Monday October 25, 2010 - 20:04:14 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Morning Report (Westpac)
Morning Report Tuesday 26 October 2010
News and views
The post-G20 sell-off in the US dollar and surge in US equities took a breather during the NY session. S&P500 futures peaked during the Sydney afternoon, and apart from a brief spike after some consensus-beating US data, consolidated near the multi-month high, the physical index up 0.3% currently. Commodities overall gapped 0.8% higher. Copper (+1.6%) made a fresh high at the European open, although oil (+0.2%) pared earlier gains as French refinery strikes ended. Cotton soared 4.2% to a record high on concerns adverse weather in Texas and China will affect supply. US 10yr treasury yields firmed 5bp in NY to end the day 2bp lower at 2.54%. A solid auction for $10bn 5yr inflation-linked bonds was awarded at -0.6%, the first negative real yield result in its history.
The G20 meeting provided little of substance to dissuade US dollar bears and short positions were likely reinstated yesterday, pushing the DXY index to a 76.7 intraday low at the European open. Underperformer EUR peaked at 1.4080 then and spent the remainder of the European and NY sessions grinding back to 1.3950. USD/JPY made a fresh low at 80.41 before consolidating to 80.80.
Yesterday's positive PPI surprise helped outperformer AUD to 0.9975 before settling back at 0.9910.
NZD was the day's second best performer, peaking at 0.7562 before settling around 0.7530. AUD/NZD rose to 1.3218, April's 1.3230 high providing a major obstacle.
US existing home sales rise 10.0% in Sep. This means sales have bounced 17% in the latest two months after plunging 36% following the end of tax credit for home buyers in April. That is a stronger rise than implied by pending home sales which only rose about 9% from the recent lows. Despite these swings, the level of sales remained low at 4.53mn annualised. That is the (equal) third weakest sales rate on record (only July and August recorded lower sales) and compares to the monthly peak of 7.25mn annualised exactly five years earlier. Also, for the first month since Feb, there were broad-based price declines in annual terms, across houses and condos, on both the median (-2.4% yr) and average (-1.7% yr) measures. Those extra sales came at a (lower) price.
US Dallas Fed factory index jumped from -18 to 3 in Oct. This corrects for the previous four very weak (negative) headline readings but still leaves the sector close to stalled at the start of Q4. Also, the detail on orders, shipments and jobs was all weaker in Oct than in Sep. Also, the Chicago Fed national activity index (based on 80 or so previously published data series) slowed from -0.49 to -0.58 in Sep.
The Japanese trade balance came in above expectations at JPY588bn in Sep; however Aug was revised down to JPY570bn, from JPY590bn. Exports were broadly unchanged in the month while imports declined by 0.5%. Exports are up 14.4%yr while imports are up 9.9%yr.
Euroland industrial orders bounced 5.3% in Aug to be up 24.4% yr. An 8% surge in capital goods orders and 5% for consumer goods plus lesser gains elsewhere shows that the European industrial sector is still benefitting from the developing world trade recovery and prior euro depreciation. Of the major economies, Germany, Italy and Spain saw solid orders gains (reversing July falls) but France saw orders slip modestly after three monthly gains.
UK mortgages slip again. Slightly different data source - this time the BBA - but the same story. Sep saw 31.1k new loans for house purchase, the lowest since March 2009 and down from the late 2009 peak of 45.5k.
AUD/USD and NZD/USD outlook next 24 hours: Today's business confidence report provides little risk to the AUD which looks a good intraday buy. NZD should be supported at 0.7520 for a move beyond 0.7560.
.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
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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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