Calm Asian markets, one eye on the RBA (and holidays!) tomorrow

It was a quiet start in Asia to what will be a busy week, with holidays in Japan and China impacting activity. Currencies were range-bound and barely changed from Friday’s New York closing levels.

New Zealand data dominated the session with the trade balance for March showing a minor improvement from February but not quite matching up to market expectations. Higher crude prices led to a 19% increase in imports from the previous month to NZ$4.08 bln while exports suffered from slackening commodity prices and the firm NZD. Exports amounted to NZ$4.22 bln (NZ$4.37 bln expected) resulting in a net surplus of NZ$134 mln versus NZ$417 mln expected. On a year-to-date basis, the surplus slipped closer to a potential deficit with a cumulative total of just NZ$207 mln.

Despite the poor performance in March, New Zealand businesses were more optimistic in April with the NBNZ business confidence rising to 35.8 from 33.8, showing an increasing number of businesses feeling more confident about prospects over the next 12 months. While individual businesses saw a slightly worse activity outlook, with the index sliding to 36.1 from 36.8, this still remains considerably above the 26.0 historical average.

In line with the below-forecast PPI and CPI data from Australia last week, the TD-Melbourne Institute gauge of inflation showed restrained inflationary pressures with the April reading easing off to +0.3 percent m/m from +0.5 percent in March and confirms the downward trajectory for interest rates at tomorrow’s RBA meeting.

Early EUR weakness on Friday (Spanish downgrade and a sharp rise in unemployment) was soon reversed as a relatively strong Italian auction and softer US GDP data took its toll on the US dollar. USDJPY traded disappointingly following the Bank of Japan’s well-flagged easing methods with the pair sliding back to 2-month lows. GBP continues to outperform as the possibility of further Bank of England easing measures becomes less certain. The weaker US dollar benefitted the commodity-bloc, though the AUD’s rally was contained ahead of tomorrow’s RBA meeting.

The US economy did not quite live up to expectations during the first quarter, registering 2.2 percent q/q annualized growth versus expectations of 2.5 percent. Ex-auto production growth was a mere 1 percent with soft domestic sales accompanying. Labour cost pressures appear contained with a lower employment cost index (+0.4 percent from +0.5 percent q/q) which gave further credence to Bernanke’s dovish stance. Wall Street continued to advance, completing its best weekly performance in a month with the DJIA rallying 0.18 percent, S&P +0.24 percent and the Nasdaq +0.61 percent.

Data Highlights

• US Q1 GDP out at +2.2% q/q vs. 2.5% expected and 3.0% prior
• US Apr. Final Michigan Confidence out at 76.4 vs. 75.7 expected and 75.7 prior
• NZ Mar. Building Permits out at +19.8% m/m vs. 6.0% expected and revised -6.2% prior
• NZ Mar. Trade Balance out at +NZ$134 mln vs. +NZ$417 mln expected and revised +NZ$202 mln prior
• UK Apr. Hometrack Housing Survey out at +0.1% m/m, -0.9% y/y vs. +0.2%/-1.0% prior resp.
• AU Apr. TD Securities Inflation out at +0.3% m/m, +1.9% y/y vs. 0.5%/1.8% prior resp.
• AU Mar. HIA New Home Sales out at -9.4% m/m vs. +3.0% prior
• NZ Apr. NBNZ Activity Outlook out at 36.1 vs. 38.8 prior
• NZ Apr. NBNZ Business Confidence out at 35.8 vs. 33.8 prior
• AU Mar. Private Sector Credit out at +0.4% m/m, +3.4% y/y vs. 0.3%/3.2% expected and 0.4%/3.5% prior resp.
• SI Q1 Unemployment out at 2.1% vs. 2.0% expected and 2.0% prior

Upcoming Economic Calendar Highlights

(All Times GMT)

• Sweden Household Lending (0730)
• EU Euro-zone M3 Money Supply (0800)
• EU Euro-zone CPI Estimate (0900)
• CA GDP (1230)
• CA Industrial Product/Raw Material Prices (1230)
• US Personal Income/Spending (1230)
• US PCE Deflator (1230)
• US Chicago PMI (1345)
• US NAPM Milwaukee (1400)
• US Dallas Fed Manufacturing Activity (1430)

For more information on today’s events, please visit the financial calendar.