Earnings Season Finds Reality as Prices Fall
20/04/09 20:36
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Per the last blog entry, today saw material weakness in equities. We saw the onset of the movement reflected in the Dow futures prices thru Asian into London session. Typically Dow futures weakness of 100pts or more during Asia or London can stimulate USD buying in the current environment.
Another major US bank beat first quarter earnings expectations but investors again remain cautious. The bank said conditions remain difficult and several one-time gains appeared to bolster the first quarter figures. Results of government bank stress tests continue to weigh on investor sentiment and President Obama recently commented that further government support may be needed and said, "Different banks are in different situations. They're going to need different levels of assistance from taxpayers". Since the stimulus money is not finding its way into the pockets of consumers, I’m not convinced the speculation of inflation later in 09’ is likely to find its way. That is a subject for another time. Press reports also suggest there is some debate between the US Treasury and financial regulators on how to release their results, which are scheduled for early May. There are fears that by identifying the banks with the most vulnerable capital positions, further weakness could ensue, for the banks themselves and for the wider financial system. The credibility of the tests themselves has also been called into question as the market remains in the dark about the methodology used.
Per the last blog entry, today saw material weakness in equities. We saw the onset of the movement reflected in the Dow futures prices thru Asian into London session. Typically Dow futures weakness of 100pts or more during Asia or London can stimulate USD buying in the current environment.
Another major US bank beat first quarter earnings expectations but investors again remain cautious. The bank said conditions remain difficult and several one-time gains appeared to bolster the first quarter figures. Results of government bank stress tests continue to weigh on investor sentiment and President Obama recently commented that further government support may be needed and said, "Different banks are in different situations. They're going to need different levels of assistance from taxpayers". Since the stimulus money is not finding its way into the pockets of consumers, I’m not convinced the speculation of inflation later in 09’ is likely to find its way. That is a subject for another time. Press reports also suggest there is some debate between the US Treasury and financial regulators on how to release their results, which are scheduled for early May. There are fears that by identifying the banks with the most vulnerable capital positions, further weakness could ensue, for the banks themselves and for the wider financial system. The credibility of the tests themselves has also been called into question as the market remains in the dark about the methodology used.
ECB President Trichet reiterated in an interview with a Japanese newspaper that a decision on non-standard monetary policy measures will be taken on May 7th. He hinted that any future cut to the refi rate would be "very measured" and implied that this was tantamount to a 25bp cut. Amid increasing signs of divisions within the ECB he added that it was the position of the Governing Council that it would be unwise to cut the base rate to zero. Meanwhile ECB member Bini Smaghi played down talk of deflationary fears within the Eurozone and expects to see a gradual recovery in 2010.
Earnings Season Finds Reality as Prices Fall
The producer price index unexpectedly fell to -0.4% m/m (prev. 1.3%) versus expectations of a 0.6% m/m increase. The data could herald a further easing of inflationary pressures up ahead, with CPI data due on Wednesday expected to show a reduction in inflation to 2.8% y/y from 3.7% y/y previously. The data provides further room for manoeuvre in setting the level of the RBA's cash target which currently stands at 3%. The upcoming minutes of the RBA's April meeting will be followed by a speech by RBA Governor Stevens. Both will be closely watched for any indications that further monetary policy easing could soon be on the cards.
The FT published an interview with NZ PM John Key on Friday. Key said that NZ can't afford any further fiscal stimulus for its economy for fear of a potential ratings downgrade. His comments follow a report by the OECD on NZ released yesterday that argued that, while there was room for further rate cuts, there was no room for additional fiscal stimulus. The OECD warned that even with additional monetary stimulus, "a deep and protracted recession, involving a housing market correction and deleveraging of household and business balance sheets, is unlikely to be avoided." John Key, himself previously a prominent figure in global FX trading at a major investment bank, argued that a weaker NZD would help to correct NZ's current account deficit. Yesterday's OECD commentary seemed consistent with advocating the RBNZ cut the cash rate from 3% down to 2% by next year (the market is only pricing in no easing over the next 12 months), and caused NZ yields to fall. While long AUDNZD is a favoured trade by macro punters the world over, we maintain our view that the NZD will gradually weaken against the AUD due to the relatively larger excesses of the NZ economy and given Australia can (currently) afford to engage in further fiscal stimulus.
Source: UBS, Bloomberg, Chris Lori CTA