traded very nervously in illiquid conditions, paying little heed to fundamental
economic news ahead of the FOMC decision. Various central banks injected funds
to ease money market strains. The DJIA had opened down about 170pts but with
the help of rumours that the US government
would help AIG, the index ground back to a small gain by the time of the Fed
statement. Its steady hand at 2% initially saw the Dow drop 150pts but it soon
rebounded to register a 140pt gain in late trade. A mixed session for USD ultimately
saw it higher once equities had bounced. Most financials participated in the
rally, though Goldman Sachs was near flat despite its Q3 profit beating
consensus for the 13th consecutive quarter.
a good London-NY session, marching from near 0.6500 to 0.6590/00 with only a
passing tremor on the Fed news.
its 0.7852 low in edgy London trade but
by late NY had driven back to 0.7975, trading wide ranges in the NY afternoon
thanks to FOMC/equities. Commodities were generally weaker.
in the low 1.4200s until the NY afternoon when as the DJIA ground higher, it
slipped below 1.4100, before steadying in the mid-1.4100s. There are of course concerns
over European financials too, with SNBâ€™s Hildebrand saying the CB is in contact
with big Swiss banks as UBS shares sank a record 17% (after -15% Mon).
to find support in NY just above 103.50 and by late NY, with equities firmly in
positive territory, it had rebounded sharply, to 105.60.
Fed left its funds target unchanged at 2.00% following the FOMC meeting. There
were no dissenters for a hike, in contrast to recent meetings. Key changes in
the statement compared to Aug 5 were: financial markets strains had â€śincreased
considerablyâ€ť; the reference to â€śelevated energy pricesâ€ť from last month was
dropped; slower export growth was raised as a possibility for the first time
this month; and reference to elevated inflation expectations was dropped.
Looking through that list, it is fair to say that this is a more sombre, less
inflationary statement, though it does not hint that a rate cut is imminent. Although
worded differently to last time, the risk assessment re growth and inflation remained
falls 0.1% in Aug. The CPI posted its first monthly decline in nearly two years in Aug,
pulling the annual rate down from 5.6% to 5.4%. We expect US inflation to
tumble sharply further in coming months, as recent collapsing energy and food
prices, combined with favourable base effects and generally subdued economic
activity, pull the headline CPI below 4% by year end and yet lower in 2009. Augâ€™s
decline was due to a 4.2% fall in gasoline, and a generally softer 0.2% core
rate after two 0.3+% outcomes.
data. The NAHB activity index lifted off its July-August all-time low
in September, rising to 18. July TIC data showed a significant capital outflow,
mostly due to selling of agency paper (not surprising given Fannie Mae/Freddie Mac
inflation was confirmed at 3.8% yr in Aug; the core rate rose to 1.9% yr,
but remains within the 1.6-2.0% range seen since the start of 2007. Also, a
further rise in ZEW analyst sentiment from -56 to -41 in Sep would have
reflected the weaker euro and lower oil price. But we suspect if the survey had
been taken this week, the result would have been much weaker, given the Lehman
Bros failure and stock market impact thereof.
jumped another 0.3 ppts to 4.7% yr in Aug, its highest in the 11 years that
the current measure has been calculated. Food and energy were the main drivers
although the core rate edged up to 2%, matching the previous high of 2% reached
briefly last year. The Bank of England Governor published another open letter
today, explaining that inflation may yet hit 5% but also expressing the view
that it should â€śfall sharply in 2009 and back to target thereafterâ€ť as lower
commodity prices and weaker activity feeds through. We donâ€™t see todayâ€™s
outcome as preventing a BoE rate cut before year end, maybe as soon as October.
choice of -50bp over -25bp last week reinforces our
preference for long AUD/ NZD but NZD/USD looks more mixed near term, prone to
Strategy, 0800 922 239
contributions from Westpac Economics
Release Last Forecast
Westpac-MI Leading Index 2.0% â€“
Merchandise Imports AUDbn 19.7 â€“
Current Account $bn â€“176.4 â€“175.0
Starts â€“11.0% â€“3.5%
Permits â€“17.7% â€“5.0%
Jpn Bank of Japan Meeting
Trade Balance â‚¬bn s.a. â€“3.0 â€“3.5
UK Sep BoE MPC
Unemployment châ€™ 20.1 20.0
â€˘ NZ Weekly
Forex Outlook (15 September)
â€˘ Q2 Current
Account Preview (12 September)
â€˘ RBNZ MPS
Review (11 September)
â€˘ NZ Q2
Terms of Trade (10 September)
â€˘ NZ Agribiz
September 2008 (8 September)
â€˘ NZ Weekly
Forex Outlook (8 September)
â€˘ RBNZ MPS
Preview (5 September)
papers/publications are available on Online Research on Westpac
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