evidence of a mild global pulse last night, from the improved US ISM data
and tightening credit spreads, supported risk. European equities closed up
1.5%, and the US followed
suit until early NZ time, although a fade into the close sees the S&P500
down 0.5% as we write. It should be noted that the S&P Banksâ€™ sub-index,
which tends to lead the broader index, has fallen for the past two sessions,
pointing to a broader reversal ahead. Most commodities were largely unchanged,
the exception being the Baltic Dry shipping indexâ€™s 5% gain, supporting the
pulse story. US Libor rates, an indicator of inter-bank lending, were again
stable, and 10 year treasury yields rose 4bp. Norway cut rates
by 50bp to 2.50%.
The NZD continued
its corrective rally to 0.5150, a level it has attacked three times in the past
24 hours. Apart from the positive global sentiment, a Moodyâ€™s report at NY helped the currency, and explains the
two attempts to break higher. It failed, though, and currently is weaker at
AUD sold down to
0.6355, a large AUD/JPY structured product unwind supposedly responsible,
although EUR weakness must have contributed. Risk sentiment helped it back up
to 0.6520, from which it retreats as we write.
pressured by rumoured Russian intervention in the rouble, which necessitates EUR
selling. Weak PMI and retai sales numbers did no favours either. GBP performed well
to 1.4580, before retracing a cent. Large buying (versus the EUR and USD) ahead
of the fixing was noted. The most stable pair this week, USD/JPY, remains
locked in the 89 to 90 range.
non-manufacturing up from 40.1 to 42.9 in Jan. The Jan non manufacturing
ISM, whose respondents come from industries that make up almost 90% of the
economy, rose for the second month running from its lowest reading since the
surveyâ€™s inception in 1997. It is now 5.5 pts above that Nov reading, and 2.2
pts higher than the Q4 average. This suggests that the pace of decline in the US economy
might have moderated a touch at the start of Q1, consistent with the message
from the ISM factory survey and the regional Fed surveys too. That said, the
breakdown still shows serious weakness across activity, orders and jobs (that
latter actually slipping slightly, though still higher than in Nov).
measure of private payrolls for Jan at â€“522k was not quite as weak as back in
December. However the ADP index went from understating the extent of job market
weakness through most of 2008 to overstating it last month when the survey
methodology was revamped, so it is not clear what the implications for the
January non-farm payrolls report are. Our forecast for is for a total payrolls
decline of 550k, so ADP would be consistent with that. Still on the labour
market, corporate layoff announcements totaled 242k in January, up 222%
compared to the same month last year. There is not direct correlation with
payrolls as layoffscan be announced well ahead of their taking place, but this
is still further evidence that the job market is continuing to weaken.
services PMI was revised down by 0.3 pts to 42.2 in Jan, leaving only
the smallest of possible rises in place relative to Decâ€™s cycle low-point. This
implies that services sector activity was continuing to fall away rapidly at
the start of Q1. Meanwhile, Euroland retail sales were flat in December and all
of Novemberâ€™s rise was revised away, consistent with the bleak German retail
data published yesterday. Consumer spending is likely to have been a drag on Q4
GDP growth (data due next week 13/2).
services PMI stepped higher for the second month running, though the 42.5
reading still implies a significant further slowdown in activity, even if not
at Q4â€™s rapid pace. The BRC found a slightly higher rate of inflation on the
high street in Jan at 1.1% yr, partly due to the impact of the weaker pound on
food prices. As with the GfK Jan confidence measure last week, the Nationwide
index fell sharply, reflecting the gloom about the economy which is now
impossible to avoid in the UK media.
important Q4 employment data this morning will probably see an asymmetric response
from the markets. An unemployment rate higher than 4.6% should result in a sell-off,
while a smaller number should be neutral. Todayâ€™s range should be capped at
0.5150, and supported at 0.5000, barring a weak unemployment result. Tomorrow
is a national holiday, and domestic markets will be closed.
Speizer, Senior Market Strategist, NZ, Ph: (04) 470
contributions from Westpac Economics
Release Last Forecast
NZ Q4 HLFS
Employment 0.1% â€“0.5%
Unemployment 4.2% 4.6%
US Jan Chain
Store Sales %yr
Productivity % annâ€™lsd 1.3% 0.0%
Labour Costs 2.8% 2.5%
Jobless Claims w/e 31/1 588k 590k
Orders â€“4.6% â€“3.0%
Plosser and Bullard
Eur ECB Rate
Decision 2.00% 2.00%
Factory Orders â€“6.0% â€“4.0%
UK BoE Rate
Decision 1.50% 1.00%
Can DecBuilding Permits â€“11.8%
Jan Ivey PMI
nsa 39.1 43.0
â€¢ NZ Q4 LCI
and QES Review (2 February)
â€¢ NZ Weekly
Forex Outlook (2 February)
â€¢ RBNZ OCR
Review (29 January)
â€¢ NZ Weekly
Forex Outlook (27 January)
papers/publications are available on Online Research on Westpac
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Tue 17 July 2018 AA 08:30 GB- Employment A 13:15 US- Industrial Production AA 14:00 US-Powell Testimony Wed 18 July 2018 AA 08:30 GB- CPI A 12:30 US- Housing Starts/Permits AA 14:00 US-Powell Testimony Thu 19 July 2018 AA 1:30 AU- Employment AA 08:30 GB- Retail Sales A 14:30 US- EIA Crude A 12:30 US- Weekly Jobless Fri 20 Jun 2018 A 12:30 CA- CPI/Retail Sales
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