Wednesday April 7, 2010 - 21:35:57 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Thursday 8 April 2010
News and views
US equities were sold from the opening bell with little fresh news to attribute the mood to, but a notable deterioration in sentiment around Greece. The S&P500 is currently down 0.9%, a fresh wave of selling observed a few minutes ago following a weak US consumer credit report. European equities were earlier modestly lower, apart from the Greek index which lost 3.0%. The German-Greek government bond spread hit a fresh record wide of 407bp. Commodities are lower on the negative sentiment, oil (-1.2%) also hurt by larger reported inventories, copper -1.1%, but gold up 1.1%. US treasury yields are around 9bp lower for most maturities following the Fed Chairman's fairly dovish update on the economic outlook and the market anticipating a strong 10yr auction. The awarded yield of 3.90% was 3bp lower than market, with the offering 3.7 times subscribed - the second highest on record, and strong foreign interest. In other Fed-speak, NY Fed president Dudley said we're still not seeing enough in terms of job gains, and the Fed funds rate needs to stay low for an "extended period, while hawk Hoenig argued for small increases in rates back to the 1% area and dumping the "extended period" language.
The US dollar firmed modestly to an April high of 81.70. EUR slipped further to 1.3326. The yen outperformed the majors, to 93.20 vs the USD. Emerging bellwether MXN fell 0.7% to form a bearish key reversal day.
AUD held recent gains despite a firmer US dollar, generally holding above 0.9260 and making a fresh post-Jan high of 0.9300.
NZD made a week-high of 0.7095, in the wake of yesterday's strong milk powder auction. Possible cross unwinding saw AUD/NZD retreat to 1.3080.
US Fed chair Bernanke - the same message. While the financial crisis has abated and the economy is growing again, home foreclosures, joblessness and the lack of credit to small business would continue to pose challenges to the US economy. His colleague NY Fed president Dudley said that low rates were required to help boost hiring, but as a counterpoint, FOMC dissenter Hoenig warned that higher rates would be required "soon" if inflation was to be avoided.
US consumer credit falls $11.5bn, in Feb, keeping downtrend in place. This more than reversed a revised $10.6bn rise in Jan.
Bank of Japan kept its policy rate unchanged at 0.10%. The Board also left their overall economic view unchanged. Last month, the BoJ doubled its lending program for banks.
Euroland GDP growth was revised down from 0.1% to flat in Q4 last year, making even starker the contrast between the generally up-beat business surveys in the quarter, such as the PMIs for services and manufacturing, and the lacklustre official data story. Those same surveys fell back somewhat in early 2010 but jumped sharply in March and were revised higher today to the highest reading for the composite PMI (55.9) since August 2007, when the global financial crisis first shook markets.
German factory orders flat in Feb. This followed a 5.1% spike in January so the trend has firmed after falling in late 2009.
UK services PMI slipped to 56.5 in March, a little below its average reading for the past six months, suggesting that the largest sector of the economy was struggling to accelerate even at the end of the first quarter.
Canadian IVEY PMI jumps from 51.9 to 57.8 in Mar. This is a strong result as this not seasonally adjusted index has had a tendency to fall in march in recent years. In other news, Canadian building permits fell 0.5% in Feb, led by softness in the residential component.
AUD/USD and NZD/USD outlook next 24 hours: Having cleared 0.9250, that becomes minor support on the day, still targeting 0.9330. Watch out for this afternoon's Australian employment report, though. NZD should be contained by 0.7000 and 0.7100.
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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