Morning Fundamentals: US Markets Lower On Weaker GDP Figures

The austerity driving reforms across Europe appear to be coming to an end with Silvio Berlusconi once again back in the limelight in Italy and an investment accord between Germany and France focusing on fighting record high unemployment. After nine weeks of political deadlock, the new Prime Minister of Italy, Enrico Letta, was sworn in after Italians rejected the austerity driven agenda of the previous Monti administration. Letta negotiated an alliance with Berlusconi which will dismantle much of the budget driven initiatives of the previous government. Even the Germans appear to be altering their stance on austerity with Wolfgang Schaeuble, German Finance Minister, saying “If the economy deteriorates, you don’t reinforce the economic downturn through deeper cuts.” The euro and peripheral bond yields appear to be reacting well to the latest developments.

Meanwhile, more evidence mounts of a slowing of the Chinese economic engine as profits of industrial companies in the world's second largest economy slowed in March. Company income rose 5.3% from a year earlier against a gain of more than 17% in the first two months of this year, according to the National Bureau of Statistics. Chinese stock markets have fallen for three consecutive months as investor concerns rise. GDP figures released in the U.S. on Friday showed that the economy grew less than expected at a 2.5% pace in the first quarter against expectations of a 3% gain.

U.S. stock markets finished the week higher but closed the final session lower in response to weaker than expected GDP growth figures. The S&P 500 lost 0.18% to 1,582.24. Investor optimism surround stimulus from central banks across the world aided market sentiment. UPS and Boeing gained 3% for the week on good earnings results while Apple surged almost 7% after it announced a dividend and share buyback programme. American markets are poised to record their sixth consec-utive monthly gain. Earlier in Europe, the DAX lost 0.23% while the FTSE fell 0.25%.

EUR/USD like most of the majors got a lift during the Asia session on the back of mixed information and expectations regarding the BoJ and their announcements on monetary policy. However, with the price snapping back from the 1.3000 level to only 1.3045 and remaining capped at this level during the European morning the price looked to be stuck as traders pared back positions quietly leading into the weekend. Mixed US data did see the price drop below 1.3000 for a brief time but it snapped back to 1.3030 to trade out the slow afternoon. A better bid open has seen the price to 1.3060 this morning on possible slowing of austerity. Is the Austerity a growing story or just a pipe dream? More likely the latter with needs and wants for the local States likely to see the use of Austerity as the final straw. Over the next 12-24 hours the story could provide a lift to the Euro just on the back of this idea with Euro crosses also likely to be impacted. EUR/AUD could come up on sellers radars.

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NEUTRAL BEARISH
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AUD/USD got a lift from the unexpectedly higher NZ Trade Balance number released early in the Australian morning and as Australia had no data of its own, the increased risk appetite took the price to 1.0335 before quickly finding sellers and settling back at 1.0305. The European morning was disappointed by the BoJ Policy statement with no mention of increased inflation targets causing a risk off run with AUD quickly falling to test support between 1.0250-60. However, like earlier in the day the price quickly settled to trade out the rest of Europe and all of the US session between 1.0270/90. Not even a jump in the Monday morning’s opening price has managed to break the AUD out for now. No Australian Data and a Japanese and Chinese Bank holiday should keep a lid on any major movements for either the AUD or NZD until at least the European open. We will look for offers towards 1.0300 to cap with buying interest at 1.0250 to stop declines. Should this level break we would expect the run to 1.0200 to be quick.

Compass Direction
Short-Term Medium-Term
NEUTRAL BEARISH
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