Sunday August 15, 2010 - 21:51:37 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Monday 16 August 2010
News and views
Risk sentiment nudged lower. European equities posted modest declines (Eurostoxx -0.5%) after the Q2 GDP report showed the peripherals significantly underperformed compared to Germany. A lackluster Italian bond auction also helped direct negative attention to the fiscally challenged parts of the Eurozone, pushing 10yr government bond yields 9bp higher in Greece and Portugal, and +7bp in Spain, compared to 3bp lower in Germany. The S&P500 closed 0.4% lower, consolidating last week's decline, the raft of data releases broadly within market expectations. Commodities too looked consolidative, the CRB index unchanged, but oil (-0.5%) and copper (-1.0%). Large ship charges (Baltic Capesize) failed to advance for the first day since 3 August. US yields were lower, 3mth Libor grinding another 0.6bp to 0.369%, and 10yr treasuries -7bp to a fresh post-April 2009 low of 2.67%, flattening the curve by the same.
The US dollar rose around 1% from early Europe to a three-week high of 82.96. Leading US economic indicator, ECRI, showed signs of bottoming. EUR fell from its Europe open of 1.2906 to 1.2750, the strong GDP report serving to highlight the chasm between core and non-core. SEK underperformed the majors despite Fitch reaffirming Sweden's AAA rating. USD/JPY bounced from 85.60 to 86.40, partly on relief regarding the US data.
AUD fell from its Sydney closing level of 0.9020 to 0.8922.
NZD fell from 0.7184 to 0.7050. AUD/NZD ground higher to 1.2670.
US retail sales up 0.4% in July. The only significant gains in the retail report were a 1.6% rise in autos and a 2.3% jump in gasoline sales, probably due to higher prices. Elsewhere there were broad-based but mostly mild declines across most storetypes, such that core retail sales fell 0.1%, the third month running of softness in this measure of consumer spending.
US CPI up 0.3% in July. This was driven by a 4.6% rise in gasoline prices, offset by a small food in food prices. Core prices rose 0.1% with the first rise in the highly weighted housing component since October last year. The annual core CPI of 0.9% yr matches the lowpoint of this series last seen in 1960s.
US UoM consumer sentiment rose 1.8 pts to 69.6 in the preliminary Aug report. The rise was evenly split between the current economic conditions and outlook components. The July-August reads on this index are the two lowest for the year so far.
US business inventories rise 0.3% in June and were revised up a little in May. Not a strong story, but not weak enough to see Q2 GDP growth revised to much below 2.0% annualised from the 2.4% annualised advance report.
Euroland GDP growth 1.0% in Q2 (advance report with no detail). The star performer was Germany which grew 2.2% in Q2, beating all analysts' forecasts, presumably benefitting from recovering global economic activity and the competitiveness boost from the weaker euro last quarter, both of which will have lifted exports. By comparison, France grew 0.6%, Italy 0.4% and Spain 0.2%.
Canadian auto sales up 2.5% in June. StatCan guidance is for a 1.0% rise in July auto sales.
AUD/USD and NZD/USD outlook next 24 hours: AUD major support at 0.8900 is also the neckline of a bearish head-and-shoulders pattern, warning of around 3 cents lower should 0.8900 give way. NZD support at 0.7030 has held, allowing for s small bounce en route to 0.6980.
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