European markets look set to close out the month on a positive note, with Italy once again at the centre of the move. The MIB is already up a massive 10.4% for the month, and our call suggests an open above 17,000. Of course equity traders will want to see further flows into the bond market, and while the ten-year bond fell fourteen basis points to 3.91% yesterday, a break today through last week’s low of 3.88% should target the 2010 low of 3.70. Today’s confidence vote in the Italian upper house shouldn’t pose too many issues and could see the market find further relief.
Germany takes centre stage today on the data front with unemployment, consumer confidence and retail sales set for release. We have held a bearish bias on EUR/USD, but the resilience of the pair especially in the face of a potential refinancing rate cut, weak economic data and an ever distancing Germany (which seems less and less interested in helping out on a fiscal or monetary level) is interesting. Still, with the market positioning for a Fed who could signal a deeper concern for price stability, the pair looks well supported. We find the unfolding thematic of pro-growth quite interesting in Europe, not just with the new Italian Prime Minister looking to unwind the property tax put in place under the Monti government, but it seems the EU was more willing to grant Spain an extra two years to get to its budget deficit target to 3% of GDP. With this in mind, and the projected surplus of 3% of GDP in Europe this year, it’s hard to see the single currency falling too hard, at least until the Fed start re-visiting the idea of tapering off the pace of asset purchases or Japanese players begin to dump EUR/JPY positions.
Asia has provided some upside to our out-of-hours index calls, with Australia breaking the March 12 high and now at the highest levels since 2008. Japan came back online today after being closed yesterday for Showa day, and after hitting a low of 13,778, rallied back to 13883 (at the time of writing) after it was announced that the BoJ was going to buy ¥1 trillion worth of T-bills outright on May 2. Data out of Japan was mixed with the jobless rate falling to 4.1%, while the industrial production and retail trade were sub-par. USD/JPY has found buyers off the session low (97.72), and could find buyers today given the recent clear out of long positions from the speculative community and premise for US treasury yields to snap back if Chicago PMI and US consumer confidence beats expectations.
The ASX 200 has rallied 1.28% today and clearly that is function of a strong earnings report from ANZ. The bid put in to other financial names has been interesting. Clearly that’s a function of ANZ lifting its dividend guidance, thus targeting a payout ratio 65% to 70%, and having a more level skew in its interim dividend. Perhaps there are some good read-throughs for the other banks who report over the next five days, and the market would have specifically found solace in the fact that costs are being well managed, asset quality is improving with a 15% decline (hoh) in new impaired loans, while margins in its Australian divisions gained three basis points on the half, although this was offset by weakness in its New Zealand and institutional business. Materials names have been subdued today although they could take centre-stage tomorrow with China unveiling its official PMI print and economists expecting a slight drop in the pace of expansion. On the forex side, AUD/NZD looks interesting to us, and while we haven’t seen major technical signs of a reversal, the daily RSIs are at levels which have traditionally suggested good buying over the last few years. Certainly if you hold the view that the RBA won’t cut in May, then the 41% probability that the OIS market is pricing in could be the fundamental trigger to see it test channel resistance at 1.2170.
So a strong open is once again seen in Europe, and while US futures are marginally higher, traders will be keen to see if the S&P 500 can print a new intra-day high and push through the 1600 level. Pfizer is the big earnings release in US trade, and after pulling back to $28.79 the stock could print a higher high through $31.15 if it beats the mark. The market is currently looking for Q1 adjusted EPS of 55 cents on revenue of $13.95 billion. There has been speculation it may alter its guidance for the full-year, although this is a market darling when it comes to earnings, having beaten EPS every quarter since Q4 2009.