In the overnight-early morning session the focus was mainly on the speech given by the RBS governor Stevens in which he delivered a very upbeat narrative on the state of the Australian economy causing the Aussie indices to rise significantly and the Aussie to rise versus the majority of its major peers. This commentary came after the RBA delivered its overall stability review with stability being the operative word as many investors still like what they see in terms of stability and a steady hand at the head of the central bank in Australia. Stevens said;
[quote]When I last spoke at this conference two years ago, the United States had just avoided a feared ‘double-dip’ recession. Europe was in the news, with acute concerns over the feedback loop between weak economies, bank asset quality and sovereign finances. China’s growth had moderated, and many feared it would decline sharply. Since then, the world economy has continued its expansion. Growth in global GDP was a bit below trend in 2013, with reasonable prospects of some pick up this year. None of the downside scenarios that have exercised minds over the past couple of years have, as yet, come to pass.[/quote]
In the UK one of the BoE’s MPC members has been holding court on a ‘tour’ of sorts in which he has described the UK economy as improving, he also began to open the debate up about the “when” as opposed to the “if” regarding the UK’s central bank’s monetary policy committee’s intention to raise interest rates sooner rather than later. Most analysts are pencilling in a 2015 date for the first rise above the 0.5% which has been held down now for a record period.
In the UK much fuss has been made of the decision by the UK govt. to sell off another tranche of the shares the UK public owns in the Lloyd’s banking group. The sale should raise circa £4 bn which will according to the UK chancellor be used to pay down the UK’s deficit by approximately 4%. George Osborne stated;
[quote]This is another step in the government’s long-term economic plan to deliver a more secure and resilient economy. It is another step in repairing the banks, in reducing our national debt and in getting the taxpayer’s money back.[/quote]
BoE’s Weale: economy better, rates won’t stay at 0.5% indefinitely
Economic growth is looking stronger as wages start to show signs of increasing, Bank of England expert Dr Martin Weale CBE had told the Reading Post. The member of the Monetary Policy Committee, which sets the UK’s interest rates, says the signs are promising but the picture is brighter in some parts of the country than in others. Dr Weale also said there can be no guarantees about any increases in interest rates in the future but he believes any rise will be gradual.
RBA Financial Stability Review
Developments in advanced economy financial systems have been broadly favourable over the past six months, while conditions in some emerging market systems deteriorated somewhat. Conditions in most major banking systems have continued to improve in line with better economic outcomes. In the United States, the improving economic outlook has seen the Federal Reserve take initial steps towards normalisation of monetary policy. This is a positive development for financial stability, not least because a sustained period of highly stimulatory monetary policy can create incentives for excessive risk-taking by investors
Market snapshot at 10:00 am UK time
The ASX 200 closed up 0.75% in the overnight-early morning session, the CSI closed 300 down 0.16%, the Hang Seng up 0.72% with the Nikkei up 0.37%. Euro STOXX is currently up 0.48%, CAC up 0.47%, DAX up 0.68% and the FTSE up 0.19%. The DJIA equity index future is up 0.10%, SPX future up 0.07% and the NASDAQ future is up 0.12%. NYMEX WTI oil is up 0.08% at $99.27 per barrel with NYMEX nat gas down 0.86% at $4.37 per therm. COMEX gold is up 0.31% at $1315.10 per ounce with silver up 0.16% at $20.10 per ounce.
Forex focus
The Australian dollar advanced 0.5 percent to 92.15 U.S. cents early London time after appreciating to 92.17 cents, the strongest since Nov. 22nd. The euro declined 0.1 percent to $1.3817 after sliding to $1.3749 on March 20th, the lowest level since March 6th. The shared currency weakened 0.1 percent to 141.32 yen. The yen was little changed at 102.28 per dollar. Australia’s dollar strengthened to a four-month high after Reserve Bank Governor Glenn Stevens said the economy may strengthen this year and there were encouraging signs domestic consumption was increasing. The franc weakened against all except one of its 16 major peers today, dropping 0.2 percent to 1.22244 per euro and falling 0.2 percent to 88.48 centimes per dollar.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, was little changed at 1,016.32 after falling 0.5 percent during the previous three days.
Australia’s dollar has strengthened 2.2 percent in the past month, the best performer after New Zealand’s of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar dropped 0.9 percent, while the euro appreciated 0.2 percent.
Bonds briefing
Treasuries were little changed, with the benchmark 10-year yield at 2.75 percent early in London. The price of the 2.75 percent note due in February 2024 was 100. The five-year notes scheduled for sale today yielded 1.76 percent in pre-auction trading. The U.S. is also due to auction $13 billion of two-year floating-rate securities today. Treasury five-year notes were close to the cheapest level in four years relative to two- and 10-year securities before the U.S. sells $35 billion of 2019 debt today.
