Monday November 2, 2009 - 19:40:24 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Tuesday 3 November 2009
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US economic data, a solid result from Ford, and earlier Chinese manufacturing data all provided some comfort to investors, helping the S&P500 gain 1.5% immediately at the open. The cheer only lasted a couple of hours, though, a Fed bank regulator Jon Greenlee commenting the banking system is vulnerable to commercial property loan defaults, and the index is now down 0.3%. The ISM manufacturing survey's headline rate and the employment component were the attention grabbers, with the second consecutive fall in the new order/inventories ratio overlooked for now. Oil (+0.7%) and copper (-0.2%) looked consolidative, gold (1.0%) bullish. US 3mth Libor moved after a week's freeze, under 0.28% for the first time. 10yr notes remained close to 3.40%.
Risk currencies started paring back their losses from yesterday morning in Sydney, and were further boosted by the factors noted above, before slipping in the last few hours. EUR spiked to 1.4845 but reversed the gains to 1.4760. JPY's stronger risk aversion identity saw it initially weaken to 90.69, and then bounce to 90.20.
AUD hit a low of 0.8907 in the morning and a high of 0.9122 in NY, and is now back to 0.9000.
Commentator McCrann called for only a 25bp hike today.
NZD moved from yesterday's low of 0.7083 to 0.7269 overnight, and is just above 0.7150. AUD/NZD continued an impressive break higher to 1.2600. Various comments suggested currencies may be discussed at the upcoming G20 meeting.
US ISM factory jumps from 52.6 to 55.7 in Oct. The ISM factory survey posted its third 50+ reading in October, jumping to its highest since April 2006, when the economy was in full swing and "sub prime crisis" and "credit crunch"were still a year or more in the future. Production was especially strong, rebounding to a five year high, and inventories jumped, but orders posted their second month of slippage, suggesting that further production index rises are less likely in the months ahead. Even so, an ISM headline reading around these levels is entirely consistent with the economy's 3.5% annualised growth rate in Q3. But the bigger news was perhaps the surge in the jobs index to 53.1, its first positive (i.e. >50) reading since July last year and its highest reading since April 2006. That is sure to prompt some forecasters to revise their October non-farm payrolls estimates, and even we have to admit that risks around our -150k forecast are probably skewed towards a better result. As a guide, falling factory employment explained 51k of September's -263k payrolls fall.
On the US housing/construction sector: Construction spending rose 0.8% in September, reflecting a 3.9% jump in the residential component (third consecutive rise) and a -0.4% fall in non-residential. Pending home sales posted back to back 6+% rises in August and September reflecting ongoing bargain hunting in areas where prices have plunged as much as 50% over the past two to three years, and first home buyers scrambling to take advantage of the tax credit for them which runs out at the end of this month (extension possible but not yet confirmed).
Japanese September cash labour earnings fell 1.6%yr. All major components of income - regular, overtime and bonuses - have been under considerable stress in the year to date, with employers under huge cost pressure and job market slack increasing significantly. The broad indicators of labour market activity are at least threatening to consolidate, but the earnings recovery could be a long time coming, with the still excessive scale of workforces coming through loud and clear in the business surveys.
Solid UK data overnight. The factory PMI jumped well back above 50 in October after two months of contraction. If that translates into actual industrial production gains, then Q4 should see the six quarter long UK economic contraction draw to a close. Also, yet another of the half dozen or more UK house price indices, this time from Hometrack, is continuing its improving trend, largely we think due to limited supply - i.e. homeowners in negative equity not wanting to realise losses and therefore not putting their home on the market. Its annual pace of decline eased from -5.6% to -4.2% in October.
AUD/USD and NZD/USD outlook today: AUD is holding above trend support at 0.8950 for now, but a break below that opens up 0.8860. NZD, on the other hand, has broken below trend support, and we would be sellers on any rally to 0.7300 today. We would be buyers of AUD/NZD on any dips towards 1.2400.
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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