The biggest source of uncertainty at the moment is what will happen with the US and rates lift-off, given the country is faced with a different set of fundamentals to the rest of the world. Comments by Chinese Premier Li Keqiang over the weekend gave equities in China a put and this has resonated elsewhere in the region.
As a result, I get the sense dips will continue to be used as a buying opportunity by investors bar any catastrophic events. The highlight from today’s Asian trade were the RBA’s March meeting minutes, which were highly anticipated due to how close a call the decision was. The minutes reinforced a dovish view, with the RBA acknowledging that current forecasts for growth and inflation certainly suggest further easing will be required.
In terms of timing of the next cut, it seems May could be more likely given members ‘saw benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier change’. With not a lot of significant data between now and the next meeting (April), then May will potentially provide us with a better assessment.
The RBA clearly wants to assess more data and see how well the recent move filters through the economy before pulling the trigger again. By the time we get to the May meeting we will also have received a number of key readings for Q1, including CPI and three months’ worth of jobs numbers. Additionally, housing market stress was ruled out as a barrier to policy changes.
These minutes saw the AUD lose a touch to the greenback but it continues to hold on to $0.7600. Regardless, moves in the pair this week are more likely to be dictated by the USD side of the equation and the outcome of the FOMC meeting. Traders are likely to be looking for fresh shorting opportunities in the pair.
ASX 200 gains on minutes
The ASX 200 has managed a recovery today, helped by the RBA meeting minutes. Remember the gains we’ve seen this year have been mainly fuelled by easing expectations and any indications of imminent easing will likely drive the local market higher. The usual themes remain intact with yield demand driving the gains, particularly in the banking space.
Telstra also seems to be coming back to life after some subdued price action and the US dollar plays, particularly in the healthcare space, remain in good stead. Miners have managed to recover, helped by China, but I suspect the choppy trading will continue in the medium term as conditions remain challenging for the sector.
European equities impress
Ahead of the European open, we are calling the major European bourses weaker after a solid performance yesterday. The temptation to take profits is always high but if we are to take any lessons from the performance of US equities through QE, then records are meant to be broken.
The DAX was a highlight yesterday, trading through 12,000 for the first time. There is a high correlation between the DAX and the euro at the moment and it is no surprise to see three of the four best performing companies on the index being the automakers Daimler, VW and BMW. These companies also happen to be significant exporters.
The ECB’s report yesterday saying it had purchased €9.75 billion of public sector assets in its first week helped underpin sentiment in Europe. On the calendar today we have German ZEW economic sentiment along with economic sentiment, employment change and final CPI for the region. Any further signs of lifting confidence, helped by data bottoming, would be good for equities. Investors are likely to continue looking for opportunities to buy European equities on pullbacks.