Good morning. Now you’re safe inside, here’s what you need to know.
– RBA governor Glenn Stevens delivered a speech in New York overnight titled “The World Economy and Australia”. While he touched on topics discussed at length in the past – he still believes the Australian dollar “will very likely fall further yet, over time” and that interest rates cuts are still “on the table” – he expressed caution on how much additional assistance monetary policy can deliver with rates at current levels in this quote:
“To this point, the balance that the Reserve Bank Board has struck has seen the policy rate held at what would once have been seen as extraordinarily low levels for quite a while now. The Board has, moreover, clearly signalled a willingness to lower it even further, should that be helpful in securing sustainable economic growth. The Board has been proceeding with a degree of caution that is appropriate in the circumstances. It also has, I would say, a realistic assessment of how much monetary policy can be expected to achieve in supporting the adjustment the economy needs to make”.
– Stevens went on to say that “Across much of the world, too much weight is being put on monetary policy to try to achieve what it can’t: a durable and sustainable increase in growth, in an environment where private leverage is already rather high or even too high. Monetary policy alone won’t deliver that.” Putting the onus back on other legislators, he pointed to commitments made during the G20 meeting in Australia last year:
“Those commitments were not actually about monetary policy; they were about other policies. It will be important this year, after one of the five years has passed, to see whether we are all making good on our various promises. More generally, actions which promote entrepreneurship, innovation, adaptation and skill-building, that reward ‘real’ risk-taking, while providing a stable macroeconomic environment and a well-functioning financial system, will best support our future wellbeing.”
– Elsewhere, US Federal Reserve Deputy Chairman William Dudley believes a US rate hike this year will not trigger a major sell-off across emerging markets, telling the audience at Bloomberg’s Americas Monetary Summit overnight that he’d “be very surprised when normalisation occurs it would be a surprise to anyone, if we’re doing our jobs properly”.
“First, many [emerging market economies] appear to be better equipped today to handle the Fed’s prospective exit from its exceptional policy accommodation than they were during past tightening cycles. This reflects the fundamental reforms that EMEs have put in place over the past 15 years, as well as the hard lessons learned from past periods of market stress.”
The timing of the speech is relevant given warnings issued by the IMF over the weekend that reduced liquidity resulting from a Fed hike has the potential to amplify volatility across markets.
– Stocks rose strongly overnight with most markets in the US and Europe posting gains of around 1%. Strong earnings from investment bank Morgan Stanley, along with enthusiasm over China easing monetary policy over the weekend, helped markets recover following a sharp sell-off on Friday.
Here’s the scoreboard for major markets overnight:
- Dow: 18,034, +1.2%
- S&P 500: 2,100, +0.9%
- Nasdaq: 4,994, +1.3%
- Euro Stoxx 50: 3,718, +1.2%
- UK FTSE: 7,052, +0.8%
- German DAX: 11,892, +1.7%
– The positive tone seen overnight is expected to flow through to Australia with SPI futures pointing to a gain of 44 points on the open.
– Economic releases today include the minutes of the RBA’s April monetary policy meeting, leading index in Japan and Hong Kong CPI for March. Later in the evening, markets will also have to digest the latest ZEW survey from Germany along with weekly API crude inventories data from the US.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Sydney Airport (SYD.ASX)
Sydney Airport produced a solid set of traffic data yesterday. International passengers were up 8.9% in March compared to the same month last year. This helped the stock outperform yesterday – it was down only 1c on a negative day for the wider market.
With interest rates low and bargain hunters quick to take advantage of minor dips in utility stocks rate climate, the well-defined support in this stock looks useful. It currently sits at around $5.22/.25 and comprises a trend line and the 50-day moving average. The stock has not breached these indicators since late October
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC