Tuesday April 27, 2010 - 20:38:07 GMT
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Forex Blog - Morning Report
Morning Report Wednesday 28 April 2010
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Risk sentiment dived last night, affecting equities, currencies, commodities, and interest rates globally. The catalyst was the downgrade by Standard & Poor's of Greece from BBB+ to BB+, the agency warning bondholders could lose 70c per dollar on a debt restructuring. This was the first time a euro member had lost its investment grade rating since the currency's inception in 1999. Portugal was also lowered from A+ to A-, stoking contagion fears. Greek government bonds widened over the German equivalent to a fresh high of 675, bonds from Portugal, Spain and Ireland also damaged. Most equity markets fell, the Eurostoxx closing down 4.6%, and the S&P500 currently 1.6% lower. Commodities were sold on the spike in risk-aversion, oil (-2.4%) and copper (-4.4%), safe-haven gold (+1.2%) the exception. US 10yr treasuries plunged 12bp in yield on heavy safe-haven buying, and the curve flattened 4bp.
The past 24hrs has seen all major currencies fall, apart from the US dollar and the yen. The US dollar surged to match the 25 March recent high around 82.20. EUR was already struggling below 1.3350 when the downgrades were announced, the news sending it to around 1.3200, and it has traded as low as 1.3178 at the NZ open. USD/JPY fell from 93.80 to 92.80.
The AUD was around 0.9245 at the Sydney close, falling to 0.9160 with the EUR, and slipping to 0.9136 at the NZ open.
NZD underperformed, falling from 0.7200 to 0.7100. AUD/NZD recovered from just above 1.2800 to 1.2900, then consolidated around 1.2870.
US Richmond Fed factory index jumped to 30 in April, a new record high, with orders and shipments especially strong, up 31 and 25 points respectively. The jobs index also jumped sharply, and the separate services index turned positive for the first time this year.
US Conference Board's consumer confidence index jumped 5.6 pts in April to its highest since September 2008, in contrast to the 4.1 pt decline in the Uni of Michigan's preliminary sentiment index this month. The index has a seasonal tendency to rise in April, but this gain is still significant. It was led by the expectations measure (probably a function of recent equity market gains), but the present index also rose. That was in part due to moderate further improvement in the job market component.
US S&P Case Shiller house price index posted a decline in both unadjusted and seasonally adjusted terms in February, but the annual price change turned positive for the first time since December 2006 (because price falls this time last year were steeper).
Fed chair Bernanke said today that "a failure to reduce the federal budget deficit may push up interest rates over time... putting the recovery at risk". No hints about tomorrow's FOMC meeting outcome or statement of course.
German import prices rose 1.7% in March. Along with base effects, that saw the annual rate surge from 2.6% yr to 5.0% yr. But, in April, the preliminary CPI for North Rhine-Westphalia fell 0.2% for an annual rate of 0.8% yr, down from 1.2% yr in March. Finally, German consumer confidence, labelled May by GfK but surveyed in early April, rose from 3.4 to 3.8.
UK CBI reported a steady net balance (13%) of retailers reporting increased sales relative to March, down from Feb's bounce from January's VAT hike / cold weather slump. Back in March, banks issued 35k new mortgages, up from February but still down from the recent peak of 46k in December.
Greek government debt was downgraded again, by 3 steps by Standard & Poor's from BBB+ to BB+. That is a junk level rating; S&P warned investors that a Greek debt restructure could result in losses of as much as 70% of their stakes.
AUD/USD and NZD/USD outlook next 24 hours: Sentiment is weak this morning, and should limit any gains. AUD should be capped by 0.9250, at least until the important inflation release (which will have implications for a May hike). The NZD's break above 0.7200 proved false, and 0.7180 should cap action today. Business confidence should be watched.
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