the pattern of recent weeks, non-US currencies tracked the equity indices
closely overnight. The Dow Jones index rose 2.5% in the early US session,
but has given up that gain at the time of writing. Most currencies are
currently around the levels prevailing at yesterdayâ€™s NZ close. Noteworthy news
from the Asian session was the bailout of Chinaâ€™s third
largest securities house â€“ its financial sector is not entirely immune from
adverse global conditions.
trading in a narrow range of 0.5480 to 0.5520 during yesterdayâ€™s NZ session, rose
to around 0.5560 on the Dowâ€™s early gains. It is currently back to 0.5520, and
is likely to continue tracking the Dow this morning. Bearish news released
yesterday included Fonterraâ€™s announcement on a revised (likely downwards) milk
payout, as well as Prime Minister John Keyâ€™s
expectation of a wider budget deficit. Interest rates fell by 6 basis points
for 10 year maturities. Todayâ€™s release of third quarter producer prices will
be largely ignored by the market since the Q3 CPI is already known..
AUD traded in a
tight range of 0.6580 to 0.6430 during yesterdayâ€™s Australian session, and rose
to almost 0.66 after the Dowâ€™s rise. It is currently around 0.6480. The
correlation between equities and the AUD remains, although it has been
decreasing over recent days. The RBA released the minutes of its previous rate
cut meeting, revealing their desire to arrive at a â€śneutralâ€ť (i.e. where the
economy is stable) monetary policy stance sooner rather than later. The market
was mildly disappointed in the minutesâ€™ contents because there was no clear indication
that the next cut would be the anticipated 100 basis points, rather than 50 or
75, and a miniscule selloff in interest markets ensued.
EUR also tracked
the Dow, and rose to around 1.27, before falling to its current 1.26 area. Some
significant buying of EUR/JPY was seen during the European session, affecting
both currencies for a few hours only. JPY continues to attract flows as a
safe haven currency.
slumps 2.8% in Oct. The PPI posted its steepest one month fall
in the lifetime of anyone who could possibly be reading this. At the output
stage of production, gasoline prices collapsed 25% in the month; food prices
edged 0.2% lower; auto prices were slashed 1.7% but surprisingly light truck
prices rose 2.6% on top of Septemberâ€™s 1.0% gain (hence the sticky 0.4% core
rate). Intermediate and crude prices tumbled further in October, paving the way
for continued retracement of the PPI gains we saw up until July this year. The
PPI annual rate fell from 8.7% yr to 5.2% yr but the core PPI accelerated from
4.0% yr to 4.4% yr, however to the extent that the latter is a lagged function
of the former, the core rate should begin to ease presently.
TIC data, including upward revisions to August, revealed the capital inflows/repatriation
which has been a big driver of US dollar strength in recent months. In Sep
capital inflow was worth $143bn.
policy-makers testified before the House Financial Services Committee on how the
Trouble Asset Relief Program is proceeding. Congressmen and womenâ€™s lines of questioning
certainly demonstrated some dissatisfaction with how the $700bn is being used,
including the lack of funds directed at preventing mortgage foreclosures. Fed
chair Ben Bernanke said â€śThe value of the TARP in promoting financial stability
has already been demonstrated... [and it] will be critical for restoring
confidence and promoting the return of credit markets to more normal functioning.â€ť.
NAHB homebuildersâ€™ confidence index plumbed new depths in November, falling from
14 to 9. Falling house prices, rising foreclosures and reduced access to creditare
hammering the market for new homes.
inflation eases from 5.2% yr to 4.5% yr in Oct. UK inflation
eased sharply in October, not quite to Westpacâ€™s bottom of the market 4.3% yr
forecast, but well below the consensus 4.8% yr view (demonstrating the
conservative nature of consensus forecasts during times of rapid change). In
the month, the CPI fell 0.2%, thanks to lower oil, transport and food costs.
These in turn fed through to softer core inflation (1.9% yr), confirming that the
recent rise in the core rate was a temporary.
The NZD retains
its weak bias. Todayâ€™s action should be confined to a narrow 0.5475 to 0.5560
range, barring equity market surprises. During the next week, we expect 0.58 to
cap any rise, while 0.5350 is a key support level which, if broken, does not
augur well for the NZD.
Release Last Forecast
NZ Q3 Producer
Output Prices 3.5% 1.5%
Input Prices 5.6% 2.0%
Westpac-MI Leading Index 2.5% â€“
Vehicle Sales 0.4% -0.8%
Speakers: Gov Stevens and Asst Gov Edey
Consumer Price Index/Core flat/0.1% -1.2%/0.2%
Starts/Permits -6.3%/-6.1% -3.0%/-3.0%
Oct 29 FOMC
Jpn Sep All
Industry Index %mth -1.8% -0.1%
UK Nov BoE
Leading Index -0.2% -0.2%
â€˘ NZ Weekly
Forex Outlook (17 November)
â€˘ NZ Q3
Retail Sales Review (13 November)
Economic Overview November 2008 (11 November)
â€˘ NZ Weekly
Forex Outlook (11 November)
â€˘ NZ Weekly
Forex Outlook (4 November)
â€˘ NZ Q3 HLFS
Review (6 November)
papers/publications are available on Online Research on Westpac
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