The US GDP report for the 1st quarter 2015 came in at a light 0.2% annualised rate. This compares with an average forecast of 1% growth. In this globalised economy, it would be difficult to envisage the US economy taking off on its own trajectory - in any huge degree - with the rest of the world still battling the gravity of deflation. Still, the shortfall in the numbers last night was rather stark, especially against the backdrop of a steady job market recovery over the past year. The reaction in the markets was immediate, particularly in the USD. Both AUDUSD and the eurodollar punched above their respective psychological levels of 0.80 and 1.10. The DXY in turn broke below the 95 level in a knee-jerk reaction. Incidentally, this 95 level was also the crucial break-out level from two months ago, when the USD capitulated to the upside! What remained most perplexing (at least to this writer) from last night’s market action, was the continual sell down in the US bond markets. 10-year treasuries broke above the 2% yield to close at 2.05%. This seems like an ‘against-the-grain’ reaction to the weak GDP report, along with expectations for a push out on the US rate hike script. Other significant fall-outs from events last night were in European stocks. The German DAX was down more than 3% with the French CAC and Euro Stoxx losing more than 2.5%. Overnight, it became unfashionable to hold on to European equities as fears of a stronger euro were starting to look like a reality. With the eurozone scheduled to release its Q1 flash GDP on the 13 May, any number above the 0.2% last night may tilt in favour of the view that the EU may be growing faster than the US. Throughout it all though, the only certainty from events over these past days is that thoughts of parity on the eurodollar have all but evaporated from the minds of most currency traders.
Both local banks - OCBC and UOB - reported Q1 earnings this morning. The initial read was a better-than-expected number from OCBC (+11% in net profit) with UOB coming in in line with analysts’ forecasts. Overall there were no major surprises. Both banks executed well in growing their non-interest income components, especially in the wealth management and fees category. Also with the spike in SIBOR in Q1, both banks managed to benefit from an improvement in interest margins as they were able to re-price loans, especially to those in the interbank markets. The charts below show OCBC testing a key resistance here at S$10.90. A firm breakout with momentum could see the stock push higher into new all -time highs.
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