Correlations - normal service has
resumed (for now). Friday
marked the second consecutive day when both US equities and the US dollar were sold, a
relationship which had broken down since mid-2008. The S&P500 closed down
0.4%, VIX up 1.3 to 32.6, and the US dollar index up 0.6%. The catalyst was
likely Thursday's UK credit rating revision which was then extrapolated onto
the US (given its budget deficit), supported by talk over the past few weeks of
China et al shifting reserves composition from USD assets to other currencies
and commodities. Hence the rally in copper (+2.3%), and sell-off in US
treasuries, the 10yr up 9bp to 3.45%. This week's treasuries auctions will be
closely watched for further signs of flight.
It was one-way traffic for the EUR,
from 1.39 to 1.4050 during the NY afternoon, settling at 1.4000. ECB's Juncker
commented that further euro rises would not be in line with fundamentals, and
could hamper recovery. Similarly for the GBP, 1.5760 to 1.5945. USD/JPY
sat above the 94 level until London, moving up to 94.90.
AUD eked modest gains, 0.7810 to 0.7865, before
slipping at the NY close. A Mitchell article questioned government growth
forecasts, but had no market impact.
NZD formed another leg up from 0.6130 to 0.6240,
consolidating above 0.6200. This morning's NZ open is weak, dipping to 0.6135,
on the weekend's US dairy subsidy news. AUD/NZD slid to 1.28 throughout the offshore
sessions, perking up this morning on the NZD selling.
The Bank of Japan kept rates unchanged at 0.10%. The statement confirmed that they will be
accepting foreign sovereign bonds as collateral for their market operations.
The eligible bonds are those issued by the US, UK, Germany and France. This is a welcome announcement and a strong
signal that Japan, one of the world's major capital exporters,
will not countenance financial protectionism. Apparently S&P placing the UK on negative watch did not phase the Bank from
including them on this list.
UK GDP growth unrevised at -1.9% in Q1. The detail showed a 1.2% fall in private
consumption, a 3.8% slump in capital formation, and 6% declines in both exports
Canadian retail sales up 0.3% in
Mar. Sales were boosted by a
0.5% rise in auto sales but a 2.8% fall in gasoline sales due to lower prices
and soft furniture and clothing sales meant ex auto sales were down 0.2%.
With Monday holidays in
NY and London reducing market liquidity, any reactions
to events today and tomorrow will be exaggerated. Witness the effect this
morning on the US dairy subsidy news weakening the NZD by 60 pips. The negative USD
backdrop argues for higher NZD over the medium term, but there is much event
risk from now until June, with this week's budget, a June RBNZ meeting, and
lumpy NZD eurobond redemptions and mortgage rollovers - expect to see
Country Release Last Forecast
25 May US
All-Industry Activity Index β2.0% β2.3%
Bank of Japan Monthly
Report β β
Ger May Ifo
Business Climate Index 83.7 84.0
26 May NZ
Apr Merchandise Trade NZDm 324 450
Inflation Expectations 2.3% 2.1%
S&P/CS Home Price %yr β18.6% β18.0%
Consumer Confid Index 39.2 43.0
May Richmond Fed Index β9
May Dallas Fed Manf.
Activity β32% β20%
Jpn Apr Corp
Services Prices %yr β2.1% β2.2%
β’ NZ Budget
2009 Preview (21 May)
β’ NZ Weekly
Forex Outlook (18 May)
β’ NZ Q1
Retail Sales Review (15 May)
β’ NZ Weekly
Forex Outlook (11 May)
β’ NZ Q1 HLFS
Review (7 May)
β’ NZ Weekly
Forex Outlook (4 May)
papers/publications are available on Online Research on Westpac
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