Thursday March 18, 2010 - 19:24:41 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Friday 19 March 2010
News and views
A fresh twist to the Greek saga and widely circulated speculation of an imminent Federal Reserve discount rate hike (recall the last one occurred on a Friday, 18 Feb, after the NY close) hurt equities and supported the US dollar. Greek PM Papandreou was reported to be in discussions with the IMF regarding financial support, an alternative should the EU be less helpful than desired. CNBC reported the Fed refused to comment on the discount rate speculation, which seems to have been born from an analyst's opinion piece. The S&P500 is down 0.2%, having recovered some ground during the NY afternoon, the banks sub-index faring worst at -1.9%. Earlier, the Eurostoxx closed -0.6%, with the Greek index down 3.4%. Commodities were 0.3% lower overall, oil -0.9%, copper -0.6%, but gold +0.6%. US 10yr notes formed a bullish (yield) key reversal day, adding 3bp amid an improved jobless claims report and a strong Philadelphia factory survey. Three-month US$ Libor rose almost 0.5bp to 0.271%, 3bp above the JPY equivalent.
The US dollar consolidated around 80.00 before the discount rate rumours saw it spike to 80.44. EUR was weak all session, from 1.3700 to just below 1.3600, its trade balance lower than expected. USD/JPY is little changed at 90.30 after spikes in both directions.
AUD was consolidating under its recent peak, in the 0.9200-0.9230 area, when the rumours pushed it down to 0.9180, but it has recovered to 0.9220 for little net change.
NZD ranged between 0.7120 and 0.7175, little changed at 0.7150. AUD/NZD made a fresh two-week low at 1.2855 and consolidated 50 pips higher.
US CPI flat in Feb, and the core CPI only just rounded up to 0.1% after falling more than 0.1% in January. That paints a benign inflation picture at the start of 2010, supporting the view that a very wide output gap is imparting disinflationary pressure on the economy. Sharply lower annual rates of inflation for both headline and core CPI back that message.
US Philly Fed headline edged up 1.3 pts to 18.9 in March, which is indicative of solid ongoing industrial activity in the northeast. However the latest report included much softer readings for orders and shipments, in contrast with the NY Fed index where that detail was more up-beat. Also, there was only modest further improvement in Philly jobs whereas the employment outcome in the NY survey was much stronger in March.
US leading index posted its eleventh consecutive monthly gain, although the Feb rise of 0.1% was the smallest of the latest upswing, with six components falling and only four rising. Even so, this index is still pointing to 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 fell 5k to 457k last week, with no special factors cited by the Labor Dept. Last week was the March payrolls survey week, and with claims down from 474k a month prior, this result is consistent with a March payrolls gain (even outside Census hiring).
US current account deficit widened to $115.6bn in Q4 from $102.4bn in Q3, mainly due to the recent acceleration in import growth relative to export growth, already revealed in the monthly trade data.
UK CBI industrial trends survey for March found an improving export story but a slight deterioration in total orders which implies a deterioration in the domestic demand picture. In other news, money supply growth continued to slow sharply in early 2010 (3.6% yr in Feb); new mortgage lending by the major banks fell for the third month running in Feb after recovering through most of last year; public sector net borrowing of GBP12.4bn in February was smaller than expected due to higher tax receipts (the January VAT hike was a factor) but still leaves the UK on track for a record annual deficit.
AUD/USD and NZD/USD outlook next 24 hours: Immediate direction is unclear. AUD's expected range today is 0.9180-0.9250, while NZD's range should be 0.7100-0.7180.
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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