Reactions to the stress test result for the 19 banks are rather calm. The Fed determined that 10 US banks must raise a total of $74.6B. In other words,9 of the biggest banks have enough capital to withstand a deeper recession. Among the 10 banks that need to raise more capital, Bank of America Corp. needs by far the most, $33.9 billion. Wells Fargo & Co. needs $13.7 billion, GMAC LLC $11.5 billion, Citigroup Inc. $5.5 billion and Morgan Stanley $1.8 billion. They are required to need to submit a plan to raise capital on June 8 and start execution before November 9. Markets' focus will now turn to Non-Farm Payroll from US.
Released in Asia, RBA stated in the quarterly monetary statement that the Australia's economy will shrink 1.25%in the 12 months through June before seeing a “gradual” recovery to +0.25% next fiscal year. This represented downward revisions of February's projections of 0.2% growth this fiscal year and 1.25% the year after. In BOJ's minutes for April's meeting, policymakers stated they will 'take additional measures to facilitate corporate financing' to help companies raise funds should economy gets worse. The central bank has kept interest rate unchanged at 0.1% since December 2008 and has been buying corporate debts and government bonds to revive the economy.
UK's input PPI is expected to have eased to +0.8% mom in April from +1% a month ago. On annual basis, strong base effect probably caused a -3.5% decline following a -0.4% drop in March. Negative base effect should also have made output PPI moderated to +0.7% mom in April from +2% a month ago. Core output PPI is expected to have risen to +2.2% yoy during the month after a +3.3% in March. Sharp fall in new orders should have continued to depressed production in Germany although less severely than in previous months. Industrial production probably plunged -1.3% mom in March after a -2.9% fall in the previous month. On yearly basis, the gauge should have declined -21.1%.
US non-farm payroll is anticipated by economists to have reduced by 620 K in April following a 663 K drop a month ago. However, it's possible for upside surprise given the better-than-expected initial jobless claims readings these few weeks. Also, contraction manufacturing sector has shown signs of stabilization and this should have helped employment. That said, unemployment rate should still have gone higher to 8.9% in April from 8.5% in March while growth in average hourly earnings probably stayed at +0.2% mom. Wholesale inventories are expected to have slid -1% in March, compared with -1.5% in February. Canada's unemployment might have risen to 8.3% in April from 8% a month ago. Moreover, housing starts probably reduced to 143K in April from 154.7K in March.
EUR/USD Daily Outlook
While upside momentum in EUR/USD remains unconvincing, further rise is still in favor as long as 1.3249 minor support holds. As mentioned before, we're slightly favoring the case that choppy consolidation from 1.3737 has completed at 1.2884 already and rise from there should be resuming whole rebound from 1.2456. Further rise could be seen to 1.3737 resistance first and break will bring rally towards 100% projection of 1.2456 to 1.3737 from 1.2884 at 1.4165 next. However, break of 1.3249 support will indicate that choppy rise from 1.2884 has completed. More importantly, this will open up a few possibilities that suggest fall from 1.3737 is still in progress and could bring deep decline towards 1.2329/2456 support zone on break of 1.2884 support.
In the bigger picture, recent development dampens the bearish view that rise from 1.2456 has completed at 1.3737. On the other hand, the corrective look of the fall from 1.3737 to 1.2884 argues that such rise from 1.2456 is still in progress. Break of 1.3391 will raise the odds of this case and bring rally resumption for 100% projection of 1.2456 to 1.3737 from 1.2884 at 1.4165 or above before completion. On the downside, below 1.2884 will revive the bearish case and bring decline to retest 1.2329/2456 support zone. After all, whether completed or not, rise from 1.2456 is treated as part of medium term sideway consolidation pattern that started at 1.2329. Down trend from 1.6039 (08 high) is still expected to continue as long as 1.4867 resistance holds.