Daily Commentary | 22/05/2017
New Zealand’s inflation accelerates above the RBNZ’s target midpoint
• Overnight, New Zealand’s CPI rate for Q1 surged to +2.2% yoy from +1.3% in Q4. This was the first time in 5 years inflation propped above the midpoint of the RBNZ’s inflation target range of 1-3%. Although StatsNZ noted that inflation was lifted by rising petrol prices and the annual rise in cigarette and tobacco tax, excluding those, the CPI rate stands at +1.5 yoy which is still within the Bank’s target band.
• At its latest gathering, the Bank kept the door open for further easing, and noted that it expects inflation to return to the midpoint over the “medium-term”. As such, we think that today’s acceleration above that midpoint diminishes significantly the likelihood for any further rate cuts by the Bank, at least at the upcoming gatherings. This view is amplified by the fact that the nation’s 2-year inflation expectations have been in a positive trend recently and they are now almost in line with the Bank’s midpoint as well.
• NZD/USD was waiting for the data near the 0.7000 (S1) key support and spiked higher as soon as the numbers were out. The price structure on the 4-hour chart suggests that the short-term outlook of the pair is somewhat positive. On the 13th of April, the rate emerged above the downtrend line taken from the 7th of February and since then, it’s been printing higher peaks and higher troughs. A break above the 0.7050 (R1) hurdle is possible to initially aim for the next resistance of 0.7075 (R2), where another break is possible to target the 0.7110 (R3) barrier.
Oil falls to a two-week low on bearish inventory data
• WTI tumbled on Wednesday, after the Energy Information Administration (EIA) reported that US crude inventories fell less than expected, while gasoline inventories built up instead of dropping as forecasted. The glut in US inventories comes just a day after the EIA monthly Drilling Productivity report showed that US shale production in May is set for its biggest monthly increase in more than two years.
• All these confirm our long-standing view that continued gains in oil prices invite US shale producers back to the market, which in turn increases supply and thereby keeps any potential gains limited.
• WTI tumbled on the US inventories report falling back below the key support (now turned into resistance) zone of 51.50 (R1). The plunge was stopped by the 50.50 (S1) level and then, the price rebounded somewhat. Even if that recovery continues for a while, the price structure on the 4-hour chart suggests a short-term downtrend. As such, we would treat any further rebound as a corrective move. We would expect the bears to take the reins again soon and aim for another test near 50.50 (S1). A dip below that line could challenge the round figure of 50.00 (S2).
• Now the focus turns to the OPEC and non-OPEC meeting in Vienna on the 25th of May. A number of key producers, including Saudi Arabia, support extending the November production cut agreement into the second half of 2017, if all participating members agree.
• The European day starts with Germany’s PPI data for March. The PPI rate is expected to have ticked up, but in any case, PPI data are usually not a major market mover. Investors prefer to focus on the CPI instead of the PPI inflation measure. Later in the day, we also get Eurozone’s preliminary consumer confidence index for March.
• From the US, initial jobless claims for the week ended on April 14th are coming out. Expectations are for jobless claims to have risen to 242k from 234k the previous week. This would bring the 4-wk moving average down to 243k from 247k. The Philly Fed business activity index for April is also coming out.
• Besides the economic indicators, in Washington, Finance ministers and Central Bank governors from the G20 will meet on the sidelines of the bi-annual conference of the IMF and the World Bank, which is from Thursday until Sunday.
• Support: 0.7000 (S1), 0.6970 (S2), 0.6925 (S3)
• Resistance: 0.7050 (R1), 0.7075 (R2), 0.7110 (R3)
• Support: 50.50 (S1), 50.00 (S2), 49.00 (S3)
• Resistance: 51.50 (R1), 52.50 (R2), 53.20 (R3)