Sentiment soured, led by technology stocks, without any obvious news catalysts. US Treasury Secretary Yellen added to the mood by saying rates may need to rise to prevent overheating. The S&P500 is currently down 1.0%, the US dollar is stronger, and bond yields are slightly lower.
Commodities, Brent crude oil futures rose 1.9% to $68.85 – a six-week high, copper rose 0.2%, and gold fell 0.9%, while iron ore futures (TSI) were unchanged. The bi-monthly GDT dairy auction resulted in an overall price fall of 0.7%, with whole milk powder up 0.7% (in line with yesterday’s futures market predictions of +1%).
Overnight Currency Ranges
AUD/USD 0.7675 0.7761
EUR/USD 1.1999 1.2063
GBP/USD 1.3840 1.3905
USD/JPY 109.04 109.48
NZD/USD 0.7116 0.7204
USD/CAD 1.2276 1.2352
USD/CNH 6.4683 6.4911
AUD/JPY 83.95 84.72
AUD/NZD 1.0775 1.0820
Following its multiple failures to cross 0.7820 during the latest April, AUD/USD dropped to the lowest in three weeks the previous day as downbeat data and the Reserve Bank of Australia’s (RBA) cautious optimism, not to forget risk-off mood. Australia’s March month trade numbers came in weaker than expected ahead of the RBA’s comments suggesting extended easy money policies. Even so, the Aussie central bank revised up economic growth forecasts while cutting down on unemployment rate expectations.
On the other hand, comments from US Treasury Secretary Janet Yellen troubled traders as she initially backed interest rate hike, indirectly, before saying, “not predicting or recommending” such moves. Elsewhere, the coronavirus (COVID-19) tension escalates in Asia as Japan’s largest prefecture (by area) asked for further activity restrictions to tame the pandemic’s spread while India keeps suffering from the deadly virus despite global help.
Meanwhile, US trade figures and factory orders eased in March whereas vaccine developments have been positive of late. Against this backdrop, Wall Street benchmarks closed mixed with Dow Jones Industrial Average’s (DJI30) bounce during the last hours. However, the US Treasury yields remain downbeat, propelling the US dollar index (DXY).
Moving forward, markets may keep their eyes on the risk catalysts while the second-tier activity and housing numbers from Australia may also provide near-term direction. It should also be noted that the US ADP Employment Change and ISM Services PMI for April will be the key afterward.
Event Risk Data Today
Australia: On balance, markets expect March dwelling approvals to show another gain of 3% but there are significant risks on both sides. HIA new home sales spiked again in March (+90%, after a similar 90% spike in Dec) suggesting there was another major pull-forward effect just ahead of the end of the HomeBuilder scheme on March 31. However, the flow through to approvals is highly uncertain. The April AiG PCI is due; the March read indicated that conditions in the construction sector are at a series high.
NZ: The six-monthly RBNZ Financial Stability Report comes against the backdrop of some significant changes to housing policy – although those changes will somewhat overshadow the report itself. The Government announced a range of policies in late March, which will tilt the playing field away from highly-leveraged investors. But it’s too early to have any evidence of their impact. Restrictions on high loan-to-value lending have failed to dampen the housing market’s strength. The Government also asked the RBNZ for advice on debt-to-income ratios and interest-only lending, but that advice isn’t expected until late May.
Markets expect that the Q1 household labour force survey will reveal that employment rose 0.3% over the quarter; that should see an unemployment rate of 4.9%, the same as for the December quarter. That in itself is a surprising drop from the (apparent) post-Covid peak of 5.3% in September. Meanwhile, we expect a 0.3% increase in the Q1 Labour Cost Index measure of wage growth. This would leave the annual growth rate unchanged at 1.6%. Finally, ANZ commodity prices should see more modest gains in April after a bumper March.
US: Markets expect that April ADP employment will rise 850k; however, the measure is not always in-step with official payrolls. The April ISM non-manufacturing index is expected to rise to 64.1, as the service sector continues to be propelled by surging household consumption. The FOMC’s Evans and Mester will speak.