From Robust ISM, to Aussie Retail Sales & RBA Decision

The ISM manufacturing survey underpinned a rebound in risk sentiment in US trading. On the day, the yen was the best performer with the euro trailing. The upcoming session will be busy with Aussie retail sales, the RBA decision and Chinas non-manufacturing PMI. EURUSD, Gold & US crude oil, with new charts on US ISMs vs UK, GERM, CHIN & Ezone Manuf PMIs, as well as Daily vs Weekly EURUSD.

The March ISM index climbed to 53.4 from 52.4, beating the 53.0 consensus. The employment component was also at the highest since June. On the negative side, construction spending numbers missed badly and several firms revised down Q1 GDP estimates. The current consensus is for a growth rate of 2.0% in the quarter.

The euro and other risk trades slumped badly in early US trading on concerns about the HSBC China PMI and a report (later denied) that the Bundesbank was no longer accepting debt from Spain, Ireland and Portugal as collateral.

Fedspeak was along the usual lines except for Cleveland Fed President Pianalto who is normally dovish but said further easing could put price stability at risk.

The yen was stubbornly higher as Treasury yields declined. The rush to bonds and the yen may have been driven by flows due to the beginning of a new quarter. It did not fit with the broader, positive tone in markets that pushed stocks and commodity prices higher.

Asia-Pacific Preview

Chinas non-manufacturing PMI will be released at 0100 GMT. There is no consensus but this report is gaining clout in the market. At 0130 GMT, Australian retail sales are expected up 0.2% in February after a 0.3% rise in January.

The main event of the session comes at 0430 GMT when the RBA renders its policy decision. No economist surveyed by Bloomberg forecasts a change in the 4.25% rate but there is talk, at the margins, of a surprise rate cut. A more realistic outlying scenario is that policymakers shift to a more dovish stance but that also sounds unlikely to us. Look for AUD to benefit from a neutral statement.

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