Thursday January 14, 2010 - 19:23:51 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Friday 15 January 2010
News and views
US equities paused at their 12mth highs after a consensus-missing retail sales report, although positive revisions meant little negative fallout in markets. The S&P500 is currently little changed, and waits for benchmark Intel's Q4 earnings report which will be released after the close of trading. Also important will be JP Morgan's report released tomorrow. Commodities were muted, apart from platinum (+2%) and palladium (+4%). There was dovish Fedspeak from NY's Dudley, who said rates will remain low for another six months and two years. That, plus the retail sales report, helped treasuries shed around 4bp across the curve. The 30yr auction went well, at 5bp below estimates and high bidding volume.
Currencies were generally stable, the USD index bouncing from 76.70 to 77.00 and back for little net change. EUR continued to gyrate around the 1.4500 level. The ECB meeting produced no surprises, leaving rates unchanged. Trichet said the idea of Greece exiting the Eurozone was absurd, nevertheless Greece's 5yr credit spread widened further to a fresh high of 334bp. USD/JPY was volatile, rising from 91.60 to 92.00 and then falling to 90.90.
AUD tried to rally from 0.9300 but only reached 0.9328, the stellar employment report appearing to present a profit-taking opportunity. Various media commentators concurred a February hike was now likely. From 0.7420,
NZD launched an attempt on the key 0.7430 level and got as far as 0.7440 before retreating slightly. AUD/NZD held recent gains between 1.2510 and 1.2560.
US retail sales fall 0.3% in Dec. Retail sales posted an unexpected decline, but this need to be viewed in the context of substantial upward revisions to Nov, of around 0.5 ppts. The quarterly annualised data still show a decent acceleration in core retailing from 0.3% annualised in Q3 to 4.8% annualised in Q4. The Dec detail showed a surprise fall in auto sales (industry unit sales figures had shown a near 3% rise) and an unexpected rise in gasoline sales (prices were down slightly in the month). But a soft report overall, probably weighed down by poor weather in some areas and a tendency for holiday season shopping to start earlier than in previous years (hence the very strong Nov data, up 1.8%).
US import prices were flat overall in Dec thanks to falling energy prices offset by a steady ongoing gain in the prices for ex-fuel imports. Export prices posted a further rise too. These price developments will tend to support a narrowing in the trade deficit in December. In other news, business inventories rose 0.4% in Nov, confirming a positive stocks contribution to Q4 GDP growth.
US initial jobless claims rose 11k to 444k last week, probably correcting for the oversized falls in late December which may have reflected seasonal adjustment difficulties through Christmas-New Year. The recent cold snap may also be a factor at play. Regardless, the trend in initial claims (and also continuing claims) remains downward, consistent with gradual improvement in US labour market conditions.
Fedspeak: NY Fed President Bill Dudley said that said that "short term rates are going to stay low for a considerable period" which he defined as "at least six months [or] it could be a year from now, two years from now. It's going to depend on how the economy develops".
Japanese machinery orders slump 11.3% in Nov to 20+yr low. A disappointing result to say the least. Consensus had been for a stabilisation in orders after promising signs of firming foreign orders. Instead, both offshore and domestic orders weakened markedly. Despite the monthly drop, the recovery in foreign orders is still apparent.
The European Central Bank left rates on hold at 1.00% following last night's Council meeting. The accompanying statement was very similar to that published after the Dec 3 meeting, with ECB chief Trichet reiterating that the "recovery process could be uneven". The on hold decision was unanimous and no hints re future policy moves were given. In response to a question, he refused to comment on the "absurd hypothesis" that Greece might exit the euro. On the data front, industrial production jumped 1.0% in Nov.
AUD/USD and NZD/USD outlook today: The key for AUD will be whether it can break strong resistance at 0.9330. If so, it should proceed to 0.9400 quickly. Otherwise, expect it to range above minor support at 0.9270. NZD's key resistance area is 0.7330-0.7340, a break of which will see 0.7500.
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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