A virtual repeat of previous sessions, with the major
currencies marking time until US equity markets opened, then following in
lockstep. Equities fared better last night though, with the Dow in slightly
positive territory at the time of writing, recovering from a 300pt drop earlier
in the day. Elsewhere, though, there has been a clear shift in sentiment
towards the relative safety of the US dollar, reflecting expectations of
tighter liquidity over the Christmas period and the growing uncertainty over
what the $700bn bailout fund will actually be used for. US interbank lending rates
were fixed higher for the first time in 23 sessions.
NZD traded within a relatively tight range overnight,
dipping below 0.5520 as US equities softened before rebounding to 0.5650. AUD
was more active, briefly dipping below 0.6350 before apparently encountering
bids from the RBA around that level again. Official support appears to have
contributed to the AUD finally getting some traction against the NZD, with the
cross dropping to 0.8650.
EUR was generally higher in overnight trade, ignoring
the weak German GDP figures that point to a technical recession for the euro
zone as well. A late rally in the Dow saw EUR spike up towards 1.27. GBP went
its own way again, falling to a new 6Β½ year low of 1.4560 before a late rebound
to 1.4750. While there was no UK data, traders continued to trash the pound as they
focused on the gloomy forecasts from this week's Bank of England inflation
report and news of sizeable job losses. EUR/GBP reached its highest level since
the common currency was formed.
US trade deficit narrows to $56.5bn in Sep, as
imports once again fell away more sharply than exports in dollar terms,
although the percentage changes were similar (and steep), both down around 6%.
Oil imports fell $7bn (a function of both lower volume and price) so excluding
oil the trade deficit actually widened again, despite quite broad-based
weakness elsewhere in imports. Exports also saw broad-based weakness but
standouts were a 60.5% fall in civilian aircraft due to the Boeing strike; and
a 3.7% fall in consumer goods. The weakness on both sides of the trade story
may have been compounded by the hurricanes; the Boeing strike has since ended.
But even looking through these special factors the report does reveal emerging weakness
both in US domestic demand and in the economies of US trading partners.
That said, the outcome was broadly in line with Commerce Dept assumptions so
there are no major implications for Q3 GDP revisions.
US initial claims up 32k to 516k, the highest level
of initial unemployment insurance claims since the immediate aftermath of 9/11
in 2001. Prior to that, you have to go back to the early 1990s to see initial
claims above 500k. Also, the continuing claims uptrend is accelerating again,
indicative of rapidly rising unemployment. This report is paving the way for a
yet steeper payrolls decline in the November report which is being surveyed this
German GDP fell a steeper than expected 0.5% in Q3,
following Q2's 0.4% contraction, confirming that that economy has been in
recession since about Easter. Other national GDP data, and Euroland figures,
will be published tonight, but if the German downside surprise is any guide,
the Euroland numbers will be even weaker than our below consensus forecast for
a 0.2% contraction; a 0.4% decline is now a realistic possibility, boosting the
chances of further easing from the European Central Bank before year end..
Canadian trade surplus down C$2.1bn to C$4.5bn. The
narrower trade surplus reflected rising imports (mostly autos) compounded by
falling exports (again autos were the weakest though energy exports were down
We are neutral on NZD in the short term. News from
the corporate world is dominating investor sentiment at the moment, but we feel
this should be at the least balanced out by the extent of fiscal stimulus and
other government support that is being unleashed around the world. Further
ahead, NZD will need to remain below its long-term average for an extended
period to soften the blow of a weaker world economy.
Release Last Forecast
US Oct Import
Prices β3.0% β6.2%
Sales β1.2% β3.0%
Sales ex auto β0.6% β1.5%
Consumer Sentiment (Prelim) 57.6 61.0
Inventories 0.3% 0.3%
Eur Oct CPI
(F) 3.2% a 3.2%
Q3 GDP Adv β0.2%
Manufacturing Shipments β3.7% β2.0%
Sales β2.3% 1.5%
β’ NZ Q3
Retail Sales (13 November)
Economic Overview November 2008 (11 November)
β’ NZ Weekly
Forex Outlook (4 November)
β’ NZ Q3 HLFS
Review (6 November)
β’ NZ Weekly
Forex Outlook (4 November)
β’ NZ Q3 LCI
and QES Review (3 November)
β’ NZ Q3
Labour Market Preview (29 October)
papers/publications are available on Online Research on Westpac
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