Wednesday June 2, 2010 - 20:19:58 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Thursday 3 June 2010
News and views
US equities were slightly firmer throughout the Asian and European session, surging after some strong US pending home sales and vehicle sales data. Fitch rating agency revised its outlook on the US banking sector to stable, adding to the positive mood. The S&P500 is up 2.1%, and the VIX volatility index is around 15% lower. The commodities index is little changed (+0.2%), oil bouncing 1.5% but copper -0.4%. US 10yr treasuries rose 8bp in yield on the better data, after ranging pre-NY.
The US dollar index ranged sideways throughout the evening, as did the EUR between 1.2175 and 1.2275. GBP peaked in Asia at 1.4770 on expected unwinding of Prudential's merger hedge before settling at 1.4650. The yen continued to weaken on the PM's resignation, USD/JPY peaking at 92.36 in NY and steadying thereafter. CAD was stronger, following US equities rather than yesterday's central bank hike, 1.0550 to 1.0370.
AUD was well contained by 0.8300 and 0.8360 until the US equities surge, currently at 0.8405.
NZD found support at 0.6720 before rallying to 0.6810. AUD/NZD ranged sideways between 1.2305 and 1.2355.
US pending home sales rise 6.0% in April, on top of a 15% gain over the prior two months. Sales have clearly been boosted by the tax credit for home buyers which expired at the end of April, so sales may suffer in coming months depending on the extent of pull-forward to take advantage of the tax credit.
US corporate layoff announcements totalled 38.8k in May, compared to 100k+ layoffs in May 2008 and 2009. More confirmation that US labour market conditions have improved.
Japanese Prime Minister Hatoyama resigns. The DPJ leader announced he would resign yesterday, citing his inability to gain support from the public in relation to the Okinawa US air base issue. Ozawa, the secretary-general, will also resign. The two obvious candidates to replace Hatoyama are well regarded Finance Minister Kan (an advocate of a higher consumption tax) and the Foreign Minister Okada. However, with Upper House elections due in two months, and the DPJ looking to be in serious trouble, clearly party figures felt a change was required. Recall that the market applauded the ascension to power of the DPJ-led coalition last year, on the basis that Japan needed change of any sort. This is all eerily similar to the 1994 episode where the Socialists temporarily wrested power from the LDP, only to hand it back again after a succession of scandals.
Euroland producer prices accelerated from 0.9% yr to 2.8% yr in April due to a 0.9% rise in the month and unfavourable base effects.
UK PMI construction rises to new cycle high of 58.5 in May, indicative of continued activity growth in the sector. Other data showed new mortgage approvals little changed at 50k in April (down from a recent peak of 60k in late 2009), and net consumer credit outstandings fell GBP0.1bn in April. So household finances remain somewhat constrained.
AUD/USD and NZD/USD outlook next 24 hours: A more positive backdrop to today's domestic sessions should see the currencies hold their minor support levels. AUD support around 0.8300 should hold for a push to 0.8480. NZD is supported around 0.6700 and should push to 0.6870.
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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