rumours were bought, but the facts were sold: the much
awaited US stimulus measures announced early this morning contained no positive
surprises, but rather the expansion of an existing plan to spur lending (from
US$200 billion to $1 trillion, via the Fed), and the strengthening of bank
balance sheets (also to the tune of $1 trillion, via the Treasury). US equity
markets had already priced in the contents, and disappointments over a lack of
guaranteed inter-bank lending and no â€śbad bankâ€ť to absorb toxic assets resulted
in US equities selling off by around 4% (banks were down 13%). Risk-aversion returned
to haunt the usual suspects â€“ WTI oil down 2%, copper -3%, and the USD +1%.
Beneficiaries were gold (+2%) and 10 year US treasuries
NZD rose to almost
0.54 in Europe prior to the US stimulus
announcement, but then collapsed to 0.5250 as the market vented its disappointment.
It continues to slump as we write, at 0.52. Offshore news is the main
determinant of price this week, in the absence of major domestic data.
fell from 0.6730 to 0.6540, and is currently soft at 0.65. AUD/NZD behaved in
inverse fashion, falling pre-announcement to 1.2435, but stabilised afterwards at
reached 1.31, before turning around to 1.2830. Euro-zone negative news yesterday
included rumours (denied) of Russian credit defaults, and UBSâ€™s CHF20 billion annual
loss â€“ the largest ever in Switzerland. Eurozone
banks are heavily exposed to emerging European credits, particularly in Russia. GBP put in
another volatile performance, 1.49 to 1.4450. JPY buying was
heavy yesterday, March year end repatriation taking it back to just above 90.
IBD/TIPP consumer optimism edges down from 45.4 to 44.6 in Feb. Consumer optimism
was little changed in Feb, with weaker readings for the economic outlook and personal
finances questions mostly offset by a jump in the assessment of federal
wholesale inventories down 1.4% in Dec. The steep fall in wholesale inventories
in late 2008, including a downward revision to November, adds weight to our
view that the stock-building contribution to Q4 GDP will be revised lower.
Secretary Tim Geithner outlined a new Financial Stability Plan, acknowledging
that last yearâ€™s emergency measures â€śwere absolutely essential, but...inadequate...
not comprehensive or quick enoughâ€ť. The plan could involve up to $1 trillionof funds in
a new effort to restore some strength to bank balance sheets. Meanwhile, theFed
announced a new program to spur consumer and business lending, which could alsoinvolve as
much a $1 trillion, up from $200mn previously announced.
chairman Ben Bernanke, speaking to the House Financial Services Committee,
said that he was encouraged by the market response to recently introduced
credit facilities. He promised greater disclosure around the use of these
facilities, and noted that they will be wound down as market conditions
industrial production down 1.8% in Dec, Italian IP down 2.5%. These national
industrial production figures show yet again how factory sector output was
shrinking sharply late last year across Europe as global
data mostly weak. The RICS (surveyors) house price measure remained very soft last month,
with the vast majority reporting falling prices. The sales volume measure fell
to a new cycle low. The BRC retail survey showed a food price driven Jan spike,
so was not really reflective of renewed consumer strength, through Decemberâ€™s
VAT cut may have had some impact. The trade deficit narrowed in December to
ÂŁ7.4bn its lowest in eighteen months, due to a lift in exports, perhaps helped
along by sterling weakness, and a sharp fall in imports.
The US stimulus
planâ€™s expectation was the main driver of risk-buying during the past three
sessions. With that now out of the way, we are likely to resume the larger
degree risk-aversion trends, which means carry currencies, such as NZD, should
weaken further. On the day, 0.51 to 0.5250 should hold, eventually heading
Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
from Westpac Economics
Release Last Forecast
Electronic Card Transactions â€“0.7% â€“
Westpac-MI Consumer Sentiment 89.9 â€“
Finance (No.) 1.3% 4.0%
US Dec Trade
Balance $bn â€“40.4 â€“35.0
Budget $bn â€“ â€“78
Claimant Count Change 78k 80k
Quarterly Inflation Report
Can Dec New
House Prices â€“0.3% â€“
Balance C$bn 1.3 0.8
â€˘ NZ Weekly
Forex Outlook (9 February)
â€˘ NZ Q4 HLFS
Review (5 February)
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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