and views Markets made
a whippy close to the month overnight. During the London morning the
dollar continued its offered tone before price action stabilized. Then
when New York came in the
USD gained some legs. There were plenty of â€śreasonsâ€ť being mentioned but the
most logical was a sharp increase in overnight dollar Libor to 3.61% from 2.50%
due to month end liquidity concerns. This was enough to then drive a short
squeeze in the USD. Once that was done markets quietened down again. Through
all this the New Zealanddollar
relatively subdued. The pair put in an intra-day top of 0.7665 before then spending
most of the session between 0.7625 and 0.7650, though it did dip below 0.7600 at
one point, in sympathy with AUD and EUR.
Australian dollar was also driven by USD direction. The Aussie put in a fresh
postfloat high of 0.9668 in the London morning
before falling below 0.9600 amid broad USD gains (higher equities, lower oil).
the most active. The London morning
dollar selling/risk aversion impulse saw the pair dip briefly through 105
before then heading back above 106. EUR/USD was also
driven by USD sentiment, trading up to 1.5835 early before trading around
1.5750 later on. There was ongoing chat and â€śsourcesâ€ť spin on the ECB and also China PM Wen
reportedly called for the US to
stabilize the dollar, helping weigh on EUR/ USD. Oil prices broke $143/bbl them
slid to $140 or so, but itâ€™s not obvious which is driving which.
US Chicago PMI
edges up to 49.6 in June. Juneâ€™s regional business surveys from
various branches of the ISM/NAPM all recorded falling activity, although in Chicagoâ€™s case the decline
was modest, with the headline just below the neutral 50 level (indeed it was
the least weak result since January). Relative to May, the Chicago detail
showed production slipping back quite sharply, orders still growing but at a
slower pace and job losses less steep. Coupled with the weaker (i.e. more
negative) readings from the district Fed factory surveys (NY, Philadelphia and Richmond) earlier in
June, the overall message is that there is mild recession in industry, with
some parts of the country worse affected than others. Tomorrowâ€™s national ISM
factory report will provide further guidance re the state of the sector.
inflation jumped to a new record high at 4% yr in June. The detailed
breakdown is not available, but the German data released last week showed that
fuel more than food was the main factor driving the June jump. A European
Central Bank rate rise on Thursday now seems almost inevitable and markets are
moving to price in the prospect of further tightening by year end (though
Westpacâ€™s view is that emerging weakness on the activity front should prevent a
follow-up rate rise).
housing market slump deepened dramatically in May, with mortgage
lenders providing 28% fewer new loans than in April, and 63% fewer than in May
last year. The combination of potential home-buyers expecting further falls in
house prices with less willingness and/or ability to fund mortgage books on the
part of the lenders has seen the number of new loans fall to below the previous
cyclical low reached in the early 1990s recession. In contrast, consumer credit
held up in May as shoppers used their credit cards to fund Mayâ€™s retail sales
surge, but because that was warm weather-driven we suspect it will not prove to
be sustainable. Related to that, there was a further collapse in consumer
confidence to a new 18 year low in June.
GDP growth bounced back 0.4% in April after contracting in February and March,
helped partly by strong auto production, as US car-makers
sought alternative parts suppliers during the recent strike. Although a little
stronger than expected, note that Q1 also started strongly only to deliver a
contraction in the quarter, so we canâ€™t yet rule out the prospect of a
technical recession in Canada in H1 2008.
Outlook We continue
to like NZD/USD lower multi week, as the market moves to price in more chance
of a July rate cut from the RBNZ. However, with the Q1 GDP result now out of
the way, near term direction is likely to be a little more two-way, as shown
overnight, mainly driven by USD direction.
Release Last Forecast NZ Q2
Employment Confidence Index 128.8 â€“ Aus RBA
Policy Announcement, 7.25% 7.25% US Jun Auto
Sales 14.3 14.0 Jun ISM
Manufacturing 49.6 49.0 May
Construction Spending â€“0.4% â€“0.8% Fedspeak:
Lockhart Jpn Q2
Tankan Lge Mfg/Non-Mfg 11/12 4/7 May Ordinary
Earnings %yr 0.8% 0.8% Eur May
Unemployment % 7.1% 7.1% Jun PMI
Factory (F) 49.1a 49.1 Ger Jun
Unemployment chg 4k â€“ May Retail
Sales â€“0.6% 1.0% UK PMI Factory
Research Papers/Publications â€˘ NZ Weekly
Forex Outlook (30 June) â€˘ NZ Q1 GDP
Review (27 June) â€˘ NZ Q1
Current Account Review (26 June) â€˘ NZ Q2
Consumer Confidence (25 June) These
papers/publications are available on Online Research on Westpac Institutional
Bankâ€™s website (www.wib.westpac.co.nz)
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