Risk-sensitive assets remained out of favor overnight with investors flocking to all the usual safe haven haunts. Equity market from both side of the Atlantic slumped with France’s CAC leading the European charge lower with losses of 2.24 percent on the day, while U.S risk barometers the DOW and S&P500 fell 1.28 and 1.43 percent respectively. Negativity surround Spain’s banking crises alongside the usual Greek related concerns promoted the global bid for safety with risk currencies the primary casualties. Bankia, a major Spanish financial institution, has called on the government for a further hand-out to the tune of 19 billion euro’s as part of a total 23.5 billion euro capital injection. Government plans to recapitalize the troubled bank with government debt has reportedly been thwarted by the European Central Bank in yet another hurdle in Spain’s economic plight.
Naturally, this encouraged further downside from the Euro which recorded fresh 23-month lows of 1.2361 against the greenback and currently remains under pressure below the 1.24-handle. Borrowing costs from Europe’s most vulnerable nations continued to rise with Spanish 10yr yields moving ever closer to the 7 percent ‘bailout zone’ while a debt auction in Italy fell short of target.
The Aussie dollar took a hit in the ensuing period of yesterday’s retail sales data and the momentum continued overnight with price action moving to lows of 97 US cents a short while ago. A global bid for safety saw a natural move to the perceived safety of the US dollar and Japanese Yen while demand for U.S debt pushed 10yr yields to a record low. Whether or not we see a consolidation at these levels remains to be seen, but it’s clear the global environment is not conducive to risk asset strength with high-beta currencies such as the Australian dollar finding little relief in current conditions. With local conditions also on the slide, further deprecation of the Aussie dollar will be welcomed with open arms by local manufacturers and retailers struggling to compete on the global stage. Yesterday’s less than inspiring retails numbers is a testament to these struggles with sales falling 0.2 percent in April.
Local data in focus today includes private sector credit, private capital expenditure and building approvals which are due for release at 11.30 AEST. Capital expenditure is expected to bounce back with a 4 percent rise in the first quarter after a previous contraction of 0.3 percent. We consider previous supportive behaviour around the 96.6/8 US cent region to contain losses in the local session should today’s data disappoint before we’re once again at the mercy of global markets to dictate movements on the local unit. The Australian dollar is currently buying 97.1 US cents, 76.77 Yen and 78.5 euro.