Sunday October 11, 2009 - 22:28:37 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Monday 13 October 2009
News and views
Asset classes decoupled on Friday night, a modest equities rally, US dollar gains, mixed commodities, and treasuries losses, making for an interesting mix. The S&P500 eked out a 0.6% gain after the majority of companies reporting so far beat EPS estimates. The US dollar index was boosted by Fed chairman Bernanke's talk of exit plans, as well as reports the Fed trialled some liquidity reversing processes. That spooked US 10yr treasuries, which sold off by 18bp from the NY open, the 2yr notes falling by only 8bp. Oil held its previous day's level, supported by the IEA's increased forecast for consumption, but natural gas and most metals were under pressure, copper down 2.1%. Foods fared well though, led by orange juice up a whopping 10%, a 3 year record.
The US dollar index managed to close another session above its 12 month low of 75.83, bouncing from 75.97 to 76.56 during NY. The EUR rallied between Sydney's close and NY's open, from 1.4720 to 1.4773, but lost a cent after the Fed news. The ECB's Trichet reiterated the need for caution around any stimulus exit strategy. JPY weakened to 89.89 against the dollar despite a report the BoJ will discuss its own exit strategy next week. Canada's positive employment report surprised the market and CAD gained over 1% to 1.0411.
AUD churned in a 0.9020 to 0.9080 sideways range near the 2009 high of 0.9090. Influential commentator McCrann added fuel to the view that November's hike will be 50bp.
NZD reversed three days of gains, falling by a cent to 0.7300 where it stabilised. AUD/NZD continued its recent climb to 1.2346.
US trade deficit $30.7bn in Aug. The trade deficit narrowed unexpectedly in August, mainly due to a small fall in imports. That occurred despite a 2% rise in import prices, and was thanks in large part to a sharp fall in oil import volumes (imports rose 0.3% ex petroleum). Exports posted a modest further gain, their fourth consecutive monthly rise. Because the narrower deficit was volume - rather than price-driven, the real deficit narrowed enough to suggest that net exports should not be a drag on Q3 GDP growth.
Japanese machinery orders rebound, just, up 0.5% in August. While up, the rebound was disappointing in the context of the 9.3% plunge in July - to the lowest level since orders were first surveyed 1987. Despite a rebound in manufacturing output, capex is clearly not coming roaring back.
UK producer price index showed input costs falling at a -6.5% yr pace in September, while output costs rose 0.5% yr and core output costs were up also up 0.5% yr. No real evidence of inflationary pressure is emerging from the factory sector, although the figures are not as soft as they were a few months ago. There is still plenty of excess capacity both in the UK and globally, but the weaker pound will put upward pressure on input costs going forward. Also, the UK August visible trade deficit was GBP6.2bn, down slightly from July's GBP6.4bn, with exports falling less than imports.
Canadian jobs up 31k in Sep. Solid back to back gains in Canadian employment in August and September saw the jobless rate fall back to 8.4%, its first fall in over a year. The latest gain reflected particular strength in full-time, goods producing and public sector jobs. This improved job market story, along with the emerging uptrend in the housing market, must increase the prospect that at some point the Bank of Canada might soften its conditional commitment to hold its key rate steady at 0.25% until Q2 2010.
In other Canadian news, the trade deficit widened further to -C$2.0bn in August, a new modern era record, reflecting a 5.1% drop in exports (mainly automotive and machinery) only partially offset by a 2.8% imports decline. Also, two quarterly surveys were published Friday. The BoC's senior loan officer survey fell from 33.4 to 6.7 in Q3, implying a significant loosening in lending conditions; and the business outlook survey future sales index rose from 39 to 53 in Q3, indicative of increased business optimism.
AUD/USD and NZD/USD outlook today: The upward trends remain intact for both, but today may see minor selling in a quiet session ahead of today's US holiday. AUD has minor supports at 0.9000 and 0.8950, the NZD at 0.7300 and 0.7250.
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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