Thursday January 21, 2010 - 19:24:01 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Friday 22 January 2010
News and views
A second consecutive day of risk aversion saw US equities tumble, clearly breaking below trend support lines which had held for 10 months. The S&P500 is down 1.9%, financial stocks bearing the brunt of the sell-off. The catalyst was an unusual one - President Obama's proposal to curb banks' proprietary risk taking, although residual effects from China's inflation surprise yesterday (raising tightening expectations) must also have weighed. The US data had a negative slant overall, preserving the recovery trend nonetheless. Commodities followed equities lead, the main industrials showing 1-2% losses. US treasuries were 4bp lower in yield on safe-haven buying, the curve 2bp flatter.
The US dollar adopted its more recent correlation, falling slightly in sympathy with the negative sentiment surrounding the US financial sector, although its uptrend is preserved. The EUR made a 1.4030 low before the Obama speech, after which it bounced to almost 1.4150. USD/JPY formed a minor outside-down day, after its 91.88 to 90.12 fall.
The commodity currencies received no benefit from the dollar's stall, AUD falling for the fifth consecutive day to 0.9024.
NZD underperformed the commodity bloc and made a fresh 2010 low at 0.7119. AUD/NZD nudged higher, trying to break above 1.2690.
US Philly Fed index falls from 23 to 15 in Jan. The Philly Fed headline posted a 7.3 pt fall in January, only the third (and steepest) decline since the Philly's upswing began from its low point in late 2008 (note that annual revisions to the index history were published last week). The detail showed modestly softer growth in orders and shipments but a further gain in the jobs measure, so the headline question on business conditions tended to overstate the extent of decline that respondents were seeing in their own businesses. That said, the fall is consistent with recent weaker readings from the New York and Richmond Fed surveys.
US leading index posted its ninth consecutive monthly gain, of 1.1% in Dec, with none of its ten components declining, the first time this cycle that the index has been across the board positive. This index is quite clearly pointing to quite solid growth in prospect for 2010, though the question remains - is this growth self-sustaining without support from fiscal policy and near zero interest rates?
US initial jobless claims jumped 36k to 482k last week, which according to the Labor Dept was due to a backlog of claims from the year-end holidays. In other words the dip in claims to 432k in late December overstated the degree of improvement in the labour market between the December and January payrolls surveys (the Jan survey was last week). This news supports our preliminary forecast for a further modest payrolls decline in January, of -40k.
Euroland advance PMIs showed a further pick-up in factory activity this month, but the first significant fall in the services sector indicator since it began to recover eleven months ago.
UK CBI industrial survey was less weak/stronger across the key indices, again, but is still at troubling levels on the orders side. Money supply M4 growth slowed sharply to 6.4% yr in Dec, which will require some explanation from the Bank of England given that Bank officials have argued that quantitative easing has been successful at generating renewed financial market activity. In not unrelated news, new mortgage lending by the major banks seems to have levelled off in late 2009 after recovering through most of last year. Public sector net borrowing of GBP15.7bn in December takes the cumulative total for the FY to date to GBP119.9bn, well on the way towards meeting the Treasury's forecast of a GBP178bn shortfall in FY09/10.
AUD/USD and NZD/USD outlook today: Both AUD and NZD have probably been stretched too far to the downside in the short term, and risk a bounce today. AUD should target 0.9180 over the next two days, while NZD should try to regain 0.7200.
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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