News and views

Risk sentiment improved slightly on Friday night. Boosts to sentiment were the US retail sales report beat expectations (before negative revisions), although consumer confidence slipped, and rumours Janet Yellen (who the market perceives to be a dove) may be promoted to Fed Vice Chairman. The S&P500 made a fresh 2009/2010 high at the open, but closed just below Thursday's level to be flat overall. The CRB index was flat too, although oil (down 1.1% and forming a bearish key reversal day), and gold (- 0.7%) seemed affected by expectations of China tightening and the confidence report. US 10yr notes shed 3bp overall, after an earlier spike on retail sales, and formed a bullish (yields lower) key reversal.

The US dollar fell from 80.20 to 79.70, seemingly rattled by Yellen's rumoured nomination (later confirmed) which could imply extended policy accommodation. EUR rose from 1.3700 to 1.3796. GBP was short-squeezed from 1.5050 to 1.5218. Yen suffered again amid BoJ easing rumours, from 90.60 to around 91.00 in a volatile session. USD/CAD made a 2009/2010 low of 1.0156, helped by a strong employment report.

AUD initially rose offshore from 0.9160 to 0.9195 (a post-Jan high), but reversed the gains in NY, and opens this morning at 0.9152.

NZD rose to 0.7050, slipping to 0.7020 by the close. AUD/NZD closed weaker at 1.3040.

US retail sales rose 0.3% in February, compared with market expectations of -0.2%. Countering some of this rise was a downward revision to January from 0.5% to 0.1%, possibly better reflecting the weather impact that month. Retail sales less autos printed a 0.8% rise, much higher than market expectations of a 0.1% rise. Food and beverages and grocery stores lead the gains in the subcategories, while electronic stores also outperformed. Auto sales fell 2.4% from January.

US preliminary University of Michigan Confidence index deteriorated to 72.5 from 73.6 in March, below market expectations of a rise this month, but not far off Westpac's bottom of the range forecast for a fall (and in line with most other recent softer sentiment indicators).

US business inventories were flat in Jan, with the new information in the report a small fall in retail stocks. More evidence that Q1 GDP will not benefit from a sizeable contribution from inventory building, as did Q3.

Eurozone industrial production for January rose 1.7%, with the previous month's figure revised from -1.7% to +0.6%. The rise was driven by intermediate and durable goods, while capital goods deteriorated for the second month in a row. That leaves in place a more solid looking trend and might require us to nudge up our Q1 GDP forecast for Euroland.

Canadian employment grew 21k in Feb, better than market expectations, while the unemployment rate fell slightly to 8.2%. The higher employment number was a result of more full time employees. Part time and self-employed numbers fell this month. There was also a notable distinction between public and private sector job growth - the former rising strongly while the latter fell by 8k in February.

Outlook

AUD/USD and NZD/USD outlook next 24 hours: Sunday media reports suggesting a bailout deal for Greece has been done by Eurozone members should be supportive today. AUD should trade above 0.9140 and may attempt 0.9195, while NZD should trade above 0.6990.