It’s been a big week for markets with the goldilocks non-farm payrolls in the US Friday night delivering another bullish impetus for stocks but weighing on the US dollar.
That sets up an interesting announcement on Tuesday from the RBA governor and while no one expects him to ease rates, traders will be wondering if he will try to talk down the Aussie dollar. Given the macro backdrop driving the Aussie’s move higher, there is little governor Stevens can do but the NAB’s economics team expects a subtle change in rhetoric.
Also hoping for a change — although not a subtle one — will be traders on the ASX who were hammered again last week after the banks took another pummelling. The 200 index closed the week just below the psychologically important 5,000 level. Since the mid-March high at 5,216, the ASX 200 is now down 4.16%. At the same time, the S&P 500 is up 2.8%. The big question for traders is whether it’s time for the ASX 200 to finally play catch up or if the market is still too worried about Australian banks.
Stocks rallied, and the US dollar weakened after US jobs were neither too hot, nor too cold. 215,000 new jobs and an unemployment rate of 5% is kind of the sweet spot the stock market wanted to reinforce from Janet Yellen’s dovish outlook for monetary policy. That helped the S&P 500 close another 0.6% higher on Friday and leave the global benchmark index up 1.8% from the pre-Easter close.
But what’s good for US and global stock markets is not so good for countries in need of weaker currencies as the data, and Yellen’s stance, undermined the US dollar over the course of the week. The Aussie pulled back from a 0.7721 high to close the week at 0.7668. But that’s still the highest close since June 30 last year. Likewise, the Euro close at 1.1387 was the highest since October.
That complicates the economic outlook for a lot of nations — but at least the Fed on hold supports stocks and markets easing the pain somewhat.
Capital Economics says China’s stronger PMIs last week validated the emerging market and risk rally. Friday saw the release of better than expected Chinese PMI data and although some traders might be disappointed over the lack of appreciation shown by Asian stock markets — some of which might have been connected to the Weak Japanese Tankan business surveyed also released Friday — Capital Economics economist David Rees says that the Chinese data validated the EM rally over recent weeks and suggests the sharp sell-off in EM “equity markets last year, largely predicated on a meltdown in China’s economy, was not justified”.
Australian Calender – (courtesy NAB Economics, our enphasis)
This week’s highlight is Tuesday’s RBA April Board meeting with the key Retail Sales and Building Approvals reports Monday and the Trade Balance Tuesday. RBA assistant governor Kent is speaking Wednesday. There are a number of second tier data, including the monthly CPI gauge, ANZ Job ads and the AiG Services/Construction indexes.
RBA Meeting and the Aussie dollar. There is little chance the RBA will move policy at this Tuesday’s meeting but the NAB’s economics team says traders are wondering if the RBA will jawbone — talk down — the Aussie dollar “given the recent rally in the Australian dollar (both against the US dollar and on a trade-weighted basis). They also highlight that governor Stevens recently indicated that he was not totally relaxed about the Aussie’s recent ascent, but at the same time did not express a note of “heightened concern”:
RBA governor Stevens, 22 March. ASIC Annual Forum Remarks, 22 March 2016:
Unless you think that the commodity price trend now is different and we are heading back to a world with considerably higher prices for an extended period, and you think the [US Fed] is never going to lift rates, it is not clear that that situation will warrant a much higher exchange rate than this.
The NAB believes Tuesday’s statement will “contain some low level currency concerns” along the lines of “a lower AUD would be helpful for the ongoing rebalancing of the economy”. But the NAB says they don’t think the RBA is too concerned about the exchange rate “given that it can be largely explained by higher commodity prices and a generally weaker US dollar driven by diminished expectations for Fed rate rises this year”.
That said, the NAB believes the RBA will still be expecting the Aussie to “head back down once the Fed raises rates again in 2016 — a redux of the rate hike delays of 2015”.
Don’t forget retail sales though — they’re out Monday, along with Building approvals. Even if the Prime Minister ends up caving in again and abandons the July 2 double-dissolution election Australia seems on course for, the election campaign has already begun. That’s usually associated with a mild election uncertainty with induced reduction in spending. So even though the retail sales data is for February, it’s still going to be important as a guide to where the economy is at and how much it might slow in coming months.
International Calendar (also courtesy NAB Market Economics)
NZ: Tuesday sees the QSBO and commodity prices, then Wednesday morning’s dairy auction ahead of the QVNZ report, then Crown accounts on Friday.
China: Wednesday’s Caixin services/composite PMIs and Thursday’s foreign reserves in a quiet week.
US: FOMC March Minutes and a bevy of Fed speakers beckon, including Yellen on Friday (though that’s with her three predecessors so likely more reflective); data of interest includes factory orders Monday and Wednesday’s ISM non-manufacturing report.
Euro: Tuesday’s revised services/composite PMIs, German industrial production Wednesday and the ECB’s Constancio speaks to the EU Parliament Thursday.
UK: The services/composite PMIs (Tuesday) and industrial production Friday.
Canada:BOC Senior Loan Officers’ Survey Monday, then trade on Tuesday with the BOC’s Wilkins then speaking. The Ivey PMI is out Wednesday, building permits Thursday, all ahead of Friday’s key labour market report.