Monday October 18, 2010 - 19:39:09 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Tuesday 19 October 2010
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Risk appetite remained supported thanks to good Q3 earnings at Citigroup, an estimate-beating US homebuilders confidence survey, and continuing expectations of Fed QE. The Fed's Lockhart, who tends to be hawkishly inclined (but doesn't vote), said there is scope for further monetary stimulus to boost the economy, and is sympathetic to further QE as an insurance policy against deflation. The S&P500 index is currently up 0.6, banks' outperforming at +3.5. Commodities are 0.7% firmer (CRB index), oil's +1.9% helped by a refinery strike in France, Europe's second-largest fuel market. Copper futures (+0.3%) made a fresh high of $385. US 10yr treasury yields fell 8bp to 2.48%, consolidating in late NY at 2.50%. A report showed net foreign inflows into US treasuries in August reached a near-record $117bn, explaining some of the dramatic yield decline.
The US dollar index fell by around 1% as Fedspeak kept expectations of more Fed QE entrenched. EUR rose to 1.4000 during late NY, and is currently trying to break higher. USD/JPY remained in a narrow range 81.10-81.35.
AUD dipped during early Europe to 0.9800 but recovered well to 0.9940 during the NY session.
NZD also dipped initially to 0.7500, recovering to 0.7595. AUD/NZD continued the domestic session's subdued tone, dipping to 1.3060 before consolidating between 1.3080 and 1.3115.
US industrial production down 0.2% in Sep. This was even weaker than Westpac's below consensus forecast and is the first fall in IP since mid 2009. The fall was led by the factory sector down 0.2%, with broad-based declines outside of autos. A sharpish further fall in utility output was offset by higher mining output so the total IP headline was also -0.2%. Capacity utilisation at 79.4% fell below 80% for the first month since May.
US TIC net long term flows $128.7bn in Aug. That was double July's inflow and reflects stronger global demand for US assets as the Fed committed to maintain the size of its balance sheet and QE2 speculation started to build. However the total TIC flow data showed inflows slowing by almost half to $38.9bn.
US NAHB housing market index up 3 pts to 16 in Oct. That is the highest reading since June but still well down on May's 22 when builders were still busy due to the extended homebuyer tax credit which expired in April. The three sub indices all rose: present and future sales and buyer traffic. That result suggests some upside risk for housing starts and permits and new home sales data in coming months.
Japan's tertiary industry index fell by 0.2% in August. Over the year, the index is up 2.4%. The decline in August was principally the result of a decline in activity in the miscellaneous services, information & communication and transport & postal services sub sectors.
UK house prices unexpectedly jumped 3.1% in Oct after falling every month through Q3 - and the rise reversed almost all of those declines. Note however that the Rightmove index measures asking prices not achieved selling prices so it remains to be seen whether this renewed price optimism on the part of vendors is matched by purchasers' willingness to pay. Most house selling price indices have shown softness/outright collapse of late!
AUD/USD and NZD/USD outlook next 24 hours: The RBA minutes today may shed light on the reasons for the recent policy rate pause and the likely outcome at its next meeting. AUD/USD is overbought but does have a firm tone today and should gravitate towards 1.0000. NZ milk powder prices will be updated at Fonterra's fortnightly auction tonight. Ahead of that, NZD/USD should move towards 0.7640 key resistance.
.Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 13 August 2010. 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 Westpacâ€™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 registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. Â© 2010 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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