Risky assets initially maintained their upward
momentum on the back of the fiscal stimulus package announced by China yesterday, but couldn't sustain those gains through
the New York session. The Chinese stimulus package of nUS$585bn,
equivalent to around 7% of GDP, is expected to play a substantial role in
propping up growth in China, and by extension the rest of the world. More
immediately, though, markets focused on the question of funding - it does not
appear that China will increase domestic funding, so the package would have to be paid
for by accumulating fewer foreign reserves and/or selling foreign assets, both
of which would undermine the US dollar.
NZD crawled its way towards 0.6050 early in the
overnight session. However, after a positive open, US equity markets fell into
negative territory on concerns about corporate profits and the solvency of the
large auto makers. High-yield currencies were dragged lower in sympathy, and at
the time of writing NZD/USD had slipped below 0.5800.
AUD benefited from the Chinese stimulus package and a
surprisingly resilient inflation forecast by the RBA, suggesting more limited
scope for rate cuts than the market is pricing in. AUD/USD rose to around
0.6980 before falling back to 0.6700 this morning.
EUR returned above 1.2900 but slid back to 1.2750 in
the US session. ECB head Trichet said in an interview that
he couldn't rule out a rate cut at the December review. GBP lost ground against
the euro, with easing producer price inflation reinforcing the scope for further rate cuts by the Bank of England.
JPY as usual benefited from the market's loss of risk
appetite, reaching 97.00 against the USD and making solid gains on all of the
No US data overnight. Veterans' Day means none tomorrow
UK October PPI saw the largest monthly falls since
the series began in 1986. Input prices fell 5.6% for the month, bringing the
annual rate down from 24.5% to 13.8% (and well off its peak of 30% earlier this
year). Output prices fell 1.0%, while the 'core' measure fell 0.5%.
Inflationary pressure are now clearly easing, largely on the back of lower oil
prices, but possibly also due to discounting as manufacturers face softening demand.
Japan machinery orders rose 5.5% in September, improving
the annual rate from -13% to -4.2%. This was within expectations, retracing
only a fraction of the -14.5% plunge in August. Last month, core orders fell to
lowest level in fiver years. The downturn in global demand should see orders maintain
a downward trajectory. September foreign orders held up better than expected,
rising 3.1% to extend the 14.8% August rebound. Nevertheless, the outlook is
hardly optimistic, of the October manufacturing
PMI having dipped to 34.5 from 39.6, the lowest in a survey going back six
We are neutral on NZD in the short term. Early signs
of an improving risk environment point to some unwinding of recent selling
against USD, but it is also likely to lose ground against AUD. Longer term, NZD
will need to remain below average for an extended period to soften the blow of
a weaker world economy.
Release Last Forecast
Aus Oct NAB
Business Survey â€“1.2 â€“
IBD/TIPP Economic Optimism 41.1 42.0
Current Account Â¥bn 903 1024
Lending %yr 1.6% â€“
Eur Nov ZEW
Economic Sentiment â€“62.7 â€“60.0
Ger Nov ZEW
Economic Sentiment â€“63.0 â€“62.0
UK Oct BRC
Retail Sales Monitor
House Price Balance net % â€“84.0% â€“85.0%
Trade Balance Â£bn â€“8.2 â€“8.0
House Price Index %yr â€“3.4% â€“5.4%
â€¢ NZ Q3 HLFS
Review (6 November)
â€¢ NZ Weekly
Forex Outlook (4 November)
â€¢ NZ Q3 LCI
and QES Review (3 November)
â€¢ NZ Q3
Labour Market Preview (29 October)
â€¢ NZ Weekly
Forex Outlook (28 October)
papers/publications are available on Online Research on Westpac
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