central banks coordinate policy and ease by 50bp. The worldâ€™s
major central banks took a historic step today, easing benchmark rates by 50bp
in a coordinated announcement at the start of US trading. The US Fed, the
European Central Bank, the Bank of England, the Bank of Canada, Swedenâ€™s
Riksbank and the Swiss National Bank issued a joint statement citing the recent
â€śintensification of the financial crisisâ€ť and a â€średuction in inflationary
pressuresâ€ť as the reasons for the move. The Peopleâ€™s Bank of China joined in with
a 27bps cut to its 1 year lending rate too. The BoJ did not cut rates but â€śsupported
the actionâ€ť. Prior to the announcement markets were once again paralysed by
extreme risk aversion. Dow futures at one stage were down almost 400pts while
the European indices were down around 8%. Early offshore trade saw the AUD drilled from
around USD0.7100 to lows near USD0.6450 while the NZD fell from
around USD0.6250 to lows near 0.5790.
In the wake of the coordinated easings risk
appetite recovered immediately. European equities still finished down around
5-6% across the board but one suspects some catch up is in order with the DJIA
trading up around 80pts in mid afternoon NY trading. EUR/USD
surprisingly calm either side of the coordinated CB easings, grinding higher
throughout offshore trading from lows near 1.3550 to highs near 1.3750 in
afternoon US trading. AUD/USD and NZD/USD both looked better bid as the day
wore on. Into late US trading the AUD recouped around US3 1/2 cents to be trading
just shy of USD0.6800 while the NZD rose US3c to USD0.6125. Sentiment is
running high that the RBNZ will ease policy as soon as today in sympathy with
the worldâ€™s major central banks. The unprecedented actions among the worldâ€™s
major central banks today provided a circuit breaker but such action had been
expected and the overall reaction still looks somewhat muted. AUD/USD for
example will still finish down a good US3 cents from its Sydney close
yesterday while the 80pt bounce in the Dow only retraces a fraction of the
previous dayâ€™s near 550pt slide.
government announces banking sector plan. The Prime Minister and Chancellor
announced their version of a plan to get the banking system working again. They
will invest between ÂŁ25-50bn in preferential shares in the main High St banks
who request it (partially nationalising them); provide ÂŁ250bn in loan guarantees
(for a fee) to allow the banks to refinance their debt; and via the Bank of
England, provide a further ÂŁ200bn in liquidity. This plan differs from the Paulson
plan to take toxic assets off the US banksâ€™ balance sheets by actually bolstering
the capital base of the banks.
pending existing home sales up 7.4% in Aug. The West is leading the charge,
up 8.4% in August, boosted by the sale of foreclosed properties which, according
to some measures, are being sold for prices, on average, about 30% lower than a
industrial production up 3.4% in Aug, its strongest gain since 1993! Totally in
contrast to the business surveys which suggest the industrial sector is entering
recession. Rightly, it didnâ€™t stop the ECB from cutting rates 50bp today, so
clearly they understand that a rogue healthy number doesnâ€™t alter the bigger picture.
inflation peaking? A private sector report showed high street price inflation slowing
from 3.8% yr to 3.6% yr.
housing starts up 0.1% in Sep, but down 21.5% yr, so the housing sector downtrend
remains in place.
extraordinary ongoing developments in world financial markets make it impossible
to forecast the NZD with any confidence (though more volatility is a near certainty).
However, it is important to recognise that the exchange rate serves as an important
safety valve for the economy â€“ the NZD will fall as far as it needs to in order
to buffer the New Zealand economy from the worst of the financial crisis.
contributions from Westpac Economics
Strategy, 0800 922 239
â€˘ NZ Q3 QSBO
Review (7 October)
â€˘ NZ PREFU
Review (6 October)
â€˘ NZ Weekly
Forex Outlook (6 October)
â€˘ NZ Q3
Employment Confidence Index (1 October)
â€˘ NZ PREFU
Preview (29 September)
â€˘ NZ Weekly
Forex Outlook (29 September)
papers/publications are available on Online Research on Westpac
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