A broadbased short squeeze is our
best explanation for the rally in risk overnight. Add to that China's announcement yesterday of a
stimulus plan, to roughly double infrastructure and manufacturing spending, as
well as China's third consecutive improvement in manufacturing PMI figures.
Poor US private payrolls data were ignored, and the
S&P500 gained around 2.6% until NZ's open. S&P banks didn't follow
suit, down 7%, neither did credit spreads, as concerns regarding the financial
sector linger. Most other asset classes behaved as one would expect, WTI oil up
8%, copper up 6%, and gold down 1.5%. US 10 year treasuries weakened, up 12bp
in yield, and are vulnerable to a surprise from tonight's auction announcement.
NZD's rebound was only slightly less impressive than
AUD's, from yesterday's 0.4985 low to NY's 0.5075 high. The Fonterra milk
powder auction result, up 16%, is in line with the mild rebound noted in food
commodities this year.
AUD regained all its post-GDP losses and then some,
reaching 0.6513 in New
That's just over 2 cents in 24 hours - flagging the extent of short-AUD
positioning. A Terry McCrann article pointing to an economic storm on the
horizon had no obvious impact. The AUD/NZD cross climbed off its 1.2765 low to
GBP's rise from the 1.40 area to 1.4170 could be
partly attributed to an unusually strong PMI services report. USD did manage to
rally against one currency - JPY, reaching 99.50, shy of the 100 level
where large option strikes sit.
US February non-manufacturing ISM fell to 41.6 in
Feb after two months of
improvement. It remains firmly in contractionary territory, although it is
above last November's low. The breakdown showed a weakening in activity and
orders, consistent with other indicators suggesting the pace of economic
decline has re-accelerated in February after a brief hiatus in January. The
prices paid indicator rose to almost 50 as the price-depressing effect of last
year's sharp slide in gasoline prices came to an end.
US ADP Feb private payrolls showed job losses accelerating to -697k in
February, consistent with official non-farm payrolls around -670k.
US corporate layoff announcements
totalled 186k in Feb, fewer
than January's 242k but still 158% higher than the same month last year. There
is no direct correlation with payrolls as layoffs can be announced well ahead
of their taking place.
Dallas Fed President Fisher warned that the 2009 Q1 contraction could be
similar to Q4 2008.
Euroland February services PMI was
revised up by 0.3 pts to 39.2,
still well down on January and a cycle low for the series.
UK Feb services PMI stepped up to 43.2 from 42.5
in January, the third month
consecutive improvement. The low 40s reading still implies that services
activity is contracting, although not at Q4's rapid pace.
UK British Retail Consortium shop price index found a higher rate of inflation on the high
street in February, probably due to the weak pound and the fact that petrol
prices have stopped falling.
UK Nationwide consumer confidence index rose to 43 in February, although confidence
This rally since last yesterday afternoon is
corrective, against the larger picture downtrend. However, the speed of the
rise is impressive, and points to further cleanouts of short positions, so that
0.51 is likely. On the day, 0.50 to 0.51 is suggested, with 0.51 vulnerable.
Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
contributions from Westpac Economics
β’ A changing
climate (4 March)
β’ NZ Weekly
Forex Outlook (2 March)
papers/publications are available on Online Research on Westpac
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