27 January 2010 at 6:58 GMT
Australia Q4 CPI slightly above forecast – a rate hike looks on the cards next week
Market Comments:
Heading into the European session yesterday, it looked like doom & gloom were the buzzwords with risk given a definite knock back following talk of a fresh set of China reserve ratio hikes and a downgrade to Japan’s outlook, and that for JGBs, to negative by S&P. GBP was buoyed by some early fix demand but that proved short-lived as GDP data disappointed (again!) and barely showed the UK coming out of recession in Q4 (+0.1% q/q vs. +0.4% expected and -0.2% prior). GBP’s cause was not helped either when PIMCO declared a dislike for Gilts, instead preferring German and Canadian debt.
On a more positive note, German IFO surveys were generally better than expected – the business climate at 95.8 vs. 94.8 prior, its tenth consecutive improvement – while monthly US consumer confidence from the Conference Board showed a third month of gains to 55.9 from 53.6 in December, registering a sixteen month high, with most of the improvement in the present situation indicators and suggested some improvement in the labour market. Slightly more disappointing was the Richmond Fed manufacturing index which came in at -2 vs. flat expected while the weekly ABC confidence reading also failed to confirm the improvement in the Conference Board’s number. That showed a marginal improvement to -48 from -49 though missed market expectations of -45.
An FT article reported that Greece was wooing China to buy up to €25 bln of govt. bonds. Presumably the successful auction the other day has emboldened the Greeks to make such an approach, especially amid reports of an austerity plan in the pipeline. Nevertheless, talk is that the China sovereign wealth fund CIC is not interested and it is doubtful the authorities would allow commercial banks to adopt such a risky investment. Greece also featured in a European Commission report that expressed concern about gaps in competitiveness within the EUE. The report confirmed that real effective exchange rate for Greece, Spain and Portugal is overvalued by more than 10 pct and perhaps an indication of how much wages in these countries would have to fall, or productivity rise, to make them competitive again, given the restrictive confines of the EUR currency. Note earlier today Nouriel Roubini was quoted as saying he has never been so pessimistic over the EMU and sees a “rising risk” of a breakup of the Euro.
It was a calm start to trading in Asia with eyes on the Q4 Australian CPI data. Inflation was marginally above markets expectations – up 0.5% q/q versus +0.4% consensus – though a firmer AUD helped to contain the rise. Core inflation held steady at the 3.2% annual mark but is still above the RBA’s 2-3% target band. The slightly firmer CPI looks to have almost sealed a fourth consecutive 25bp rate hike on February 2nd which would bring the Cash Rate Target up to 4% while at the same time bill futures fell another 6bp post-data implying a greater chance of more rate hikes down the road. After the data, Treasurer Swan was on the wires downplaying the implications of the slightly firmer data, saying inflation still remains low and is expected to remain moderate in the near term. He added that the economy was still operating below capacity.
On the other side of the spectrum, the RBNZ meeting later today (early Asia tomorrow) is not likely to yield any change in rates from their current 2.5%. RBNZ governor Bollard has constantly commented that rates will be held at low levels during H1 2010 and we feel that recent data has not been strong enough to change this outlook.
In other data releases in Asia, Japan’s trade balance showed a rising surplus in December with a strong rebound in exports and weaker imports both contributing to the bottom line improvement. Exports posted a positive gain for the first time in fifteen months with a solid +12.1% as the effects of a weaker JPY filtered through. In the details, exports to the US we down a reduced 7.6% y/y but China overtook the US as Japan’s major export destination with exports to China rising a staggering 42.8% y/y, albeit from a sizably lower base.
On today’s data calendar, Europe sees German states reporting CPI data for January with the consolidated report due later. The CBI report for distributive trades is the only data for the UK though speeches are to come from ECB’s Weber and BOE’s Sentence. The US sees the start of the FOMC meeting and US new home sales.
Economic Data Highlights
- US Nov. S&P/Case-Shiller House Prices out at -5.32% y/y vs. -5.0% expected and revised -7.27% prior
- US Jan. Consumer Confidence out at 55.9 vs. 53.5 expected and revised 53.6 prior
- US Nov. House Price Index out at +0.7% m/m vs. +0.2% expected and revised +0.4% prior
- US Jan Richmond Fed Manufacturing Index out at -2 vs. flat expected and -4 prior
- US Weekly ABC Consumer Confidence out at -48 vs. -45 expected and -49 prior
- AU Nov. Westpac Leading Index out at +1.0% vs. +0.4% prior
- JP Dec. Trade Balance out at +¥545.3b vs. ¥610b expected and revised ¥371.3b prior
- JP Dec. Exports out at +12.1% y/y vs. +7.6% expected and revised -6.3% prior
- JP Dec. Imports out at -5.5% y/y vs. -10.7% expected and -16.8% prior
- AU Q4 CPI out at +0.5% q/q, +2.1% y/y vs. +0.4%/+2.0% expected and +1.0%/+1.3% prior
- AU Q4 RBA Trimmed Mean CPI out at +0.6% q/q, +3.2% y/y, both as expected, vs. +0.8%/+3.2% prior
- China Dec. leading Index out at 104.8 vs. downwardly revised 105.4 prior
Upcoming Economic Calendar Highlights
(All times GMT)
- Sweden PPI (0830)
- GE Individual States’ CPI (0900 & 1100)
- EU ECB’s Weber to speak (0930)
- UK BOE’s Sentance to speak (0930)
- UK CBI Distributive Trades Survey (1100)
- US Weekly MBA Mortgage Applications (1200)
- US FOMC Meeting starts (1400)
- US New Home Sales (1500)
- US Fed’s Greenlee to speak (1500)
- US Treasury’s Geithner to testify (1500)