Last night's market action was highly significant,
and takes us into new trading territory. The catalyst, as has been the case for
the past few months, was global equity market selling, with the Dow falling
below the important 8000 level. Should that index close weakly in a few hours
time, we become even more confident that currency and risky asset prices will move
to a much lower trading range. Overnight news was overwhelmingly bearish: the
Fed's vice chairman says the risk of deflation is now higher, the US data release on jobless claims was grim, and the ECB
admits the crisis has deepened. Even safe-haven Switzerland has suffered, and cut their official interest rate
by 100 bp last night.
NZD sat stubbornly just above 0.54 during our day
yesterday, but once the Dow gapped lower, NZD stops were triggered, and it
quickly sank to a low of 0.5275. It is currently trading at slightly under
0.53. All eyes today will be focussed on Fonterra's announcement of their revised dairy farmer payout.
Two year interest rates fell yesterday by 8 bp, and we expect more of the same
AUD was also affected by the key break in the Dow,
falling to a low of 0.6160, and is poised to push lower as we write. The RBA
has reached what they considered a neutral cash rate, but will continue to cut
as they fear a stall in the economy, while the government will take the fiscal
EUR was relatively subdued, which is a reflection of
its non-high yield status, trading around the 1.25 level. JPY was more
volatile, but is little changed over the past 24 hours, trading at around 0.95.
US Philly Fed factory survey down from -38 to -39 in
Nov. The Philly Fed index slipped even further in November after slumping 41.3
pts in October. It is now clearly below the low-point of the 2001 recession
(-37.2) and not far off the -48.2 low-point in the 1990 recession. The detail
was mostly weaker, with a 7.2 pt decline to -25.2 on the jobs measure standing
out in the activity components, although the most dramatic component move was
the 37.9 pt collapse in the Philly Fed began this survey forty years ago.
US leading index dropped 0.8% in October, with all of
that decline explained by the collapsing equity market. The other nine
components were mostly offsetting, with strong rises in money supply and the
yield spread, but falling building permits and consumer confidence.
US initial jobless claims surged a further 27k to 542k
last week on top of the prior week's 31k jump. The Labor Dept reported no
special factors at play - other than lots of layoffs! Continuing claims also
continued their rapid uptrend, rising above 4 million for the first week since
the early 1980s. With the payrolls survey for November being conducted last
week (ended 15/11), the surge in initial claims suggests a serious
deterioration in labour market conditions since the October survey week (when
initial claims were at 479k). We had a 320k payrolls drop pencilled in for
November but risks are it will be an even steeper decline now.
Japanese trade balance back in the red on sharp
export decline. Figures for Oct came in well under market expectations of a
moderation in the Sep surplus. The balance instead dropped to a JPY63.9bn
deficit for the month - a JPY159bn deterioration on Sep's revised surplus of
JPY95.1bn. Exports dropped to be down 7.7%yr, the biggest decline since 2001.
Imports rose 7.4% and were the main source of the surprise vs expectations.
The Swiss National Bank cut its benchmark rate a
further 100bp to 1.0%. This is the third unscheduled rate cut since October.
UK retail sales posted a 0.1% in Oct, although the
detail showed that once again the result was flattered by a rise in food store
sales, after a string of monthly declines from May to August. Non-food sales
were down 1.1% in Oct and 1.3% in Sep, so it is clear that discretionary
spending has been cut back sharply. Other UK data included accelerating M4
money supply growth in October (from 12.6% yr to 15.1% yr) which we suspect
reflects liquidation of investment assets outside of M4 into cash which is in
the M4 definition; and GBP1.4bn public sector net borrowing, the first Oct
since 1994 that the public sector has run a deficit. The fiscal position ahead
of Monday's pre-budget report has deteriorated sharply.
Our view that NZD is inherently weak in this
environment is intact, with our only change being the expected trading range.
Previous important support of 0.54 now becomes resistance, with the new support
level being 0.50.
Country Release Last Forecast
21 Nov NZ
Oct External Migration ann. 4,407 4,525
Card Transactions 1.1% â€“
Electronic Card Transactâ€™s 0.8% â€“
Bullard, Lacker, Plosser and Evans
Policy Announcement 0.30% 0.30%
Eur Nov PMI
Factory Adv 41.1 40.0
Services Adv 45.8 45.5
Consumer Price Index %yr 3.4% 3.5%
Oct BoC Core
CPI %yr 1.7% 2.0%
24 Nov US Oct
Existing Home Sales 5.5% â€“2.5%
Current Account â‚¬bn sa â€“8.4 â€“
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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