RBNZ reaction, Bank of Japan preview, Facebook and Apple overshadow FOMC

It has been a big day for news already with lots more on the way. The FOMC meeting turned out to be much ado about nothing as the central bank maintained its benchmark rate as expected and kept its options open for June. In its statement, the central bank indicated employment growth remains strong but economic growth has slowed while personal income growth is outpacing spending growth. It also indicated inflation remains soft but this can change as commodity prices recover. Most interestingly, the Fed dropped all references to concerns about overseas developments, paving the way for a more domestic focus. There was one hawkish dissenter, KC Fed President George, same as last time. Trading in USD and US indices was choppy after the report indicating the Fed was successful in setting a neutral tone.

The technology sectors dominated stock market action. The day started with Apple’s earnings, sales and guidance miss in the spotlight as a 6.2% decline in its shares pulled the NADSAQ down 0.5%. Concern has been growing for some time that the iPhone product line was reaching the peak of its lift cycle so the miss didn’t have an impact on the broader market with the Dow gaining 0.25%. Twitter also took a big hit falling 16.2% with sales and sales guidance running below expectations.  

Late in the day, focus turned to Facebook who posted stronger than expected earnings and sales sparking an 8.5% pop for its shares in aftermarket trading and helping the NASDAQ to recover lost ground. First Solar, on the other hand has dropped 6.5% on the news that its CEO is planning to retire.

Crude oil has been really resilient today. WTI sold off after a rise in DOE oil inventories contradicted a decline in API inventories Tuesday night. WTI regained its footing into the afternoon and finished strong with a 1.25% gain as it took another run at the $45.00/bbl level trading up near its highs for 2016 to date.  

The RBNZ maintained its overnight cash rate (OCR) at 2.25%. NZD has rallied on the news indicating some traders had been hoping for an immediate cut and have been forced to scramble to get back on side.

In the statement, Governor Wheeler did indicate further easing may be required but gave no indication on when or if another rate cut could occur. Similarly, he indicated the NZD exchange rate remains higher than appropriate and suggested a lower dollar would be desirable but didn't make any intervention threats. The overall tone was neutral, expressing concern about the impact of low dairy prices, but also expressing concern about rising house prices. NZD has gained a big figure on the news but remains below the 70 cent barrier.   

Focus now turns to Japan with a ton of news on the way. The latest Bank of Japan decision is due and ahead of that a number of key economic indicators are scheduled for release. Overall, expectations for the data are poor which can be taken two ways. A weak economy and low inflation could add to the case for more monetary stimulus. On the other hand, if the economy is still struggling after the central bank introduced negative interest rates earlier in the year one has to wonder if more stimulus would have any effect either.

Considering that JPY has rallied dramatically since the negative interest rate announcement, the market reaction to whatever news comes today may not follow conventional wisdom either. What does appears likely is that we could see significant volatility around the data and monetary policy announcements, and that Japanese stocks may continue to trade in the opposite direction of JPY, particularly exporters.  


Corporate News

Facebook    $0.77 vs street $0.62 (wow!!), sales $5.38B vs street $5.26B, mobile 82% of revenue, plans to create a new class of shares.

First Solar    sales $848M below street $959M, raises low end of full year EPS guidance to $4.10-$4.50, CEO stepping down to be replaced by CFO

Texas Instruments    $0.65 vs street $0.62

Open Text         $0.80 vs street $0.84, 15% dividend increase


Economic News

Significant announcements released overnight include:

US FOMC interest rate        0.25%-0.50% no change expected

NZ RBNZ cash rate        2.25% no change expected

US advance goods trade bal    ($56.9B) vs street ($62.8B)
US pending home sales        2.9% vs street 0.8%

US DOE crude oil inventories    1.99 mmbbls vs street 1.75 mmbbls
US DOE gasoline inventories     1.6 mmbbls vs street (1.0 mmbbls)

UK Q1 GDP            2.1% vs street 2.0% vs previous 2.1%


Upcoming significant economic announcements include:

(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)  

9:30 am AEDT        Japan unemployment rate    street 3.3%
9:30 am AEDT        Japan consumer prices        street 0.0%
9:30 am AEDT        Japan core CPI            street 0.8%
9:50 am AEDT        Japan retail sales        street (1.4%)
9:50 am AEDT        Japan industrial production    street (1.6%)

TBA             Bank of Japan decision        no change to QE target expected
TBA             Bank of Japan policy rate    (0.10%) no change expected

3:00 pm AEDT        Japan housing starts        street (0.6%)
3:00 pm AEDT        Japan construction orders    previous 12.4%

11:30 am AEDT        Australia export prices        street (1.5%)

7:00 pm BST        UK Nationwide house prices    street 5.0% vs previous 5.7%
8:00 am BST        Spain consumer prices        street (0.7%)
8:30 am BST        Sweden retail sales        street 3.5%
8:55 am BST        Germany unemployment chnge street 0K
8:55 am BST        Germany unemployment rate    street 6.2%
9:00 am BST        Norway unemployment rate    street 4.8%
9:00 am BST        Norway retail sales         street 0.4%
10:00 am BST        Greece retail sales        street (2.0%)

1:00 pm BST        Germany consumer prices    street 0.1%

8:30 am EDT        US Q1 GDP            street 0.7 vs previous 1.4%
8:30 am EDT        US Q1 personal consumption    street 1.7% vs previous 2.4%
8:30 am EDT        US core PCE inflation        street 1.9% vs previous 1.3%
8:30 am EDT        US jobless claims        street 259K

10:30 am EDT        US natural gas storage        street 70 BCF
11:00 am EDT        US Kansas City Fed        previous (6)