Wednesday April 14, 2010 - 22:15:08 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Thursday 15 April 2010
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Risk appetite rose, led by consensus-beating earnings results for Q1 from Intel and JP Morgan Chase, upbeat US retail sales data, and late in the session a Fed report (Beige Book) showing moderate economic improvement. The S&P500 rose throughout the session and is currently up 0.9%, financials outperforming at +3.2%. The VIX measure of risk aversion is now at mid-2007 low levels. Commodities (CRB) rose 0.9%, oil the standout at +2.2% to $86.40 on a surprise supply-demand mix report. US treasury yields rose amid the upbeat atmosphere, the reaction most noticeable after the Beige Book, the 10yr adding 4bp and steepening the curve. US 3mth Libor continued its glacial ascent, and at 0.30% is 5bp higher than a month ago. Fed head Bernanke's testimony made no changes to the "extended period" mantra.
The US dollar is weaker, and risk currencies stronger. The outperformer over the past 24 hours is the SGD, thanks to the central bank's intention to revalue, followed by the KRW, AUD, and GBP. EUR ground slightly higher to 1.3680, near the month's high. GBP rose to 1.5490 and threatens higher. USD/JPY was volatile between 92.80 and 93.70 but is little changed at 93.20.
AUD rose throughout the evening, from 0.9310 to 0.9360, buoyed by Asian currency strength.
The NZD is only modestly stronger after a weak retail sales report yesterday, reaching 0.7155. AUD/NZD held yesterday's gains to around 1.3100.
The US CPI rose 0.1% in March, with the base effects of last year's price weakness lifting the annual rate from 2.1% to 2.3%. Fresh produce accounted for most of the gain; gasoline prices rose for the month but were swallowed up by the seasonal adjustment. Core inflation remains very subdued, with a flat outturn in March and a drop in the annual rate from 1.3% to 1.1%. The shelter component, which includes a proxy for the cost of owner-occupied housing, fell 0.1% for the month and has fallen by 0.6% in the last year.
US retail sales rose 1.6% in March, ahead of the median forecast of 1.2%. The auto component led the way with a 6.7% gain, along with back-revisions that helped to lift total sales growth to 0.5% each in Jan and Feb, from 0.1% and 0.3% respectively. Ex-auto sales were also solid, with a 0.6% gain in Feb and an upward revision to 1.0% in Jan. The early Easter this year appears to have boosted sales into late March.
US business inventories rose 0.5% in February. The new information in the report was a 0.3% rise in retail stocks - led by vehicles - to go with the 0.6% rise in wholesale inventories. The January figures were revised from flat to a 0.2% gain. Stock-building is set to make a solid contribution to Q1 GDP growth, though nowhere near the 4ppt contribution seen in Q4.
The Fed's Beige Book of regional activity found a general tone of improvement in all but one district (St. Louis). The labour market remains soft, although some hiring is evident, and commercial real estate is seen as very weak. However, manufacturing is on the rise, and consumer spending and housing are gradually improving.
Eurozone industrial production rose 0.9% in February, ahead of the median forecast of 0.1%, and following a January gain that was revised down slightly to 1.6%. Capital goods rose 0.9% after two months of decline, intermediate goods rose 1.5%, but durable goods fell back 0.6%. That leaves in place a more solid-looking trend and may require us to nudge up our Q1 GDP forecast for the Eurozone.
AUD/USD and NZD/USD outlook next 24 hours: AUD should be supported at 0.9300 today, and attempt to clear sticky 0.9360 before an assault on 0.9390. NZD will be carried by the AUD but underperform, 0.7100 to 0.7150 likely, with a small chance of higher to 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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