Monday May 10, 2010 - 21:05:45 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Tuesday 11 May 2010
News and views
The sighs were audible. The unprecedented Eurozone support package worth EUR750bn (EUR440bn in loan guarantees, EUR60bn in new loans, and up to EUR250bn from the IMF), combined with ECB support of the bond markets, caused a major rebound in risk appetite, with equities, risk currencies, commodities, and US treasury yields all recording handsome gains. Greek 10yr government bonds shed over 600bp, with those of Portugal and Ireland shedding over 100bp. The US central bank also stepped in to arrest any global contagion, renewing swap lines with other central banks. The Eurostoxx 50 closed up 10.4%, and the S&P500 is currently 3.9% higher and has regained all of its loss from last Thursday's meltdown. The CRB commodities index is 1.6% higher, solid gains from oil (+2.7%) and copper (+2.7%), gold (-0.6%) shunned for now. US 10yr treasuries are 10bp higher in yield, and the 2-10yr curve is 6bp steeper. US 3mth Libor has only fallen 0.7bp to 0.42%.
The riskier currencies outperformed (BRL, MXN and ZAR), while safe-havens were the worst performers (JPY, CHF, USD) over the past 24 hours. Those moves mainly occurred during the downunder session, with the follow-on seeing safe-havens bounce back. The dollar index bottomed around the Sydney close and rebounded from 83.00 to 84.35 (closing a chart gap). EUR spiked to 1.3094 during early Europe, but couldn't sustain the move, falling to 1.2775 on a view that the rescue has simply spread the fiscal woes from Greece et al to the wider EU. USD/JPY ranged sideways between 93.00 and 93.50.
AUD peaked at 0.9080 around the Sydney close and retreated to 0.8984.
NZD was just shy of 0.7300 when it fell back to around 0.7200. AUD/NZD's base during the evening was 1.2430, from which it reached 1.2510 an hour ago.
No US data to report.
Euroland Sentix investor confidence fell from 2.5 to -6.4 in May. Note that the survey was taken 6-8 May so covered the period of fall-out in markets post ECB last week. We had forecast a dip to -4 but it fell to -6, just beating the size of the fall in the post Lehmans' collapse reading (though the index was in a downtrend then, whereas today's result breaks an up-trend).
French industrial production up 0.8% in March, third straight rise, and helpful ahead of Q1 Euroland GDP figures on Wednesday.
Bank of England on hold at 0.50% and no change to the suspended GBP200bn asset purchase program. There was no statement but the Bank will publish its updated quarterly forecasts on Wednesday. Other news, 20 days of rolling strikes at British Airways from next Tuesday - that airline is sure taking a beating!
Canadian housing starts rise 1.3% in April, driven by a 27% bounce in the volatile multi-family component. But single family starts fell 13%, perhaps an early sign of things to come with government incentives winding back and interest rates about to rise.
AUD/USD and NZD/USD outlook next 24 hours: Despite the large EU rescue package, EUR-valuation concerns will mute the reaction in AUD and NZD. AUD will find 0.9100 above sticky, but good support exists around 0.8900. The Federal Budget is released today. NZD price action is messy, our suggested range for today a wide 0.7150-0.7300.
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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