six week high
EUR/USD 1.2103 1.2150 two month high
GBP/USD 1.3932 1.3979
USD/JPY 108.43 109.22
NZD/USD 0.7223 0.7286
USD/CAD 1.2279 1.2322
USD/CNH 6.4607 6.4775
AUD/JPY 84.37 85.00
AUD/NZD 1.0725 1.0739
China’s PMIs for April could retreat from the post-holiday surge in March. Besides a higher base from March, stricter measure on environmental protection could pose downside risk for manufacturing PMI as well. The strength of China’s export could also start to fade out in the coming months. In fact, the Caixin manufacturing PMI, which focuses more on export-oriented firms, already eased in March. The high base could also hurt the services PMI, but the ongoing services recovery should have remained in good shape in April. During the 3-day long Qingming holiday at the beginning of this April, the number of tourists declined by 5.5% compared with the same period in 2019. The decline was much smaller than the 21% during the Golden Week last October.
In Europe, an intensification of the COVID-19 pandemic and more stringent containment measures suggest the Eurozone economy will see another contraction in activity in Q1. ECB’s Lagarde already suggested the decline is likely to be more severe than the 0.4% drop pencilled in to the ECB’s forecasts. The bigger question is where the Eurozone economy goes from here. Progress on vaccinations is being held back by a third pandemic wave and new virus variants. Markets have already priced in ECB policy normalisation lagging that of the Fed’s. Now they need to ascertain just how far behind the ECB will be.
AUD/USD traded to a six high of 0.7818 yesterday with offering interest still expected just above that point while demand should slow any fall between 0.7730/50.
Event Risk Data Today
Australia: For March, markets expect private sector credit will rise 0.3%. Annual credit growth drops from 1.6% to 0.8% (impacted by base effects), matching the low in the 2009 cycle. Credit to the private sector is soft but improving with housing in an upswing and business lending stabilising. Markets will be looking for signs of shipping disruptions to cause upstream price pressure in the Q1 PPI. The April ABS Business Conditions survey will provide a useful gauge of responses to the ending of JobKeeper.
New Zealand: Housing policy changes will add to uncertainty in the April update of ANZ consumer confidence.
China: The April non-manufacturing (market f/c: 56.1) and manufacturing (market f/c: 51.8) PMIs will reveal robust momentum after the Lunar New Year Holiday.
Euro Area: The March unemployment rate is expected to hold at 8.3%, with furlough schemes continuing to support the labour market. CPI inflation will see a material rise in coming months on base effects, evident in April data (market f/c: 0.5%, 1.6%yr; prior 1.3%yr). The market is looking for Q1 GDP to contract 0.8% (-2.0%yr), marking the Eurozone’s second technical recession due to the virus; we are expecting the recovery to commence in the second quarter as lockdowns unwind and vaccinations accelerate.
US: The employment cost index is expected to expand a further 0.7% in the first quarter - wage growth has held up despite the unravelling of the labour market during the trough of the pandemic. March personal income is set for a 20.0% jump on stimulus and the labour market recovery, both of which will also support personal spending (market f/c: 4.2%). The March core PCE deflator is expected to advance 0.3% (1.8%yr, prior 1.4%yr) - we have already seen a 0.6% pop in the CPI, but these price pressures will be transitory. The April Chicago PMI should reflect the strength seen in other regional surveys (market f/c: 65.0).