Thursday July 1, 2010 - 20:39:56 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Friday 2 July 2010
News and views
There was little improvement in sentiment yesterday. Stocks drifted up early in the European session, despite a slightly larger uptake of the ECB's 6-day liquidity tender (EUR111bn). Once again, however, weaker US data turned things sour. US 10yr Treasuries briefly fell below 2.90% before settling just above at 2.94% at the close. Commodities also suffered from the risk-averse sentiment, falling 1.5% on the day.
The DXY dollar index drifted steadily lower throughout the day as concerns over the weaker US data offset any flight-to-safety bid. The euro was the outperformer, rising from 1.22 to punch through 1.25 this morning, as the combined ECB tender results of the last two days suggested that funding stresses in the Eurozone are not as bad as feared.
Australasian currencies were caught in a tug of war between risk aversion and the weaker USD, eventually siding with the latter. AUD was choppier and underperformed slightly, but still ended the offshore session a big figure higher at 0.8440. NZD ticked up from its 0.68 low during the European session, stumbled on the US data, but reached 0.69 by this morning.
US ISM manufacturing was weaker than expected at 56.2, falling from 59.7. This was the second consecutive fall in the survey. Despite managing to record an above 50 reading there was no obvious redeeming features in the June report, which pointed to slowing industrial activity and diminishing inflationary pressures. There was broad-based weakness from the individual components with falls in employment, new orders and production. Of further concern was the fall in the ratio of new orders to inventories which tends to lead the headline index. The dip suggests a move in the headline down towards 50 in the next month or so.
US pending homes sales collapsed 30% in May, the largest monthly fall on record (going back to 2001). Only the magnitude was a surprise; sales were expected to plunge following the expiry of the homebuyer tax credit in April. Congress has extended the deadline for applying for the credit from June to September (though still only for sales contracts signed before 30 April). This may help to ensure that more of these conditional sales are completed, but it means it will be some time before a clear, undistorted picture emerges of the underlying health of the US housing market.
US initial jobless claims continued to edge higher in the week ending 26th June. Claims rose to 472k from 459k, offsetting most of the previous week's decline. The four-week average continues to trend higher and currently stands at 466.5k - the highest since March.
Bank of Japan Tankan Q2 survey better than expected. The large manufacturing headline jumped to +1 from -14, better than expectations. The large non-manufacturing component improved from -14 to -5, (market -7, Westpac -5). On the key capacity indicators, employment improved beyond respondents' predictions, as did perceptions of excess productive capacity. Investment, sales and profits expectations were all upgraded. All in all, this is a more optimistic document than one could reasonably have anticipated.
Eurozone manufacturing PMI was unchanged at 55.6 on the final estimate for June, confirming the modest slowdown from 55.8 the previous month. There was a modest upward revision to the German survey up to 58.4 from 58.1, while France was nudged down to 54.8 from an upwardly revised 55.8. The UK survey declined from a 15-yr high of 58.0 to 57.5.
AUD/USD and NZD/USD outlook next 24 hours: Market focus is firmly on tonight's US payrolls figures, and while this week's run of poor data has dampened expectations there is still plenty of room for disappointment, with the median forecast looking for 110k private payrolls growth compared to 41k last month. A weaker outturn would further fuel concerns about the pace of global growth, and would likely undermine NZD and AUD.
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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