Thursday January 29, 2009 - 21:42:26 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Friday 30 January 2009
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The data spoke last night, and ended the six-day run of risk-seeking. US bank equities led the reversal, knocking the S&P500 3% lower as we write. The data from the US â€“ durable goods orders, continuing job claims, and new home sales â€“ was all worse than expected, and caused a reality check on the day. Protectionism reared its head again, this time the US administration talking of new favours for steelmakers asb part of the forthcoming stimulus package. Economic activity indicator copper fell 3%, rising stockpiles an added concern, as it is for many commodities. Oilâ€™s fall was limited to 2%, a US refinery workersâ€™ strike helping. US 10 year treasury yields rose 12bp, the supply factor still a dominant negative. Most currencies fared poorly against the USDÂ and JPY.
NZDâ€™s domestic session plunge yesterday had another leg, and finally broke the longstanding 0.5170 support. It was contained by 0.5130, from which it bounced twice, and looks to be locked in a lower range with less yield carry to support it.
AUD/USD reached a new low in Europe, 0.6540, and did so again in New York, 0.6525, on the back of EUR, which it outperformed. AUD/NZDâ€™s impressive march towards 1.30 stalled at 1.28 in Europe, and is tracing a consolidation pattern at 1.27 this morning.
EUR was pelted on two fronts â€“ rapidly deteriorating German employment data and a record low European confidence index, as well as George Sorosâ€™ (the man who successfully bet on the GBP leaving the ERM last decade) comments the EUR may not survive the crisis. Late Europe saw it slide from 1.3180 to 1.2935, where it currently resides. JPY, a pillar of stability, ranged between 89.50 and 90.
US durable goods orders down 2.6% in Dec. Durable orders posted their third consecutive fall in December reflecting renewed weakness in core capital goods orders, a further fall in civilian aircraft orders, yet another decline in autos and mostly broadbased weakness elsewhere, except for a 33% jump in the defence component. This outcome is consistent with the slump in the orders component of the business surveys. Note that 3 month annualised shipments of core capital goods were down 14.8% in Q4, whereas orders of same were down 32.5%, which suggests that expected weakness in Q4 business investment spending in tonightâ€™s GDP report will only be a taster of things to come with Q1 shaping up as even weaker.
US new home sales collapsed in the closing months of 2008, with the latest report including substantial downward revisions (of 40k when total sales are running at just 331k annualised) and a very steep 15% drop in December, matching the recent pace of decline in new house starts. Unsold inventory of new homes is now worth 13 months of the December sales pace and that will continue to put downward pressure on both prices and activity in the construction sector.
US initial jobless claims edged 3k higher to 588k whereas in the prior week continuing claims soared to a new cycle high (correcting for the temporary dip around new year caused by seasonality issues). Both results are consistent with the labour market continuing to shed jobs at a 500k+ pace in the early months of 2009.
Japanese retail sales continue to weaken. Dec retail sales declined 2.0%mth to -2.7%yr, the steepest annual fall in four years, from -0.9% y/y in Nov. Large retailer sales fell 3.0%mth to -6.3%yr from -3.1%yr on a same-store basis.
Most of the January business and consumer confidence surveys for Euroland revealed further slippage, in some cases to new record lows, although some saw a slower pace of decline and the retail PMI stood out by posting a second consecutive gain. It remains to be seen whether the official retail data (Dec due next week) also capture that upswing. Euroland money supply growth continued to decelerate at the end of last year.
Nationwide reported that UK house prices continued to slide at the start of this year, reflecting the lack of mortgage availability and slumping potential buyer confidence. Jan prices were down 1.3%, for a 16.6% slump over the year.
NZDâ€™s new range for the forthcoming session should be 0.51 to 0.52. A raft of weak Japanese data is expected tonight, which should add to the repatriation theme, and weigh on NZD. The risk to NZD remains on the downside.
Imre Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
With contributions from Westpac Economics
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 14 November 2007. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. Â© 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.
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