UBS Buys Credit Suisse for CHF3.25bio
AUD
AUD crept higher into the weekend, benefiting from strong gains in precious metals, Gold in particular was up ~3%. Asian equities closed the week higher with the Nikkei up 1.2% and Hang Seng adding 1.1%. The ASX closed with gains of 0.4% with energy the best performer. A very quiet week ahead for the AUD with nothing to note up until Friday where we have Flash Manufacturing and Flash Services PMI data. China will announce the Loan Prime Rates today, which should remain unchanged as the PBoC held the 1-year MLF rate stable on March 15th. The latest data for Jan-Feb confirmed the Chinese recovery story with decent momentum, mainly led by the services consumption and the government investment. To be sure, the PBoC is more comfortable with conducting monetary policy via quantity instead of interest rate. Looking ahead, we expect credit growth of 11-12% for this year, implying a new credit up-cycle in the coming months. Whilst local data will be scarce this week, there is a large a mount of important overseas data including 3 central bank meetings, so volatility may increase.
USD
AUDUSD trades higher, reclaiming the 0.67 handle as SVB news along with poor PPI and Retail sales data releases led to USD weakness with markets pricing in a less agressive Fed interest rate path, the rate opening currently at 0.6708. Wall St remained soft into the weekend with the Dow Jones closing -1.2%, the S&P 500 -1.1% and the NASDAQ -0.7%. To Friday's data and US Industrial Production for February was flat MoM, lower than expectations of +0.2% while Capacity Utilization was 78.0% compared to forecasts of 78.4%. Released shortly afterwards, the leading Index for February printed at -0.3% as expected while the University of Michigan Sentiment Survey for March was weaker across the board. The headline printed at 63.4, down from 67.0 and lower than expectations of no change at 67.0. Another busy week ahead with investors remaining focused on the recent stresses in some corners of the banking sector, whilst Thursday morning’s FOMC meeting is the main economic event on the calendar. Economists expect a 25 bps hike which will take the Fed Funds rate from 4.75% to 5.00%. In recent days, the challenges in the regional US banking sector have led to a sharp unwind in expectations for further rate hikes. This development could lead the FOMC to alter its forward guidance on commitment to further hikes, while also leaving the door open to them. The statement language and press conference are also likely to acknowledge recent financial system challenges, while also emphasizing the still elevated pace of core inflation and resilience in the labor market.
EUR
AUDEUR crept higher on Friday, briefly reclaiming the 63 handle before surrendering some of the gains, opening at 0.6284 this morning. European equities had a mixed performance with Eurostoxx +0.9% whilst CAC -1.4%. On Friday the ECB’s Muller spoke during the European morning, saying SVB created a backdrop of uncertainty in the stability of the banking sector while the SNB intervention with Credit Suisse made making decisions easier. Muller said there’s no sign yet of persistent inflation easing, with the latest inflation forecasts assuming more rate hikes. Echoing Muller's sentiment ECB’s Villeroy said fighting inflation is the priority with Simkus confirming the terminal rate is yet to be reached. ECB’s Kazimir said despite recent events the ECB must keep hiking. Eurozone 4Q labor costs printed at +5.7% y/y vs a previous +3.7%. Looking ahead we have a string of mixed data this week. French Flash Services PMI expected at 52.4 and German Flash Manufacturing and Flash Services expected at 47.1 and 51.2 respectively on Friday. Breaking news this morning reports that UBS has bought Credit Suisse for CHF 3.25billion in what participants hope will stem financial market panic over the bank's financial viability.
GBP
AUDGBP opens slightly higher from Friday having traded either side of 55 and opening at 0.5503 this morning. UK equities performed well with FTSE +0.9%. We have a big week ahead for the UK on the data front starting with Wednesday's CPI y/y data is expected at 9.9%, 0.2% lower than its 10.1% previous. Consumer prices account for a majority of overall inflation, which is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate. On Thursday we have BOE’s official cash rate. The BoE signalled in February that it was getting close to a pause and most economists polled this week by Reuters said it would probably opt for an 11th straight rate hike on Thursday, representing the end of a tightening cycle begun in late 2021. A 25 basis-point rise would take Bank Rate to 4.25%, where most economists said it would stay for at least a year. Finishing the week out, on Friday we have Flash Manufacturing and Flash Services PMI data expected at 50.0 and 53.1 respectively.
NZD
AUDNZD continued to fall, posting fresh 2023 lows of 1.0662 over the weekend and opening only slightly higher at 1.0684 at time of writing. Last week's weaker than expected NZ GDP data has done nothing to stem the bleeding for AUD. Later this week we have Kiwi Trade Balance data and Westpac Consumer Sentiment data.