Wednesday June 30, 2010 - 20:27:19 GMT
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Forex research - Morning Report (Westpac)
Morning Report Thursday 1 July 2010
News and views
Sentiment remains decidedly bearish. The S&P500 opened on key support at 1040-42 and whipped around in a tight 10pt range for much of the day before a late lurch lower saw it finish down 0.8%. Sentiment was given a lift in early dealings by a smaller than expected uptake at the ECB's 3mth liquidity tender. The ECB lent EUR132bn to European banks - much smaller than the EUR442bn in 1yr funds that mature tomorrow, a sign that the region's financial sector may not be as stressed as feared. That good news was however countered by weaker US data. Moody's announcement that Spain was on a review for downgrade pressured markets in afternoon trading as well. US 10yr Treasuries took a breather with yields mostly unchanged following the past week's huge gains. Commodities were up on the day (+0.92%).
The smaller than expected uptake at the ECB's 3mth liquidity tender helped stabilise risk sentiment in early offshore dealings. But as NY entered the fray, and following weaker US jobs data, currencies shed a good amount of their earlier gains vs the USD. EUR traded back from 1.2300 to 1.2240, while both AUD and NZD fell to fresh lows for their recent push lower. The AUD shed 150pts from its highs and printed session lows near 0.8415 before it found some support while NZD fell about 100pts from its highs to lows near 0.6858.
US Chicago PMI was moderately lower In June falling to 59.1 from 59.7. That said, a reading above 50 reflects expansion and the survey has been above this key level for nine consecutive months now. Within the detail the report was mixed, with new orders falling to 59.1 from 62.7 and order backlogs also down. Prices paid were slightly lower and encouragingly, the employment component rose back above 50 to 54.2.
US ADP employment came in weaker than the market consensus posting a rise of just 13k in June compared with 57k in May. This was the smallest rise since Feb and suggests an even weaker than already expected non-farm payrolls report on Friday. The ADP report revealed a fall of 35k in construction industries but a rise in service providers by 30k.
Nomura Japanese manufacturing PMI fell to 53.9 in June. That compares to 54.7 in May. The projections encased in the METI IP report are basically consistent with this update, implying moderate gains in production in the months ahead.
Japanese labour income fell 0.2%yr nominal, +0.7% in real terms. Overtime earnings remain the major source of strength in these numbers. OT is up 10.3%yr, while regular earnings are still slightly negative. The consolidation of the labour market has supported incomes to a degree, but there is nothing in this report to curb one's anxiety about the post-stimulus consumer.
Japanese housing starts were 4.6% lower over the year to May, well below April's 0.6%yr outcome and market expectations for a +5%yr outcome for May.
Japanese construction orders were up 9.2%yr in May. This was a sharp turnaround from the 25%yr decline in April, though this series is generally very volatile. In May, private construction orders were up 10.2%yr while government construction orders were down 13.5%yr.
Euroland inflation slowed further to 1.4% in the preliminary reading for June. The decline in energy prices is likely to have played its part in the softer reading. Although Euroland CPI had been drifting higher in the past quarter, it is still well below any level that the ECB should be concerned about.
Canadian GDP was flat in April following the 0.6% growth in March. The slowdown was driven by the retail and manufacturing sectors but growth in mining and wholesale provided some offset. In recent months, Canadian GDP has been robust with only one reading below 0.5% in the past five months so April's weak number is not cause for concern just yet.
AUD/USD and NZD/USD outlook next 24 hours: Aust retail sales and building approvals for June will be a focus but the June China purchasing managers surveys will be the main point of interest in Asia today. Worries over Chinese growth have been a key negative for commodities, equities and the commodity currencies in recent sessions. Weaker than expected data out of China will see both AUD and NZD losses accelerate. NZD should run into sellers above 0.6900 on the day while AUD should meet resistance into 0.8500.
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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