Tuesday March 30, 2010 - 19:27:34 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Wednesday 31 March 2010
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A bounce in US consumer confidence helped equities open stronger, but a downgrade of Iceland's local currency rating by Standard & Poor's, from BBB+ to BBB (with negative outlook), dampened the optimism. The rating agency said the imposition of capital controls restricted Iceland's investment prospects and fiscal flexibility. Rumours of a France downgrade were quashed when Fitch reaffirmed its AAA rating. The S&P500 is down 0.1%, financials -1.0%. Commodities moved modestly, oil -0.2%, copper +0.5%, and gold -0.5%. US treasuries are unchanged, after an earlier yield bounce on the US data. US 3mth Libor's daily moves are miniscule, but the glacial rise since December has added 4bp to 0.28%. In contrast, EU Libor made a record low of 0.58%, favouring the US dollar.
The US dollar index spent the evening rebounding from 81.00 to 81.55. EUR was sold from the London open, from 1.3540 to 1.3400 amid the sovereign concerns above. GBP outperformed from 1.5000 to 1.5127, resting at 1.5070, supportive data and receding risk of a hung Parliament helping. USD/JPY rose from 92.20 to 93.00.
AUD nudged higher to 0.9216 before slipping on the Iceland news. Journalist Alan Mitchell added voice to the view the RBA will hike by 25bp, noting the rampant housing market.
NZD peaked at 0.7130, slipping back to 0.7180. AUD/NZD nudged higher to 1.2955.
US consumer confidence jumped from 46.4 to 52.5 in March. The Conference Board confidence index did not fully recover Feb's 10 pt loss but is now a little above the midpoint of the 46.4 to 56.5 pt range that has prevailed over the past year. Both present conditions and expectations rose, the former helped along by renewed improvement in the consumer assessment of job market conditions, which rose to its highest since August last year.
US house prices up 0.3% in Jan. The S&P/Case-Shiller 20 city index rose for the eight month running, lifting the annual pace to -0.7% yr, the slowest pace of decline since for three years. Base effects virtually guarantee that the Feb data will show prices up compared to a year earlier. This is a positive news, in contrast to the recent run of less up-beat updates on home sales, building and builder sentiment.
Fedspeak: Chicago Fed President Evans said that "with hindsight, I probably would have preferred a quicker increase" in the Fed's policy rate from 2003. He also described the Fed's current intention to keep rate lows for an "extended period" as a guideline not a hard rule.
Japanese industrial production fell 0.9% in Feb. That is the first decline in a year. The outcome and the METI projections for March and April (the former up 1.4%, the latter a small decline) indicate that the period of linear improvement is now behind us.
Japanese labour force consolidated in Feb. The unemployment rate was unchanged at 4.9% and the jobs-to-applicants ratio edged up 0.1pts to 0.47. The volatile labour force survey found a loss of 150k jobs in Feb, with small firms slashing headcount indiscriminately (-610k) while medium and large firms were in hiring mode (+540 collectively).
UK Q4 GDP growth revised up from 0.3% to 0.4%. This more conclusively confirms that the UK economy emerged from recession late last year (recall that Q4 growth was first reported as 0.1%, then 0.3%). However bad weather, the VAT hike in January and partial hard activity data to hand mean there is still some risk that growth stalls in Q1, or even turns negative. Also, the Q4 current account deficit was reported at GBP1.7bn, the smallest since early 2003 (though the data are volatile and subject to extensive revision).
UK house prices rise 0.7% in March, according to the Nationwide. This lifted their annual pace of growth to 9.0% yr, the fastest since late 2007. Limited supply of house for sale was supporting prices, despite waning demand - so not exactly a positive story in the detail.
Canadian industrial product prices were flat in February, their first month without a rise since October. Primary metal price declines offset higher autos/transport prices.
AUD/USD and NZD/USD outlook next 24 hours: AUD's likely range today is 0.9140 to 0.9220, while NZD's is 0.7040 to 0.7130. There's significant event risk today from AU retail sales, dwelling approvals and private credit, as well as NZ business confidence reports.
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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