Market Preview – Apr 25th to May 1st

morning briefing
The Week Ahead: Australian and New Zealand markets will reopen on Tuesday following observance of the ANZAC Day holiday on Monday. Australian data this week is limited although significant with CPI figures due for release on Wednesday. Whilst a continued easing in the quarterly data is anticipated and the possibility of core inflation slipping below the RBA’s 2-3% target range is real it is unlikely that this data alone would spur the RBA into action at next week’s meeting. Stronger recent employment data and business conditions showing signs of resilience should be enough to get the RBA to view the CPI figure in  some isolation when meeting next week. Recent declines in petrol and some fresh food prices were main contributors to the likely softer CPI figure. With the absence of any other local data of note the AUD will largely be left to the whim of offshore markets this week ahead of the RBA meeting.
Across the Tasman in New Zealand, we are anticipating that the RBNZ will leave interest rates on hold at 2.25% when it meets again on Thursday. The decision will not, however, be as simple as it seems with continued low inflation (below 1% for seven consecutive quarters) juxtaposed with the ongoing surge in housing proices – Auckland in particular. To put the house price surge in context, average Auckland house prices have now surpassed those in Sydney according to data from CoreLogic. Low interest interest rates are also serving to skew property sales towards investors rather than owner-occupiers with some cheaper suburbs showing 80% of free-standing homes being purchased by investors.
The real story of the week globally, is however, the US FOMC meeting in the early hours of Thursday morniong (AEST and NZT). Following a two day meeting the FOMC statement and interest rate deceision will be released but will not be accompanied by a press conference. The wording of the statement will no doubt be forensically examined with rates expected to be unchanged at this meeting. With a June rate hike appearing to becoming evermore likely, the challenge remains for the FOMC to provide commentary that doesn’t unnecessarily skew the market in the interim. Recent timelines for expected moves have come and gone with increasing regularity and the FOMC will be trying to avoid this pitfall yet again. A June hike will be dependent upon economic data released in the interim. New home sales data has just shown a fall for the third consecutive month.
The GBP has taken some heart from the UK state visit of US President Obama in recent days. With Obama readily highlighting the US opinion that the UK should remain in the EU the GBP retreated from its recent slide. With the referendum little more than 7 weeks away it is likely to remain a tumultuous time for the pound with its value shifting as the “stay” and “go” camps inundate the public discussion. Obama went as far to say that it could take the UK upto ten years to rebjuild a trade-deal with the US in the event of a yes vote for the “Brexit”.
There is a raft of European price, employment and GDP data due for release later in the week. This will come on the back of German business confidence data that showed an unexpected weakness in April. Continuing Chinese woes appear to have taken somewhat of a toll on German confidence. Greek bailout discussions continue  this week as well with the IMP, Greece and its European creditors seeking agreement before fresh loans can be written. It is unlikely that an agreement will be reached this week ahead of a tentatively scheduled meeting of euro zone finance ministers on Thursday as this would require austerity measures of approx 2% of GDP to be legislated.
With no data from China this week North Asian news will be dominated by Japanese economic figures. Japanese car manufacturers are also weighing in on the possible UK exit from the EU with Nissan in particular highlighting its preference for the UK to remain as it exports most of its cars made in the UK to the EU.
Regards All.
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