Thursday December 3, 2009 - 19:55:23 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Friday 4 December 2009
News and views
Mixed US data helped keep risk markets within recent ranges. A drop in US jobless claims was countered by a disappointing ISM services survey. That dragged the S&P500 back after a strong open, to be unchanged as we write. Bank of America stock rallied by 2.8% on plans to repay $45 billion in bailout funds. Commodities paused, silver underperforming (-1.1% and a bearish outside down day). US 10yr notes were sold, rising 6bp in yield, the 2-10yr curve steepening by 5bp. The better jobless claims data and another large auction week ahead ($74b) were cited. Turkey's credit rating was upgraded by two notches to BB+, still speculative grade, Fitch citing the economy's resilience during the global financial crisis.
The US dollar is little changed. EUR outperformed after the ECB's exit talk, as well as upgrades to their GDP forecasts, and supportive Trichet rhetoric, rising to 1.5140, but falling thereafter to 1.5060. The ECB met and kept the policy rate at 1.00%, maintaining a neutral stance, although the creep towards an exit strategy (tenders for 12mth money will end this month, for 6mth money the end is in March, and rates will be less accommodative) had EUR interest rate markets flapping. USD/JPY kept rallying throughout the evening to 88.50, potential intervention gossip persisting.
AUD rose to 0.9320 at the London open, but then slid to around 0.9250, currently at 0.9280.
NZD peaked at the same time as AUD, at 0.7300, then fell below 0.7220, finally recovering to 0.7250. AUD/NZD nudged higher to 1.2840 before dipping just below 1.2800.
US non-manufacturing ISM was disappointing, slipping to 48.7 after two months above the zero-growth mark of 50. The jobs measure ticked up from 41.1 to 41.6 but remains consistent with sizeable job losses. The services sector has seen less of a lift than the factory sector from the post-bankruptcy rebound in car production.
US productivity for Q3 was revised lower to match the earlier downward revision to Q3 GDP. However, the 8.1% annualised gain in productivity remains large relative to history. Hourly labour compensation growth was revised from 3.8% to 5.4%, but curiously there was an even bigger revision to Q2, from just 0.3% to a 6.9% gain - suggesting that workers haven't the brunt of the recession as much as first thought.
US initial jobless claims fell by 5k to 457k in the fourth week of November. This week included the Thanksgiving Day holiday so should be read with some caution, but the overall downward trend in initial claims appears to be intact. Continuing claims rose slightly to 5,465k in the previous week.
The European Central Bank left its repo rate unchanged at 1.00% and repeated that "current rates remain appropriate". Staff projections for GDP growth next year were revised to a mid-point of 0.8%, from 0.2% in September, and the first forecast for 2011 came in at 1.2% - weak-looking numbers, but officials have suggested that the financial crisis has reduced potential as well as actual growth. The ECB also announced the beginning of the end for their extraordinary liquidity measures: the 12-month cash tender for December will be the last, and the 6-month tenders will be phased out next March.
Eurozone GDP for Q3 was confirmed at +0.4% qtr and -4.1% yr. Details were as expected, with household consumption revised down to a 0.2% drop, while investment was revised up from -1.7% to -0.4%.
Eurozone retail sales were flat in Oct. Car sales were up, but other items were softer.
AUD/USD and NZD/USD outlook today: AUD is consolidating within its upward trend, any upward break of 0.9325 a bullish signal. A NZD break above stubborn resistance at 0.7300 would also be bullish on the day.
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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