YB FX Daily Report – 30th April 2009
GDP figures are necessarily backward looking, and this is perhaps why the markets have managed to shrug off both the UK’s bad GDP figures, and yesterday’s US figures which came in much worse than the expected 4.7% drop, at a 6.1% fall (on an annualised basis). However some of the details helped ease the blow, with consumer spending up, and the emptying of the warehouses meaning that GDP is likely to pick up as companies replenish their inventories. The GDP figures also point to a bottoming out of the recession, as they are better than the numbers from the last quarter of 2008, meaning that the pace of decline may be slowing. The slowdown in the slowdown was something that the FOMC mentioned in their statement, which as expected kept rates at rock bottom, and announced nothing new on the QE measures.
As the GDP figures were backward looking, the market still rallied as more confidence flooded in from corporate earnings and better economic data from elsewhere. The European Commission’s month end reports were better than expected, and the latest batch of US profit reports were also positive, with almost 70% of the 285 companies in the S&P500 who have reported, announcing surprise earnings. This has led stock markets upwards, the FTSE up 2.3%, the DAX up 2.1%, however reports that Chrysler may go into bankruptcy saw US stocks fall late in US trading. The Pound managed to climb on the back of the confidence, reaching 1.49 in this morning’s trading, or maybe that should be the Dollar has fallen, as the Euro as also managed to rise against the Dollar, up above 1.3350. Against the single currency the Pound has stayed steady hovering around 1.1150.
The upsurge in confidence has also benefitted the antipodean currencies, the AUD has climbed towards 0.74 against the Dollar, and has outperformed Sterling, taking the GBP/AUD rate down below 2.02. The Kiwi didn’t rise do so well as the RBNZ cut their rates by a surprise 50bp, taking their rate down to a record low 2.5%, they also indicated that rates would stay low until late 2010, which took the Kiwi down against their near(ish) neighbour the Aussie Dollar, although it managed to stay steady against the Pound, which is worth around 2.61 New Zealand Dollars.
It’s a relatively quiet day on the data front, we do have the first flash estimate on Eurozone CPI, expected to rise slightly, while the afternoon gets some regional US data. Currencies are likely to be led once more by the equity markets, as we await details of Chrysler’s demise, and more earnings from US corporations. For now the Pound seems well supported, especially against the Dollar.
Michael Corcoran | Treasury Solutions Partner | National Australia Bank Limited