Archived IMT (2011.04.19)

US and Europe battle with budget and sovereign debt issues, RBA minutes show interest rates are appropriate, while Eurozone preliminary PMIs are expected to continue to show growth. Canada CPI expected to rise as Goldman Sachs earnings, amongst others await.

Yesterdays decision by Standard and Poors to downgrade the USs sovereign debt outlook for the first time since 1941 sent shockwaves through the markets and could well be the catalyst needed to concentrate the minds of complacent US politicians into restoring some semblance of order to US government spending and fiscal policy. The only surprise was that it took the agencies so long to act, though Moodys later re-affirmed its positive outlook, just to confuse matters further.

Ordinarily such a downgrade would have probably sent the already sickly US dollar lower, however investors had their minds on a much more immediate problem with the markets fearful of an imminent Greek restructuring.

Indeed German government officials dont expect Greece to last the summer as 2 year bond yield push above 20%, while a poor Spanish T-bill auction saw yields surge amid fears of a possible contagion towards Spain, ahead of a much longer term bond auction on Wednesday.

There are other concerns with respect to a wider sentiment building across Europe on the back of the success of the anti-euro party at the weekend Finland election, as nationalist resentment builds on both sides of the fiscal argument, with austerity fatigue on one side in the peripheral countries, and a public backlash against squanderers on the other.

THE BREAK OF $1.4250s IN EURUSD now opens up the risk of further euro losses towards 1.4020/30, while below 1.4380. Eurozone flast PMIs (preliminary figures) for April are expected to show continued resilience though expectations are for a slip back from the March figures.

The release of RBA minutes for April showed that the bank felt that interest rates remained appropriate given the medium term outlook on inflation. The RBA no longer used the phrase mildly restrictive in its statement. Combined with weakening equities and an erosion of risk appetite the Aussie weakened and a break of trend line support at 1.0450 could well test support at the 1.0380 level.

The weakening oil price saw the Canadian dollar slip back yesterday triggering stops above 0.9700 before slipping back. Todays March CPI figures are expected to show rising inflationary pressures within the Canadian economy with expectations of a rise from Februarys 2.2% to 2.8% in March, largely as a result of higher energy costs. It is thought unlikely that the increase in inflation will prompt the Bank of Canada to consider a fiscal tightening at the next rate meeting.

BIG DAY FOR US EARNINGS with reports from S&P 500 giants like IBM, INTEL, JOHNSON & JOHNSON, STATE STREET and GOLDMAN SACHS, investors will be hoping for some good news after yesterdays declines and disappointment from Citigroup where earnings came in line, but revenue fell short. Expectations for Goldman Sachs Q1 earnings are for $0.82c a share.

By KM - AshrafLaidi.com Staff