ground higher until about NY lunchtime then sank >1% in afternoon trade. Heavy
losses in financial stocks â€“ a disappointment given the Fedâ€™s action on AIG â€“
took their toll as the DJIA sank 400pts in late NY. Poor US Aug housing
data didnâ€™t help as markets priced in more Fed easing. Flight to safety was
starkly evident in the 2 year Treasury noteâ€™s massive rally from over 1.90% to
almost 2.60% â€“ though this only took it back to Tuesdayâ€™s intra-day levels!
Price action on gold was remarkable â€“ spot traded quietly in the low $780s per
ounce through turbulent London markets and in early NY then about the time the
stock market opened, it leapt to $800/oz then surged to above $860/ oz by late
NY, up >10% in total. NZD/USD took its cue
from broad USD sentiment, easing from 0.6620/40 to under 0.6530 then squeezing
back to 0.6640.
aversion drove AUD/USD down from near 0.8000 to a low around 0.7805
but amid the big dollar slide, the Aussie rebounded to 0.7950.
from 1.4200/50 in London to about
1.4100 as trade switched fully to NY, where upon the pair rallied furiously to
surprisingly, USD/JPY didnâ€™t make a serious run at Tuesdayâ€™s lows
in the mid-103s but it did lose about 70-80 pips overall to the 105 area.
night of market turmoil. Yesterdayâ€™s Fed bailout of AIG seems to have
provided just a temporary boost to stock markets, which slumped again overnight
as interbank lending rates soared. Fear of counterparty default is once again
freezing up markets, and commentators (and market pricing) are questioning just
how long some of the remaining Very Big Names in US banking
will continue to exist in their own right. Investors seeking respite from it
all have bought silver and gold overnight, the latterâ€™s price soaring the most in
almost a decade.
housing starts and permits continued to be weighed down by unwind of
the June spike in multiples activity in NY to beat the July 1 building code
change. Abstracting from that distortion, the figures still show underlying
weakness, with single family starts down nearly 2% and permits off 5% â€“ both to
new cycle lows.
current account deficit widened to $183.5bn in Q2 from
$175.5bn in Q1, reflecting a wider trade deficit largely due to the higher oil
price. The deficit should narrow in the second half of this year as the lower
oil price comes through.
of Japan on
hold at 0.50%. The key sentiment from the Statement is â€śAlthough the economy is
under no pressure to adjust production capacity and labor, these downside risks
to the economy demand attention.â€ť In other words, the Bank is relaxed about the
possibility that domestic factors will exacerbate the negative cyclical
momentum coming from the terms of trade and external demand. Governor Shirakawa
is also at pains to continue warning that an extended period of loose monetary
may eventually manifest itself in an inflationary impulse. The target rate
looks set to remain at 0.50% for a considerable period.
jobs market continues to soften. Unemployment posted a 33k rise in Aug, its steepest
gain since 1992; and employment contracted 16k in the three months to July, its
first fall for this cycle. Separately, the CBI industrial survey showed
plunging orders, falling output and even weaker prices, adding to the body of evidence
pointing to a recessed factory sector creating diminishing inflationary
Bank of Englandâ€™s
minutes to the September policy meeting showed an 8:1 vote, with the
dissenter voting for an immediate 50bp rate cut (last month he voted for â€“25bp)and last
monthâ€™s single vote for a 25bp rate hike dropped. This effectively means that
thepolicy committee now has a mild easing bias. Separately, it was
confirmed that retail bankHBoS is in advanced talks with Lloyds
TSB regarding a potential acquisition of the formerby the
latter. Also, the Bank of England has announced it will extend its Special
LiquidityScheme (which provides liquid Treasury bills to banks in exchange
for mortgage backedassets) until 30/1/09; the
scheme had been due to close next month. This is in response tothe latest
collapse in confidence in financial markets.
choice of -50bp over -25bp last week will most likely be repeated in Oct and reinforces our
preference for long AUD/NZD. NZD/USD however remains prone to US-driven
Strategy, 0800 922 239
contributions from Westpac Economics
Release Last Forecast
WBC-ACCI Survey of Indust Trends 53.9 â€“
Jobless Claims w/e 13/9 445k 450k
Sep Philadelphia Fed Index â€“12.7
Index â€“0.7% â€“0.4%
Jpn Jul Tertiary
Activity Index â€“0.8% 0.4%
UK Aug Retail
Sales 0.8% â€“1.0%
Sector Net Borrowing ÂŁbn â€“4.8 9.0
Aug M4 Money
Supply %yr 11.2% 10.5%
Leading Index flat flat
Wholesale Sales 2.0% â€“
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)
papers/publications are available on Online Research on Westpac
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