It’s been a big day for news and market action in Europe and North America and in some ways, things may be just getting started.
US GDP came in at a measly 0.2%, while Core PCE inflation (a measure the Fed uses) fell to 0.9% from 1.1% sending shockwaves through world markets as the last of speculation for a June US interest rate hike evaporated. A slowing USD economy and potentially more benign outlook for interest rates sent USD hurtling downward propelling a number of majors to 1% plus gains on the day including EUR, which broke out of a base, NOK and CHF to 1%+ gains on the greenback. The top spot on the day went to SEK which soared 2% after the Riksbank decided not to go even deeper into negative territory on interest rates.
This action suggests that the massive rally in USD of the last several months had left it overextended and vulnerable to snap back trading reversals which we saw today. While the GDP news sent US stocks downward, they were seriously outpaced to the downside by European indices as the Dax
fell 2.8% compared with a 0.6% drop for the Dow. The big EUR rally and mixed earnings appeared to be the big headwinds for European stocks today.
Meanwhile the FOMC meeting came and went as a non-event. While the FOMC did recognize the slowing economy, it felt the effects were “transitory” (read bad weather, oil crash, higher USD and maybe some other factors) The statement appears to have been crafted to give it maximum flexibility going forward with no comments at all on the timing of interest rate liftoff, only a vague statement on starting when employment and inflation rise. By going neutral with no dissenters, the FOMC gave both the hawks and doves something to hang their hats on, keeping the battle going for another six weeks.
With all this big news and market action, one might think that markets could be ready for a rest. Think again. Today also looks to be a busy one for trading in Asia Pacific markets with two big central bank decisions on top of the potential reaction to today’s US developments and Baidu’s sales and earnings misses.
The RBNZ has joined the parade of central bank announcements with somewhat of a surprise of its own. Although it held the OCR at 3.50% and tried to talk down the dollar again neither of which was a surprise, its comment on future interest rates appears to have caught some traders off guard.
The RBNZ indicated future rate moves would depend on inflation and that “it would be appropriate to lower the OCR if demand weakens”. Considering that it raised interest rates 4 times last year, for 1.00% in total, the RBNZ seems to have lots of room to cut rates if it chooses to do so. The prospects of a more dovish RBNZ has sent NZD lower against both AUD and USD in initial reaction.
Later today the next Bank of Japan decision is due. Last meeting there was a hawkish dissenter who called for a tapering of its QE program. Since the last meeting Japanese stocks have continued to climb while economic figures have remained soft. This plus the fact that EUR scored big gains against JPY as well as USD suggests that we may see QE continue full speed ahead this time around as well. All the same, JPY and Japanese stocks could be active around the announcement.
Baidu CNY 7.58 vs street CNY 7.42, sales CNY 12.73B below street CNY 12.92B
Significant announcements released overnight include:
US FOMC decision 0.25% no change expected
NZ RBNZ interest rate 3.50% no change expected
Sweden interest rate surprise unchanged at (0.25) a 0.10% cut to (0.35%) had been expected
Sweden bond buying surprise SEK 40-50B increase to program
Thailand interest rate surprise 0.25% cut to 1.50%
US Q1 GDP 0.2% vs street 1.0% vs previous 2.2%
US Q1 personal consumption 1.9% vs street 1.7%
US core PCE inflation 0.9% vs street 1.0% and previous 1.1%
US pending home sales street 5.1%
US DOE crude oil inventories street 2.9 mmbbls
Canada industrial prices 0.3% vs street (0.1%)
Canada raw material prices (0.9%) vs street (2.0%)
Upcoming significant announcements include:
9:50 am AEST Japan industrial production street (3.4%)
4:00 pm AESTish Japan interest rate and QE no change expected
5:00 pm AEST japan housing starts street (1.9%)
7:00 am BST Germany retail sales street 3.1%
8:00 am BST Spain Q1 GDP street 2.5%
8:55 am BST Germany unemployment change street (15K)
8:55 am BST Germany unemployment rate street 6.4%
9:00 am BST Norway unemployment rate street 4.0%
9:00 am BST Italy unemployment rate street 12.6%
10:00 am BST Eurozone unemployment rate street 11.2%
10:00 am BST Eurozone consumer prices street 0.0%
10:00 am BST Eurozone core CPI street 0.6%
10:00 am BST Greece retail sales street (2.6%)
8:30 am EDT Canada Feb GDP street 1.9% vs previous 2.4%
8:30 am EDT US Q1 Employment cost index street 0.6%
8:30 am EDT US jobless claims street 290K
8:30 am EDT US personal income street 0.2%
8:30 am EDT US personal spending street 0.5%
8:30 am EDT US core PCE inflation street 1.4%
9:45 am EDT US Chicago PMI street 50.0
10:30 am EDT US natural gas street 86 BCF