Risk sentiment stabilised overnight after a rather torrid session in Asia yesterday. EM currencies outperformed, while major currencies aren’t too distant from yesterday morning’s levels.
NZD had another crack at 0.64, but once again fell shy.
The outlook for risk looked poor as we watched the screens yesterday, with Asian equity markets opening in the red.
Oil and gas stocks led the ASX to a 3.8% decline, while the Shanghai Composite closed 2.0% lower.
Asian currencies (notably MYR and SGD) weakened markedly against the USD, before recovery late in the session.
This made for a nervous start in developed markets. European equities opened sharply lower, but recovered most of those losses.
The S&P 500 is currently in the black, helped in part by a surprisingly strong consumer confidence report. But the stabilisation in risk sentiment looks relatively tentative to us.
We’d be wary of another deterioration in Asia today, as funding costs spike in China ahead of a week-long holiday, which begins Thursday.
As an aside, note that German CPI inflation undershot expectations overnight, hobbling EUR. While this may presage a similar miss in the euro-wide measure, ECB officials are paying more attention to the core (ex-energy, ex-food) inflation measures, which remain steady so far.
NZD turned on the dime as equities stabilised, recovering from below 0.63 to challenge 0.64 once again. This second attempt for the week fell short, as did NZD/AUD’s attempt to close above 0.91.
We still favour both levels to be convincingly broken this week, should risk appetite remain steady.
It’s a busy data in terms of data releases, though we suspect investors will be keeping at least one eye on Asian equity indices.
Data highlights for us will be the local ANZ business survey and the US ADP report.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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