Wednesday August 4, 2010 - 22:09:22 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Thursday 5 August 2010
News and views
Investor sentiment improved slightly. The main factors appeared to be stronger US data (ADP measure of employment, services ISM) and company earnings (Priceline.com the standout). These dominated the negative news from China, the regulator ordering lenders to stress test for a drop in home prices of 60%. The S&P500 is currently up 0.5% to around the 21 June minor peak. Commodities overall were up 0.8% to a fresh 3-month high, oil subdued (-0.2%) but copper (+1.2%) mimicking the CRB. US 3mth Libor shed another bp to 0.424%. US 10yr treasury yields rose 4bp to 2.95%, completing a uniform risk response among the major asset classes. Next week's auctions will be for a total of $74bn 3yr, 10yr, and 30yr maturities, reflecting a gradual decrease in volume.
European currencies underperformed. The US dollar index bounced modestly from an oversold position, from 80.50 to 81.00. European currencies were hit during the NY morning, the EUR falling from 1.3230 to around 1.3130, the CHF and GBP faring similarly. USD/JPY rose from 85.50 to 86.40 around the same time. CAD outperformed, USD/CAD falling from 1.0270 to 1.0165.
AUD also fared well, pushing to a fresh post-4 May high of 0.9183 after spending much of the domestic and European sessions below 0.9140.
NZD held up well considering the recent weakness in milk prices and Standard & Poor's downgrade of Telecom (to negative watch), testing 0.7355 resistance several times. AUD/NZD made another attempt on 1.2500 but settled around 1.2470.
US ADP private payrolls rise 42k in July, up from 19k in June. This suggests some pick-up in jobs growth last month, though the relationship with the official (BLS) payrolls data is tenuous. That said, we are forecasting a stronger BLS private jobs gain for Friday (90k vs 83k in June), so the ADP result could be consistent with that. The ADP detail showed all the jobs growth in small to medium sized firms; large firms have not been hiring at all recently. Also on the labour market, corporate layoff announcements in July were down 57% compared to a year earlier - no surprise really given that the economy was shedding jobs then whereas now employment is rising.
US ISM non-manufacturing rises from 53.8 to 54.3 in July, bucking the weaker trend of most other US business surveys taken last month. The detail showed business activity lower but new orders higher and jobs rising back above 50, indicating growth - another pointer towards a higher payrolls gain ex census workers.
Euroland July PMI services revised down from 56.0 to 55.8 but the composite PMI was unrevised at 56.7, up from 56.0 in June.
Euroland retail sales flat in June, but revised up to 0.4% gain in May. Data from July onwards may show a post World Cup soccer spending pull-back.
UK PMI services slows from 54.4 to 53.1 in July, its weakest since June last year. There is likely some impact from public sector spending cuts coming through. Recall that the factory and construction PMIs also slowed in July, adding weight to the view that Q2 probably saw the quarterly growth rate peak for this year.
UK prices surveys: The BRC reported that shop prices grew at a steady 1.5% yr pace in July, reflecting faster food price gains but slower gains elsewhere. The Halifax reported a 0.6% rise in house prices in July, but the annual pace of gain slowed from 6.3% to 4.9% yr, a slowdown also seen in other house price surveys.
AUD/USD and NZD/USD outlook next 24 hours: AUD has no immediate resistance level overhead until the April congestion zone starting at 0.9150. NZD remains locked in a 0.7300-0.7400 range, today's employment report posing significant and balanced risk.
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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