Tuesday September 15, 2009 - 20:44:17 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Wednesday 16 September 2009
News and views
Investor scepticism continued to temper the good news on the US economy. A swathe of US data almost recorded a clean sweep, retail sales, PPI, and manufacturing all positively surprising consensus (inventories the exception). Adding to the cheer, the Fed's Bernanke said the US recession was probably over, and respected investor Warren Buffet let it be known he was buying equities again. All this produced only a 0.3% gain in the S&P500, pointing to investors' comfort in cash. The index did make a new high, though, so the technical outlook for risk remains positive. Commodities responded to the data, oil +2.6% and copper +1.8%. US treasuries duly fell, the stronger PPI data particularly hurtful to the longer end of the yield curve, and 10yr notes moved from 3.40% to 3.49%, before consolidating at 3.45%.
The US dollar made a new 2009 low, mainly due to the EUR's performance, up from 1.4560 to 1.4686. The 18 December 1.4720 top is the immediate target for EUR. GBP underperformed, falling from the 1.6660 Sydney high to 1.6403 during London, the BoE talking of stimulating liquidity by reducing the return on cash parked at the central bank.
AUD recorded a mild gain overall, initially slipping in London to 0.8564, and then rebounding with the US data to 0.8644, with those gains held this morning. Media articles overnight from two influential commentators, McCrann and Mitchell, were neutral and slightly hawkish in flavour, respectively.
NZD rallied from its 0.6980 London low to 0.7062. AUD/NZD is modestly lower around 1.2240.
US NY Fed factory index rises to 18.9 in Sep, more or less in line with Westpac's 18 forecast, indicating a decent pace of industrial expansion. In the past, the NY index has averaged readings in the mid to high teens when the economy has been expanding at around a 2-3% annualised pace - which is our forecast for Q3 GDP growth. That said, the further decline in business inventories in July (new information: a 1.0% fall in retail stocks, driven by a 2.1% fall in autos), does not represent a solid start to the Q3 inventory-rebuilding that many hope will contribute to a bounce in economic activity in the current quarter.
US retail sales jumped 2.7% in August, their strongest rise since early 2006, buoyed by an 11% surge in new car sales thanks to the cash for clunkers trade-in scheme. Higher gasoline prices also added 0.5 ppts to retail sales value growth last month. Excluding those two factors, core retail sales gained 0.6%, the fastest pace since February, and a credible outcome given that core spending can tend to be constrained in months when consumers are aggressively buying big-ticket items like autos. However a note of caution - sales tax holidays in some states may have given the August data a temporary boost.
In other US news, the PPI jumped 1.7% in August, mainly due to a 23% surge in gasoline prices; the IBD-TIPP economic optimism index rose from 50.3 to 52.5 in September, stronger even than Westpac's top of the range 52.0 forecast, but consistent with the recent upswings in other consumer confidence measures.
German ZEW analyst expectations rises from 56.1 to 57.7 in Sep. The ZEW headline expectations gain was only minimal in September but still lifted the index to its highest in nearly three and a half years.
UK annual CPI inflation eased further in August to 1.6% yr, partly due to favourable base effects, but not by as much as we expected, with the reversal of July price discounting in clothing and household goods stores a factor at play.
The AUD and NZD rallies remain intact. Our tactical recommendation remains to buy on dips to 0.8550 and 0.6950 support areas. The Westpac leading index for July will be watched in Australia.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 14 November 2007. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. Â© 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.
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