failures in Europe
dominated news last night. The UK Government formalised expected plans
to enhance support to the banking sector, but this was overshadowed by Royal
Bank of Scotlandâ€™s forecast loss of GBP28 billion, and the risk of further
nationalisation of banks. German banks were also highlighted as facing drastic
write-downs. In other credit-related news, Spainâ€™s AAA was
cut to AA+ by Standard and Poorâ€™s, and sovereign credit-spreads have widened.
In the absence of US equity market clues (on holiday), Euro-zone equities set
the tone, down 1.2%. WTI oil was down 5% and the US dollar index (DXY) rose
out of steam at 0.5545 at the NZ close, and Europeâ€™s gloom saw
it fall over a cent. The two-day corrective rally has ended, and the
bigger-picture decline to sub-0.50 has resumed.
was also EUR-influenced, and the zig-zag down to the Europe-low of 0.6680 area
likely marks the beginning of a larger decline. AUD/ NZD recent sideways range
is gradually getting smaller, and an upside breakout beyond 1.2370 is imminent.
EUR was affected
by the banking news and Spainâ€™s
downgrade, falling from around 1.34 to its current low level of 1.3120. The
European Commissionâ€™s drastic downward revision of 2009 GDP, from -0.1% to
-1.9%, added fuel to the move. The GBP unsurprisingly fell on the UK banking
news, and is poised to break the recent 1.4450 low. The JPY strengthened
slightly against the USD to just above 90, before retreating to 90.50; a dismal
set of data releases yesterday supports the likelihood of Japanese repatriation
data to report.
Commission slashes growth forecasts. The 2009 GDP growth forecast was slashed
from â€“0.1% in November to â€“1.9% in the latest projections (which happens to
exactly match our current forecast for Euroland growth this year). 2010 is
expected to see a modest rebound of just 0.4% (Westpac 0.7%).
government announces further bank bailout plan, though the
PM and Chancellor emphasised that the key intention was not simply to save the banks
but rather to ensure the necessary lending to business and individuals takes
place, in order to minimise the severity of the emerging recession. The government
will increase its ownership of at least one of the major UK banks (RBS), direct
the bank it already fully owns (Northern Rock) to lend more, provide an
extended guarantee to cover potential losses for bank lending, and allow the
Bank of England monetary policy committee to use asset purchases as one of its
policy tools (effectively a green light for further quantitative easing).
house prices down 1.9% in Jan. The Rightmove index is now running an annual
pace of decline of â€“7.3% yr, lagging the major lender indices which have prices
down around 16% yr.
We look to
sell strength in NZD from here, expecting 0.52 will be broken in the next few
weeks. On the day, it shouldnâ€™t go any higher than 0.5470, more likely gravitating
towards 0.54. Todayâ€™s CPI (Q4) release is important, and we expect a weaker
-0.5% than either the marketâ€™s or the RBNZâ€™s forecast; such a reading would see
interest rates and the NZD lower.
Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
contributions from Westpac Economics
Release Last Forecast
NZ Q4 CPI
%qtr 1.5% â€“0.5%
Prices 0.8% â€“
Tertiary Industry Idx %mth 0.4% â€“0.8%
Confidence 28.7 27.5
Ger Jan ZEW
Analystsâ€™ Survey â€“45.2 â€“50.0
UK Dec CPI %yr
Manufacturing Shipments â€“0.5% â€“3.0%
Decision 1.50% 1.00%
â€˘ Change of
OCR Call (14 January)
â€˘ NZ Q4 CPI
Preview (14 January)
â€˘ NZ Q4 QSBO
Review (13 January)
â€˘ NZ Weekly
Forex Outlook (13 January)
â€˘ NZ Q4
Employment Confidence Index (7 January)
â€˘ NZ Q3 GDP
Review (23 December)
â€˘ NZ Q4
Consumer Confidence (22 December)
papers/publications are available on Online Research on Westpac
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