The US dollar index (DXY) bounced by around 0.3% off a two-month low early London. EUR slipped from 1.3267 to 1.3208 but recovered in NY to 1.3244. Safe-haven yen outperformed, USD/JPY extending a multi-day slide from 80.20 to 79.74 – a fresh two-month low. AUD fell from 1.0460 to 1.0406. NZD (along with CAD) underperformed, falling from 0.8226 to 0.8162. AUD/NZD firmed from 1.2700 to 1.2750.
Economic wrap
US core PCE defl ator up 0.2% in Mar. This outcome was in line with the 0.2% rise in the core CPI and of course implicitly revealed when the quarterly core PCE deflator was published late last week. Personal income rose 0.4% in March, a little stronger than earlier in the quarter despite the apparent moderation in the jobs market in March; personal spending growth however slowed from 0.9% to 0.3% as auto sales slowed from their February peak.
US Chicago PMI down from 62.2 to 56.2 in April, its lowest reading since late 2009. Production fell 11.5 pts to 57.1; orders were down 5.9 pts to 57.4, but jobs rose 2.4 pts to their highest for the year so far at 58.7. This regional factory index has stood out as a relatively robust measure of activity, rarely dipping much below 60 since 2010, so this latest decline adds to the body of evidence suggesting the economy lost some momentum heading into the current quarter. The same is true of the Milwaukee-NAPM which edged up 1.1pts in April to 52.9 after falling 6.8 pts in March; and the Dallas Fed factory index which slipped from 17.8 to 10.8 in April.
Euroland money supply M3 growth accelerated from 2.8% yr to 3.2% yr in March, but growth in loans to households and businesses slowed from 0.8% yr to 0.6% yr, further evidence that the ECB's LTROs in Dec and Feb may have been credited with too much success a little prematurely. There is little doubt they eased bank funding concerns but little evidence they encouraged new lending and/or economic activity. Meanwhile the fl ash estimate of Euroland inflation was 2.6% yr in Apr, down a tick from March and the recent peak of 3.0% in Q4 last year.
German retail sales rose 0.8% in March, only the second rise in six months, although the annual sales pace of 2.3% yr continues to benefit from favourable base effects related to sample and methodology changes in Q2 last year. Compared to six months ago, March sales were down around 1%.
Spain confirmed in recession. GDP contracted 0.3% in Q1, the same pace of decline as in Q4 but a touch less weak than the 0.4% slippage estimated by the Bank of Spain last week. With the economy barely growing in the middle quarters of last year it is already contracting on an annual basis, down –0.4% yr. In not unrelated news, a dozen Spanish banks' credit ratings were cut by S&P today, following the sovereign downgrade last week.
UK house prices rose 0.1% in April but were down 0.9% yr according to Hometrack, broadly consistent with most other price indicators of the sector.
Market outlook
AUD and NZD Outlooks:
There's plenty of event risk during the domestic sessions, although tonight will be thinned by European May Day holidays. Most important will be the RBA meeting, where a 25bp cut is widely expected. We expect the market to respond to any surprise guidance in the statement regarding potential for a followup cut in June. NZ has wage costs, a pre-Budget speech from PM Key, and tonight's dairy auction. China's official PMI release will also be watched.
AUD/USD 1 day: A small bounce to 1.0440 ahead of the RBA is possible.
AUD/USD 1 month: Lower to 1.0100.
NZD/USD 1 day: A small bounce to 0.8190.
NZD/USD 1 month: Lower to 0.7900.
NZ 2yr swap yield: Down 2bp to 2.76% this morning.
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