Global equity markets continued their march upward yesterday, as positive investor sentiment refused to be spoiled by the potential for escalation in Ukraine and macro-economic data in the US that lacked spark. The S&P added another 0.41% to its valuation, marking the sixth up-day in a row and the longest positive streak in 7 months, despite a Ukrainian military plane being hit by gunfire from pro-Russia rebels in Slavyansk thus inciting the acting President of Ukraine to call for a restart of its anti-terrorist operation.
IIt was a quiet start to the weak for currencies with little in the way of macro-economic data for traders to digest, although the slight beat in Existing Home Sales in the US for the month of March had the Loonie trading slightly heavy against its American counterpart throughout the course of the session, although topside for the USDCAD pair was capped in the mid-1.10s. Peeling back the layers of data on Existing Homes Sales, while the decline in the annualized reading fell by less than expected, the majority of buyers continue to be investors and all-cash buyers, with first-time purchases only accounting for 30% of all sales. We’ll get more data on the US housing industry later today at 10:00 EST with the release of New Home Sales for March, although expectations are to see this gauge pinned around the 450k level on an annualized basis; far from an overheating market.
The overnight Asian session kicked off with the Aussie getting hit by a solid offer tone after a double-whammy of worse than expected economic data had AUDUSD shave a quick 60 basis points. Inflation data for the first quarter of 2014 saw the headline reading post a gain of only 2.9% when the median analyst estimate was 3.2%, tempering some expectations inflationary forces might force the Reserve Bank of Australia’s hand to look at raising rates by the end of the year. Not helping matters was the fact that the HSBC Flash Manufacturing reading for China in April showed activity in the manufacturing sector contracted for the fourth month in a row. Although the pace of contraction based on respondents survey results slowed from the March reading, the sub-indices of employment and new export orders decreased at a faster pace, signaling the Chinese government might have to provide additional support to make sure their growth targets can be met. The offshore Chinese yuan weakened on the back of the news and is pivoting around the 6.24 against the American dollar this morning, while AUDUSD changes hands south of the 0.9300 mark.
The PMI story was slightly more upbeat in the Euro area, with the overall zone seeing its composite reading beat expectations with a print of 54.0 (up from last month’s 53.1), as strength in Germany’s manufacturing and service sector counteracted the softness displayed by France. While business climate remains frail in France, the engine of growth in the common-currency bloc continues to charge ahead, with Germany looking set to build on the solid economic growth witnessed last quarter. An interesting part of the report was that price data in Germany signaled an increasing risk of deflationary pressures due to increased competition and lower raw material prices, which will obviously weigh on the performance of CPI for the overall zone. Next week will bring the flash CPI reading for April, but Mario Draghi will be speaking tomorrow, with traders likely to parse his words to try and glean any more clues as to at what levels deflationary pressures become enough of a worry that the central bank may have to look to step in and provide monetary support. The EUR is well bid this morning, managing to hold court north of the 1.3800 level against the USD as the stronger than expected PMI readings garner willing bidders. While the EUR is attracting investment flows, equities are not having as easy of a time, with the major bourses trading in the read prior to the North American hand-off, wilting on profit-taking after yesterday’s strong session. The pound is also struggling to maintain its composure this morning, with GBPUSD sinking to the 1.6800 handle after the minutes from the last Monetary Policy Committee meeting presented a slightly more dovish tone than had been expected. Emphasis from the BoE on the downward risks of low inflation has translated into downward pressure in Cable, although it’s battling to retain the 1.6800 level.
Heading into the North American open, equity futures are soggy and trading with a moderately negative tone as we get set for opening bell. Commodities such as copper and oil are under pressure as well, as traders look to diversify their exposures after a less than robust HSBC Flash Chinese PMI reading. Retails Sales for the Canadian economy in the month of February were released earlier this morning, with both the headline and core readings beating expectations and coming in with increases of 0.5% and 0.6% respectively. The strong gains in retail sales did not translate into similar gains for the Loonie, as the rosy data was mitigated by the fact there were sharp revisions to the January numbers, with the core reading revised from at 1.0% gain to only a 0.5% increase. The result has very much been a wash for trade in USDCAD, with the pair slightly ahead of where it closed trade on Tuesday, pivoting just below the mid-1.10s.
Looking ahead to tomorrow, durable goods orders in the United States for the month of March are due out at 08:30 EST, and with some of the weather related issues experienced in early 2014 dissipating, investment in capital goods are expected to show a healthy m/o/m increase, with the core reading increasing by 0.6%. Capital investment has held up relatively well for the beginning of the year, and in a light macro-economic data week, this could prove pivotal in terms of direction into the end of the week, especially considering corporate revenues for Q1 have been mediocre when compared to guidance and analyst expectations. The USD-index has put in a constructive bounce since early April, and a strong durable goods number could have the DXY could make another run at the 80 handle.
