US equities have moved higher overnight on some easing in geopolitical risks and ahead of more corporate earnings reports later this week. The US dollar is broadly weaker after President Trump accused China and Russia of “playing the currency devaluation game”. The NZD has been one of the laggards, and is unchanged from this time yesterday.
As we suspected, there was no major market fall-out from the US-led strikes on Syria over the weekend, with the market seemingly reassured by the one-off nature of the operation and the deliberate avoidance of Russian targets (which has met with verbal condemnation from Russia as opposed to any military retaliation). US equity indices are up between 0.8% to 1% and close to one month highs, with the confrontation over Syria likely to recede from the headlines now. The VIX has dipped again, to below 17.
Corporate earnings remain a focus for the equity market with Bank of America the latest US bank to report better than expected earnings overnight (following Citi, JPM and Wells Fargo on Friday). The Bank of America share price rose around a percent, a similar move to the financials sub-sector of the S&P500. The recent corporate tax cut has boosted earnings expectations for this quarter and, so far, it seems that the hurdle to positively surprise investors (as opposed to analysts) is quite high.
The US dollar is broadly weaker overnight after President Trump took to Twitter saying "Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!" We’re not quite sure what to make of this one: the CNY is almost 10% stronger than a year ago, while the Ruble’s recent weakness looks more related to the imposition of sanctions on Russia than anything else. Moreover, one would think higher US interest rates would boost the USD, all else equal, although its decline over the past 12 months (in the face of Fed rate hikes) has surprised many commentators (and may be partly related to a perception that the US administration prefers a weaker USD to help the export sector). Trump’s comments come only a few days after the US Treasury maintained China on its watch-list but didn’t label any country as a “currency manipulator”.
The Bloomberg DXY fell around 0.3% on the day, and is close to one-month lows (but remains within the trading range established since late January). US retail sales met expectations overnight and caused little market reaction, with the Atlanta Fed GDPNow estimate of Q1 GDP essentially unchanged at around 1.9% (q/q% ann). The Empire manufacturing index declined modestly, with all the key components (such as new orders) lower than last month. The GBP is one of the outperformers on the day, on no real news, and is close to its highest level since Brexit.
The NZD is unchanged overnight, and is one of the worst performers on the day. The NZD initially fell to a low of 0.7334 in the London morning, before reversing higher, in sympathy with a broadly weaker USD, after Trump’s comments. Following the release of the Food Price Index yesterday, we nudged up our CPI forecast (released Thursday) to 0.4%, which would translate to an annual increase in the headline rate of 1.0%. RBNZ Governor Adrian Orr was interviewed on radio yesterday morning, saying the NZ economy was “near full employment.” His first MPS is on the 10th of May.
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