Thursday May 20, 2010 - 20:42:28 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Friday 21 May 2010
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Risk aversion reigned. US equities gapped lower at the opening bell, the S&P500 is currently down 2.2%. The VIX index measuring risk aversion rose to a fresh 12 month high of 46. Earlier, most Asian and European equity indices had closed between 1% and 3% down. US data for jobless claims and the leading indicator was weaker, but the bearish sentiment was really driven by concerns the Eurozone fallout could result in a double dip recession in other economies. The CRB commodity index fell 1.0%, oil -2.7% to $68/bbl, platinum -5.2%, gold -0.9%, but copper curiously bucking the moves and making a bullish key reversal, up 1.7%. US 10yr treasuries are 13bp lower in yield, the 2-10yr curve flattening by 8bp.
The US dollar index fell around 1.6% despite the flight to safety occurring in other asset classes. That result can be pinned on EUR's rise from a NY low of 1.2300 (until then it had ranged sideways) to 1.2600. Central bank intervention was suspected, but unconfirmed, and looking at EUR/CHF price action, SNB suspicions are understandable. These currencies aside, safe havens outperformed, while commodity currencies suffered the most. USD/JPY fell from 91.50 to 89.00. CAD was the weakest of the commodities bunch, USD/CAD rising from 1.0500 to 1.0720.
AUD fell from 0.8362 to 0.8151 but recovered to 0.8300.
NZD fell from 0.6800 to 0.6620, recovering to 0.6750. AUD/NZD consolidated above the Sydney close of 1.2237 around 1.2300.
US Philadelphia Fed index rises 1.2pts to 21.4 in May. That is the fourth straight month of steady rises from the high teens into the low 20s, indicative of strengthening industrial growth in the north-east. The detail showed shipments up from 6 to 16, but orders slowing from 14 to 6 and jobs down from 7 to 3. Also the NY Fed index earlier this week was softer. So maybe some tentative cracks are starting to appear in the industrial sector outlook heading into the middle of 2010, but it is still really too early to call that with any certainty.
US leading index down 0.1% in April. This was the first fall in the LEI since March last year, with building permits and supplier deliveries the biggest drags on the composite indicator.
US initial jobless claims jumped 25k to 471k in the week ended 15/5, which coincides with the monthly payrolls survey period. No special factors were cited by the Labor Dept as being behind the rise. In the prior week, continuing claims fell 40k to 4625k but the trend there over the past two to three months has been essentially flat. So as the data stand, there is no improvement apparent in the labour market in May.
Fedspeak: Fed governor Tarullo said the European debt crisis had "the potential to stall the recovery of the entire global economy".
Japanese March quarter GDP growth below market expectations. At 1.2% q/q (4.9% saar), growth in the March quarter was consistent with our expectations, but below consensus. Over the year, GDP growth stands at 4.2%; growth over the past year has been primarily supported by the external sector, though private consumption has also been a key support.
Euroland consumer confidence fell from -15 to -18 in the advance May report, the steepest fall in confidence since late 2008, no doubt reflecting the latest concerns about budget deficits and renewed worries about the banking sector. In Germany, producer prices rose 0.8% in Apr for a 0.6% yr annual pace (the first positive % yr pace since January 2009).
UK retail sales volumes rose 0.3% in April, their third monthly gain since slumping at the start of the year when VAT rose and the snow kept shoppers away from the stores. Still, the annual pace of growth of 1.8% yr remains subdued.
Canadian leading index rose 0.9% in April, its twelfth straight month without a decline.
AUD/USD and NZD/USD outlook next 24 hours: The downunder currencies remain hostage to Eurozone-sourced negative sentiment. AUD's new lower range is 0.8150-0.8350. NZD is bounded by 0.6600 and 0.6800.
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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