Reports that US banks are preparing to repay their government bailouts released a surge of optimism over the health of the US financial system yesterday. The tone was sustained in Asia overnight with jumps in banking stocks in addition to some spill-over from the positive tone in the Indian market supporting sentiment. The sharp 18.1 point gain in Germany's ZEW survey provided further fodder for the risk rally. Once again this was driven by the expectations component. The current conditions index actually fell to 92.8 in May from 91.6 in April, though this reminder of the poor economic climate was largely overlooked. The AUD was further bolstered by comments from RBA Governor Stevens who commented that the global recovery may begin ''towards the end of the year''. The cautious and carefully measured optimism which is now appearing in the rhetoric of the RBA is encouraging, though AUD gains will be vulnerable on a poor reading in tomorrow's Australia consumer confidence release.
Cable saw a surge in buying pressure from the outset of the London session. Gains are now stalling at the GBP/USD1.5500 area, ahead of the 200 day moving average resistance level around 1.5550. Buyers for EUR/GBP have emerged in the 0.8800 area. There was little sustained reaction from the softer than expected UK inflation data. CPI fell to 2.3% y/y in April from 2.9% y/y in Mar, still above the Bank of England's 2.0% target. The fall is consistent with the Bank's view that, due to base effects, inflation will fall sharply in the latter half of the year. This view provides the justification for the BoE's extremely dovish stance on policy. Last week's Bank of England Inflation Report had already furthered the view that the BoE will not hike rates for many months to come which reduced the potential for today's softer CPI data to impact the market.
This afternoon, US Housing starts and the ABC consumer confidence survey will provide a focus.
Upcoming Economic Data Releases (US Session). Prior, Expected
| 5/19/2009 | 12:30 | US | Housing Starts | APR | 510K | 520K |
| 5/19/2009 | 12:30 | US | Building Permits | APR | 513K | 530K |
| 5/19/2009 | 15:45 | CA | Bank of Canada Deputy Governor John Murray in Philadelphia | 19-May | ||
| 5/19/2009 | 17:15 | US | Fed's Stern Speaks in Willmar, Minnesota | 19-May | ||
| 5/19/2009 | 21:00 | US | ABC Consumer Confidence | 17-May | -42 | -42 |
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