Thursday November 4, 2010 - 19:30:02 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Friday 5 November 2010
News and views
Risk appetite surged globally as the Fed's new quantitative easing program appeared to have elicited a belated response. The S&P500 (currently +1.6%) broke higher and is now around the April high, and the VIX index (a measure of risk aversion) gapped lower. European and Asian indices also saw strong gains. The CRB commodities index gapped 2.3% higher to a fresh two-year high, silver (+4.3%) leading the way and setting a fresh thirty-year high. US treasuries, which were muted following FOMC, rallied strongly, the 10yr shedding 9bp to 2.48%. The 10-30yr spread blew out to a record 156bp, the longer bond having minimal involvement in QE2. The NY Fed will publish its purchase schedule on 10 November. Irish 10yr government bonds were again sold heavily (22bp), the yield spread to Germany setting a fresh record high of 525bp.
The US dollar lost ground against all actively traded currencies. EUR broke above 1.4150 resistance to 1.4282 before settling at 1.4200. The ECB maintained its stance, noting uncertainty delayed further exit steps. The BoE similarly left rates unchanged, but issued no statements. GBP rose from 1.6150 to 1.6300. USD/JPY fell from just above 81.00 to 80.60.
AUD hugged 1.0500 during its domestic session but broke higher in Europe to 1.0154.
Outperformer NZD accelerated to 0.7976 in the wake of a strong employment report. AUD/NZD extended its weakness from 1.2800 to 1.2720 before settling above 1.2750.
US initial jobless claims up 20k to 457k. This more than reversed the prior week's fall and took claims to just higher than Westpac's top of the market 455k forecast. As such it undermines expectations that built following last week's data that the jobs market might be firming. In the prior week, continuing claims fell 42k to 4340k, a new cycle low, though it is not clear whether this reflects the unemployed returning to work or their benefits running out.
US non-farm productivity rises 1.9% annualised in Q3. This reflected a firmer 3% rise in non-farm output on a 08% rise in hours. Unit labour costs fell 0.1% in the quarter.
US chain store sales up 1.6% yr in Oct, their slowest annual pace since April.
Euroland PMI services revised up from 53.2 to 53.3 in Oct. Along with the previous factory PMI revision this saw the composite PMI revised up from 53.4 to 53.8 - still down from 54.1 in Sep, its fifth fall in six months.
European Central Bank leaves rates on hold at 1.00% following today's Council meeting. Also the Bank of England left rates at 0.50% and its asset purchases on hold at GBP200bn.
UK house prices up 1.8% in Oct. Rare positive news on prices here, though it followed a 3.7% drop in Sep on the Halifax series. Annual prices slowed from 2.6% yr to 1.2% yr.
Canadian Ivey PMI down 13.6 pts to 56.7 in Oct. This not seasonally adjusted index was running very hot in Aug-Sep relative to what else we know about the Canadian economy so the Oct result corrects for that.
AUD/USD and NZD/USD outlook next 24 hours: Tonight's US payrolls report is the day's major event risk. Also worth keeping an eye on will be the BOJ meeting, and the RBA's Monetary Policy Statement. AUD momentum remains positive, and any pullbacks should be limited to 1.0000. NZD has minor resistance at 0.8000, but 0.8220 looks attainable during the next month. Yesterday's parabolic rise leaves it stretched intraday, though, and a pullback to 0.7750 would be healthy.
.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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