Sunday January 31, 2010 - 19:36:10 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Monday 1 February 2010
News and views
Further falls in US equities were sentiment rather than event related. The S&P500 closed 1.0% lower, amid heavy volume, in contrast to the light volume seen during the early January rally. US data - GDP, consumer sentiment, and several regional PMI's, all surprised on the upside, but could not dispel investors' gloom. Unsubstantiated rumours circulated suggesting treasury head Geithner would resign, pressured by the anti-bank crusade. The S&P500 lost 3.7% overall in January. Commodities were lower, the CRB index down 0.7% to levels last seen in October. Copper (-1.5%) and oil (-1.0%) made new 2010 lows, while gold consolidated (-0.5%). US treasury yields were lower across the curve, the 10yr shedding 5bp, on safe-haven and month-end buying.
The US dollar was again bid during the European and US sessions, making a fresh 2010 high. The EUR did the reverse, falling from 1.3980 to almost 1.3860. GBP underperformed, falling from 1.6180 to 1.5980. USD/JPY spiked around the US data, but settled back at 90.20 for little change.
AUD ground up to 0.8962 until the US open when the solid US reports deflated it to 0.8834, where it opens this morning. Journalist McCrann added to the view a pause is possible by the RBA on Tuesday, negative equities sentiment a major factor.
NZD also had a mild bid tone before the US session, falling from 0.7090 to 0.7010. AUD/NZD slipped to around 1.2580.
US GDP grew at a rapid 5.7% annualised pace in Q4 (fastest since Q3 2003), at the upper end of the 3-7.5% range of expectations. The biggest contribution came from a sharply slower inventory rundown, which added 3.4ppts to the GDP bottom line. There was also growth in consumer spending (despite falling auto sales) and housing, though both were less rapid compared to Q3, and business investment spending had its first positive quarter since mid 2008 (structures down but equipment up). Net exports also added to growth, contributing 0.5 ppts, but there was a very slight drag from government spending.
US employment cost index saw a slightly faster quarterly growth pace at 0.5% in Q4 but the annual pace remained at its cyclical low of 1.5% yr. Nevertheless this could be another sign that labour market weakness is abating.
US regional PMIs were all strong. Chicago continued to accelerate and its jobs reading surged an impressive 12.2 points; the NY PMI soared and while less impressive, Milwaukee also improved. Also the UoM consumer sentiment index for Jan was revised up from 72.8 to 74.4.
Japanese month-end data close to expectations. Japan spammed the newswires with a tidal wave of January and December data today including industrial production, the labour force, inflation and household spending. Forecasters did a reasonable job anticipating the general pitch of the numbers, with the exceptions of an undershoot on household spending and a deterioration in January Tokyo core inflation.
Euroland flash estimate of the annual CPI rose just one tick in Jan to 1.0%, despite unfavourable base effects (-0.8% dropping out of annual calculation from Jan 2009), so this implies a fall in Jan 2010 of around -0.7% (final data due 26/2). Money supply M3 continued to shrink modestly (-0.2% yr in Dec) compared to a year ago but loans to private sector were unchanged compared to Dec 2008. Unemployment was revised down a tick in November but still ended 2009 at 10.0%.
UK consumer confidence improved for the first month in three to -17 in Jan but remains below the recent high of -13 seen in Oct. House prices continued to rise in Jan according to Nationwide, up 1.2% for an 8.6% yr annual pace.
Canadian GDP growth was 0.4% in Nov and there upward revisions to prior months, helping pave the way for a solid Q4 GDP growth rate. Also, industrial product prices fell 0.1% in December, continuing the up-down monthly see-saw pattern that has prevailed since before mid-year.
AUD/USD and NZD/USD outlook today: The 0.8910 support level for AUD was broken on Friday, and the next target is 0.8735. The currency again looks oversold intra-day, so that intending shorts should find better levels this week. NZD now targets 0.6975, having broken below minor 0.7030 support.
Imre Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
With contributions from Westpac Economics
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 1 February 2010. 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 Westpacâ€™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 registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. Â© 2010 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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