Thursday July 30, 2009 - 21:16:27 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Friday 31 July 2009
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US equities opened 2% higher, and maintained those gains throughout, +1.9% as we write. Solid corporate earnings reports from Motorola, Tyco, and Mastercard, plus improved continuing jobless claims, were attributed as the drivers. WTI oil and copper futures both accelerated higher on the data, up 5.9% and 3.3%, respectively. US 10yr notes, which has lost ground earlier on the improved risk tone, abruptly rallied by 10bp after the better 7yr auction, flattening the 2-10yr by 5bp. US 3mth Libor eked out another 0.4bp to be 0.483%, a record low.
EUR failed to make any headway, given the rebound in risk. It traded within a 1.40 to 1.41 range after Sydney closed. The IMF said the EUR was fundamentally overvalued by up to 15%, which is consistent with many analysts' fair value models. GBP outperformed EUR, continuing its Sydney rally to reach 1.6525 where it consolidated. UK house prices rose again. JPY weakened from 95.00 to 95.90.
AUD continued rallying after Sydney, from 0.8200 to 0.8287, a dovish Rory Robertson article having no noticeable market impact.
NZD made no further gains during the London session, contained between 0.6500 and 0.6540. The AUD/NZD cross, which rocketed to 1.2600 after the RBNZ meeting, continued to 1.2680 during London, negating the previous key day reversal.
US initial jobless claims rose 25k to 584k last week, continuing the upward correction following the sharp declines earlier in July caused by the seasonal factors adjusting down the data because annual new model retooling layoffs were less than normal because of earlier permanent layoffs at the bankrupt automakers. In contrast, continuing claims, subject to different seasonal factors but the same auto layoff distortion, continued to slide in the prior week (when initial claims began correcting higher), but they should also start moving higher again in next week's report. We reiterate that one should not try to make judgements about the state of the US labour market based on claims data between late June and early August. An added complication is that an increasing number of claimants are dropping off the continuing roll not because they have found work, but because their benefits have simply run out (that's how it works in the States!).
Japanese June industrial production rose 2.4%, now down 23.4%yr. That was basically on expectations. It follows consecutive gains of above 5% in the previous two readings. IP is now up 16.5% from the low in February.
Almost all of the Euroland household and business confidence surveys continued to improve in July, adding to the sense that even the European recession is diminishing in depth (though most surveys remain at low levels historically). The exception was the retail PMI, which has stalled in mildly negative territory over the past three months, after a decent rise between late 2008 and early Q2.
German unemployment fell 6k in July after seasonal adjustment but that was due to "statistical changes" without which joblessness would have risen by 30k. The jobless rate was steady at 8.3% in July.
UK house prices have risen by 1% or more in four of the past five months on the Nationwide measure, most recently by 1.3% in July, adding to the almost burgeoning swag of data across a range of price, financing, activity and survey indicators pointing to a UK housing market turnaround.
Canadian industrial product prices rose 0.7%, their first gain for three months. Petroleum and coal were the main gainers; excluding those products, prices fell 0.3%.
Given the directionless nature of last night's NZD trading, and no domestic data releases today, today's New Zealand session should be quiet, suggesting 0.6480-0.6545 as a range. Tonight could be more volatile, month-end fixing shenanigans a possibility. Our US surprise index model is close to triggering a sell-USD trading signal, requiring tonight's US data to under shoot.
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