Monday November 16, 2009 - 19:58:27 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Tuesday 17 November 2009
News and views
Risk appetite again improved, pushing the S&P500 1.7% higher as we write, to a 13 month high. The main factors at play were the APEC meeting's pledge to maintain stimulus measures, and an improved retail sales report meeting expectations. Supporting risk late in the session, Fed Chairman Bernanke spoke in NY, and reiterated the "low interest rates for an extended period" expectation, citing constrained credit conditions and a weak labour market. Among other US data releases, the Empire Manufacturing index disappointed expectations, boosting US treasuries - the 10yr rallied by 7bp. Commodities were stronger, gold making a fresh high at $1141, silver standing out at +5.3%, and oil rising 3.6%.
The US dollar weakened throughout the evening, Bernanke's comment the Fed will keep the dollar strong only briefly interrupting the decline. EUR rallied during the London morning to 1.4994, before running out of steam near the close, dropping a cent on Bernanke's comment, and recovering fully to 1.4970. GBP initially dipped to 1.6680 before strengthening throughout the session to 1.6820. JPY gained overall to 89.05 against the dollar, yesterday's consensus beating GDP report lingering.
AUD initially dipped to 0.9320 in London but then ground to a fresh 2009 at 0.9382, notwithstanding the Bernanke blip.
NZD hovered for much of the London session around 0.7435 before pushing higher to 0.7490. AUD/NZD stepped lower to 1.2525.
Fed Chairman Bernanke said that they are closely monitoring developments in the US dollar, and highlighted the Fed's dual mandate of maximum employment and price stability - a hint that the sliding USD may be generating concerns about the latter. Dallas Fed chief Fisher echoed these comments, though he emphasised that the USD's depreciation has been gradual.
The NY Fed index headline fell by just over 11 pts to 23.5 in Nov and much of the detail was even softer, including a 14 pts drop in orders and 22 pts slump in shipments. The jobs measure fell about 9 pts. However the headline, shipments and jobs indices did not fully reverse their very steep Oct jumps; and although orders did, at 16.7 it remains healthy. So the Nov NY Fed survey should really be seen as a correction from its five year high in October to still solid levels, consistent with an ongoing industrial (and indeed broader economic) expansion in the fourth quarter.
US retail sales bounced 1.4% in Oct, buoyed by the fairly abrupt recovery in new car sales after September's post cash-for-clunkers "hangover". For once, gasoline prices do not seem to have been a factor driving sales values. Excluding those two factors, core retail sales posted another 0.3% rise, their third consecutive gain, only modest in the month but helping to set up a positive start to consumer spending growth in the fourth quarter.
US business inventories fall 0.4% in Sep. The new information in the business inventories report was a 0.6% rise in retail stocks due mainly to a 3.8% jump in the auto dealer component. The slower pace of total business inventory rundown at the end of Q3 will provide some offset to the weaker net export performance, that we expect to be incorporated in the Q3 GDP revisions next week.
Japanese Q3 GDP firmer than anticipated at 1.2%qtr, 4.8%saar. The upside surprise was driven primarily by a huge turnaround in non-residential investment (+0.8ppt) and private inventories (+1.1ppt).
Euroland CPI was unrevised at -0.1% yr in Oct; the core rate was steady at 1.2% yr.
UK house prices update. Despite falling this month, UK asking house prices as measured by the Rightmove estate agent network were a little higher than a year ago for the second month running. This is one of more than half a dozen UK house price measures but all are saying essentially the same thing - prices have bottomed out after tumbling steeply last year and earlier in 2009.
Canadian manufacturers' sales rose 1.4% in Sep, largely reflecting gains in the auto industry.
AUD/USD and NZD/USD outlook today: Buying on dips today is the preferred strategy, given the tone of global risk sentiment. AUD should be supported today at 0.9355, NZD at 0.7460. This morning's breaks above the weekly ranges suggests another leg higher for both currencies.
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. 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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