Thursday June 17, 2010 - 21:40:22 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Friday 18 June 2010
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Risk appetite was buoyant during the European session, but fell during the US'. Positive events included a healthy Spanish government bond auction, selling EUR3bn of 10yr debt at 18bp below market yields with a coverage ratio of 1.9, as well as a smaller 30yr tranche (2.5 times covered). In addition, the EU president said all members would publish bank stress tests in July. The main negative events were the US data releases - jobless claims higher, inflation low, and the Philadelphia Fed's survey much weaker than expected. The S&P500 is currently recovering towards unchanged. Commodities fell, particularly copper (-3.1%) and oil (-1.5%), while safety asset gold rose 1.4% to around the record high. US 10yr treasury yields fell 7bp on the US data.
The US dollar index fell in Europe from 86.50 to 85.50, but did no better than consolidate around the lows during the US session. EUR placed more weight on the positive European news than US matters and rose from 1.2240 to 1.2410, consolidating between 1.2350 and 1.2400. USD/JPY fell from 91.30 to 90.50 on the weak US data.
AUD was volatile, trying to follow both the EUR and US equities (which had divergent paths), initially rising from 0.8600 to 0.8683, collapsing back to 0.8605, and recovering to 0.8670 for a net gain after Sydney closed.
NZD was less volatile, rising from 0.6950 to 0.7034 and congesting around 0.7020. AUD/NZD fell further to 1.2300 before recovering to 1.2350.
US Philadelphia Fed index fell from 21.4 to 8.0 in June, though the details weren't as alarming as the headline measure. New orders, deliveries and inventories rose, but the employment measures turned slightly negative and prices paid plunged from 35.5 to 10. This continues the run of regional indicators that point to a slowing pace of growth in the manufacturing sector.
US CPI fell 0.2% in May, led by a 5.2% drop in gasoline prices. Annual inflation fell from 2.2% to 2.0%. Core prices rose 0.1% for the month, but the annual pace remained at 0.9%, the lowest since 1966. The shelter component remains the biggest drag on core inflation, although it is no longer falling.
US initial jobless claims rose 12k to 472k last week, remaining stuck around levels consistent with subdued private sector jobs growth (this was the survey week for non-farm payrolls). Continuing claims rose 88k to 4571k in the previous week; the downtrend remains intact, but it may reflect claims expiring rather than the unemployed finding new jobs.
US leading index rose 0.4% in May, and April's small decline - the first in 13 months - was revised away. Share prices and building permits were a drag, but money supply growth and the steeply positive yield curve provided support.
US current account deficit widened to $109bn in Q1, an annualised 3.0% of GDP. The annual benchmarking saw sizeable upward revisions to exports and investment income receipts, reducing the deficit by $10-15bn per quarter over the last year.
UK retail sales volumes rose 0.6% in May, continuing to recover from their slump 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 2.2% remains subdued.
UK CBI industrial trends survey fell from -18 to -23 in June. The small drop in export orders, following a sharp improvement in May, mirrored the rise in the pound in June that followed a steep decline in May.
The Swiss National Bank left its Libor target unchanged at 0.25%, but noted that current policy settings can't be maintained in the future "without compromising medium and long-term price stability". It also noted that deflation risks - a key motivation for its forex interventions in the last year - have largely disappeared.
Canadian wholesale sales fell 0.3% in April, following a 1.2% gain in March. Volumes continue to rise, up 0.4% for the month, but the rising Canadian dollar depressed prices.
AUD/USD and NZD/USD outlook next 24 hours: Commodity currencies have performed well in the face of US equities weakness, suggesting small gains today are possible. AUD is supported today at 0.8600, and could nudge higher to 0.8700. NZD is supported at 0.6950 and may see 0.7050 today.
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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