Sunday August 8, 2010 - 21:43:07 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Monday 9 August 2010
News and views
US jobs data disappoints. Risk appetite was severely dented upon the release of the weak July US payrolls data, the major risky asset classes all falling during immediately afterwards. Equities later pared losses on pre-weekend profit-taking, and possibly on news officials will soon start a program to help struggling mortgage borrowers, as well as further speculation the Fed may ease further. The S&P500 closed 0.4% lower, although the VIX index of risk aversion remained stable. Commodities fell 1.1% overall, oil -1.6% (bearish key day reversal) but copper less affected at -0.3%. US 10yr treasury yields fell 10bp to 2.81% (post April 2009 low), in a relatively strong response to the data, while 2yr yields fell 2bp to a fresh record low of 0.50%. Curiously, the 10-30yr spread, traditionally an inflation-expectation indicator, rose 3bp to a record high of 118bp.
Currencies reacted unevenly. The US dollar index fell to just above 80.00, an Apr-10 support level, shedding its safe-haven identity for matters of US growth. EUR conversely rallied strongly on the data on relative yield movement and perceived safety, from 1.3170 to 1.3334, settling under 1.3300 for the outperformance of the day. The yen also benefited, USD/JPY falling from 86.10 to 85.00. CAD underperformed, falling from 1.0150 to 1.0300, its own jobs data surprising negatively.
AUD price action was interesting, initially falling from 0.9180 to 0.9139 on the US jobs data, but then surging to 0.9222, a 3-month high, and settling around 0.9180.
NZD similarly benefited to a 0.7344 intraday high. AUD/NZD ranged sideways between 1.2520 and 1.2600.
US non-farm payrolls fall 131k in July, very close to Westpac's 140k forecast drop but substantially weaker than the market consensus for a 65k decline. The main driver of that fall was a 202k plunge in government jobs. That included a further 143k temporary Census workers who finished their duties but most of the other 59k public sector workers who dropped off payrolls in July were most likely state government employees who lost their jobs due to budgetary constraints. Private payrolls rose 71k in July but back revisions shaved 34k off the previous estimates for May/June. So private sector jobs growth averaged just 51k in May to July, compared to 154k in the previous three month period. The jobless rate was unchanged at 9.5% in July despite a 159k fall in household survey jobs.
German industrial production fell 0.6% in June, a downside surprise given recent orders strength. The fall was driven by capital goods and intermediate goods; consumer good production rose 0.2%.
UK industrial production fell 0.5% in June. The declines were concentrated in mining and oil/gas, both down by around 6%. That might be due in part to earlier than usual summer shutdowns which would normally be reversed in the next month or so. Manufacturing rose by 0.3%, consistent with recent PMI factory readings pointing to gains. Separately, in July, producer prices fell 1.0% at the input stage, leaving annual PPI input growth little changed at 10.8% yr from 10.7% yr. PPI output prices rose 0.1% (0.2% core) and the respective PPI output annual rates were lower at 5.0% yr and 4.7% yr.
Canada recorded its first employment decline (-9k) for 2010 in July, though the jobs growth trend is still clearly positive. The detail included some big swings in various components, for example full-time jobs down 139k but part-time up 130k, which we think is due to survey quirks rather than genuine developments in the labour market. The jobless rate edged up a tick last month but remains in a downtrend. This was not a weak report in the context of the prior month's strength but some may see it as a further sign of north American economic slowdown. Separately, the Ivey PMI which always falls in July due to summer plant shutdowns, fell from 58.9 to 54.0 in July.
AUD/USD and NZD/USD outlook next 24 hours: AUD resistance levels have been successively nudged higher, and there's no obvious sign a major peak has been formed. Our suggested range today is 0.9140 to 0.9220. NZD is flirting with peak formation, but if 0.7360 breaks, a move to the 0.74's should follow.
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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