and views For
the first session in several USD direction didnâ€™t dominate trading overnight.
The June German ZEW survey was weaker than consensus but US May housing starts
and industrial production both came in weaker than expectations too, leaving
the majors trading within well-defined ranges. That said, the USD ultimately
lost a little bit of ground as the offshore session drew to a close. A flurry
of options related selling around the NY
expiry saw the
dollar dip from 0.7545 to session lows near 0.7513
but once that passed the NZD grinded higher for the remainder of the offshore
session to 0.7550/60. The NZD opens to local session at 0.7545.
Australian dollar was also rangebound within 0.9390/0.9433.
Like the NZD, AUD was hit by a mild bout of options related selling into the NY
cut, sending it to session lows near 0.9390 but the remainder of the session
saw the unit grind to 0.9440/50 into the close.
traded heavy early hitting a low of 107.61 before retracing to a
high of 108.39. The pair finished the session at 108.00, mostly ignoring the
heightened risk aversion signal from equity markets overnight.
softer German ZEW survey in European trading saw EUR
give up most of its Asian session gains in early offshore
trading. From highs near 1.5550 EUR slipped to lows near 1.5460. But, EUR
reclaimed lost ground following softer than expected US housing starts and
industrial production. The ECBâ€™s Mersch also gave EUR a mild lift when said
that â€śheightened alertness is the same as vigilanceâ€ť, cementing the case for a
July ECB hike. That saw EUR grind up through the remainder of the offshore
session to 1.5510/20 into the NY close.
Dow Jones sank 110pts overnight even though crude oil fell just shy of USD1/bbl
and investment bank Goldman Sachs comfortably beat expectations for Q2
earnings. Investor concerns focussed on US regional banks following reports of
rising problem loans/losses tied to poor residential and commercial property
bond yields appear to have topped out for now. US 2 year bond yields fell 14bp,
aided by softer US
data but most the gains came earlier in the Asian session when a flurry of well
connected Fed reporters damped recent speculation that the Fed could tighten
policy in the next couple months.
PPI up 1.4% May, core rate up 0.2%. The PPI jumped
sharply last month, lifting annual factory gate price inflation from 6.5% yr to
7.2% yr. The main drivers in May were a 9.3% surge in gasoline prices, a 3.8%
jump in residential gas, and a 2.2% rise in tobacco prices. Food prices rose
0.8% in May. There was offset from falling clothing, autos and light truck
prices, which helped constrain the core rate to 0.2%, and 3.0% yr.
housing starts fell 33% to a new 17 year low in May, although
the trend pace of decline since the end of 2007 has slowed sharply. Over those
five months, starts fell just 2.5%, compared to a 27% fall in the previous 5
months. That suggests that starts might be finding a base, a view supported by
the fact that permits held above their March low point in both April and May.
industrial production fell 0.2% in May, its second
consecutive decline, and the level of output in May was down 0.1% yr on May
last year. That could be described as a mild industrial recession. A fall in
utility output due to cooler weather weighed on the result, but excluding that
sector (and a 0.1% rise in mining), manufacturing output was unchanged in May.
Indeed manufacturing has only posted one monthly gain in the past six months
(0.2% in March), otherwise in Dec-May factory output either stalled or fell.
current account deficit widened by $9.1bn to $176.4bn in Q1, mainly
due to a $1bn wider trade deficit and a $6bn fall in the income surplus.
Despite the deteriorating position in the quarter, the deficit remains below
the $211bn record high set in Q3 2006.
ZEW analystsâ€™ survey slumps 11 pts to â€“52.4 in June. The
ECBâ€™s warnings of an imminent rate hike, oil price gains, rising inflation and
renewed stock market losses are all factors at play.
CPI jumped 0.3 ppts to 3.3% yr. The main drivers
were food & drink and energy. For only the second time since the Bank of
England was granted policy independence in 1997, inflation has exceeded the 3%
upper limit beyond which the BoE Governor must write an open letter to the
Chancellor explaining why, and what was being done about it. In that letter the
Governor wrote that inflation was likely to rise sharply in the second half of
this year, to above 4%, but that â€śthere are good reasons to expect the period
of above-target inflation... to be temporary... there is not a generalised rise
in prices and wagesâ€ť (as evidenced by the still subdued core inflation rate of
1.5% yr in May).
no significant local data due for more than a week the NZD is likely to be at
the mercy of near term USD sentiment. Beyond that, expectations for a negative
print on Q1 NZ GDP next week should reinforce
the RBNZâ€™s easing bias and keep the NZD capped below 0.7600.
Gordon, Market Strategist, Wellington,
Ph: (04) 470 8266 With
contributions from Westpac Economics and Westpac Strategy
Country Release Last Forecast 18
Jun Aus Apr Leading Index annâ€™lsd 3.3% â€“ May
Merchandise Imports AUDbn 17.5 â€“ US
Bank of Japan
Minutes (Apr 30) â€“ â€“ UK
Jun BoE MPC Minutes 8â€“1 8â€“1 Jun
CBI Industrial Trends Survey â€“10 â€“ Can
May Leading Index 0.1% 0.1% 19
Jun NZ May Electronic Card Transactions 1.4% â€“ Aus
Q2 Survey of Industrial Trends 56.0 â€“ US
Initial Jobless Claims w/e 14/6 384k 375k May
Leading Index 0.1% 0.1%
Research Papers/Publications â€˘
NZ Weekly Forex Outlook (16 June) â€˘
Always look on the bright side (12 June) â€˘
NZ Q1 Terms of Trade (11 June) â€˘
NZ Agribiz June 2008 (9 June) â€˘
NZ Weekly Forex Outlook (9 June) â€˘
RBNZ MPS Review (5 June) These
papers/publications are available on Online Research on Westpac Institutional
Bankâ€™s website (www.wib.westpac.co.nz)
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