Intraday Market Thoughts

Durables Add Doubt, Aussie CPI Next

by Adam Button
Apr 26, 2016 23:08

Another soft US durable goods orders report may leave the Fed with second thoughts about a hawkish bias. The pound was the top performer while the dollar was generally softer and the Japanese yen lagged. The Australian CPI report and another round of US primaries are due later. There are currently 6 Premium trades in progress, 3 of which are in profit (one includes AUD), 2 in a loss and 1 at breakeven. Today's Premium video focusing on FX trades & charts pre-central banks is posted below.

Durables Add Doubt, Aussie CPI Next - Videosnapshot Apr 26 (Chart 1)

US durable goods orders have struggled for two years and the March report once-again raised doubts about the economy. Overall orders were up 0.8% compared to 1.8% expected and the core measure was flat compared to +0.6% expected. The misses were compounded by small downward revisions to the February data.

The US dollar came under immediate pressure after the release. EUR/USD eventually hit 1.1339 from 1.1275 before the release. Later in the day the pair retraced all the gains, likely on Fed speculation.

There is major indecision about what the Fed could signal Wednesday. Fed funds futures are pricing in just a 19.6% chance of a hike. One reason they could wait is uncertainty about the Brexit vote, which is a week after the June 15 FOMC.

The 'leave' side got a boost Tuesday with a new poll showing them with a slight lead. The market sensitivity to the numbers is growing and cable immediately fell 35 pips on the headlines.

Other US economic data was mixed. The Richmond Fed was at 14 vs 12 expected. Consumer confidence improved to 94.2 but not as much as the 95.8 consensus. The Markit services PMI was at 51.1 vs 52.0 expected.

The Fed gets the advance trade balance report but it's unlikely to make a difference in deliberations. The data in Q1 has been weak but worries about global financial conditions have certainly ebbed. Resource prices will boost inflation as well.

The Fed wants the opportunity to hike in June and a less-dovish statement tomorrow is a pre-requisite. However, there is a chance they punt on the decision for another six weeks because of worries about unsettling stock markets.

Other central banks are struggling with similar dilemmas. The RBA will be closely watching Q1 CPI data due at 0130 GMT. The consensus is for a 1.7% y/y rise and a 2.0% y/y climb in the trimmed mean. Look for a significant AUD reaction to any miss.

At 0430 GMT, the BOJ will be watching the Feb all industry activity index. Their decision is due about 11 hours after the Fed and may depend on the signals Yellen sends.

The final set of events to watch are Republican primaries in Connecticut, Delaware, Maryland, Pennsylvania and Rhode Island. The announcement of mild cooperation by Kasich and Cruz this week to deny Trump the nomination could get uglier before it gets better.

Act Exp Prev GMT
Durable Goods -ex transportation (MAR)
-0.2% 0.5% -1.3% Apr 26 12:30
Durable Orders (MAR)
0.8% 1.7% -3.1% Apr 26 12:30
Consumer Price Index (Q1) (q/q)
0.4% Apr 27 1:30
RBA trimmed mean CPI (Q1) (q/q)
0.6% Apr 27 1:30
Consumer Price Index (Q1) (y/y)
1.7% Apr 27 1:30
RBA trimmed mean CPI (Q1) (y/y)
2.1% Apr 27 1:30
Goods Trade Balance (MAR)
$-63B Apr 27 12:30
All Industry Activity Index (FEB) (m/m)
-0.9% Apr 27 4:30
CB Consumer Confidence (APR)
94.2 96.7 96.1 Apr 26 14:00

Latest IMTs