Wednesday June 16, 2010 - 20:32:05 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Thursday 17 June 2010
News and views
The nine-day rally in risk instruments lost momentum. US equities (S&P500) faltered with disappointing US house building data but received a lift from industrial production and capacity utilisation, and are currently unchanged over on the day. Also supportive was BP's agreement to pay $20bn into an escrow account for US Gulf spill damages. Commodities are little changed, although oil rose 0.9% on reported slower refining rates. US treasuries are slightly lower in yield, focusing on the weaker US data as well as lingering Eurozone risks. Spain's 10yr government bonds rose 15bp to Aug-08 levels after Spanish newspaper El Economista reported that the IMF/EU/US Treasury were preparing a EUR250bn support facility for the country. The EU and Spain denied the story, but other peripherals also suffered in sympathy - Greece +26bp and Portugal 16bp - compared to Germany unchanged.
The US dollar index meandered above 86.00. EUR weakened from its Asian high of 1.2350, as low as 1.2255 but recovering in NY to 1.2300 currently. USD/JPY slipped from 91.80 to settle around 91.40.
AUD was directionless, struggling to rise above 0.8660.
NZD peeked at 0.7000 but settled back around 0.6980. AUD/NZD pulled back from 1.2450 to 1.2370.
US housing starts fell 10% in May and permits were down 5.9%; in both cases the falls were led by the single family component (17% and 10% respectively), with multiple starts/permits bouncing after falling in April. This is further evidence of the sharp pullback in activity after the expiry of the tax credit for home buyers, and gels with the fall in homebuilder confidence reported earlier this week.
US PPI falls 0.3% in May, its second consecutive fall driven once again by lower gasoline, residential energy and food prices. The core rate was up 0.2% with light truck prices bouncing 0.8% and auto prices also rising. The core PPI trend has picked up a bit in recent months.
US industrial production rose 1.3% in May, with manufacturing up 0.9% (autos up 5.5%). Utility output boosted the headline IP number, probably weather related. Still some decent momentum in the factory sector in mid Q2 then, with business equipment and construction supplies showing solid growth.
Japanese tertiary activity index +2.1%yr in April. This was slightly below market expectations for a +2.5%yr outcome in April, though the March outcome was revised up to -2.7% from -3.0%.
Euroland inflation confirmed at 1.6% yr in May; core rate was steady at 0.8% - uncomfortably low but not a surprise given falling credit growth, 10% unemployment and the anaemic recovery. Also, labour costs accelerated from 1.7% to 2.1% in Q1, still the second lowest outcome in three years.
UK claimant count unemployment falls 31k in May, the sixth fall in seven months. The preferred ILO household survey jobless rate fell a tick to 7.9% - its first fall this cycle - in the three months to April, in part due to a 5k rise in jobs, which had fallen 54k in the previous three month period. The UK labour market has been stronger (or less weak) than expected at this early stage of economic recovery.
AUD/USD and NZD/USD outlook next 24 hours: With the global backdrop neutral today, the commodity currencies may retrace some of the gains of the past nine days. AUD resistance at 0.8660 has held and should cap the domestic session, while NZD's 0.7020 shouldn't be threatened. Supports remain at 0.8500 and 0.6900 respectively.
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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