Tuesday November 16, 2010 - 19:27:32 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Wednesday 17 November 2010
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Pessimism reigned, the troika of QE2, Europe, and China again dominating market sentiment. Growing concern QE2 may be eventually reduced was fuelled by Fed member Bullard (hawk) who told Bloomberg the $600bn package will be adjusted as the data comes in, and that the recent rise in treasury yields was a response to the better economic news. Another member, Rosengren (dove), countered the $600bn will be completed fully. In Europe, the Austrian finance minister reportedly threatened to block further disbursements to Greece on concerns Greece wasn't cutting its deficit as promised, although officials later denied such threats. China equities fell 4% on expectations further measures will be introduced to control inflows and inflation. The S&P500 is currently down 1.8%. Commodities are 2.6% lower, copper -4.8%, wheat -5.9%. US 10yr treasury yields are 4bp lower at 2.92%, 2.95% providing resistance. The Irish 10yr rose 29bp, Greek +14bp.
The US dollar rose around 1% amid the risk averse atmosphere, outperforming all majors. EUR broke lower in NY from 1.3640 to 1.3450. USD/JPY marched higher from 83.00 to 83.60. CAD underperformed, from 1.0100 to 1.0250 against the USD.
AUD closed in Sydney at 0.9850 and fell to 0.9725.
NZD fell from 0.7750 to 0.7653, the Fonterra milk auction prices stable overall. AUD/NZD fell around Â½ cent to 1.2700.
US producer prices rose 0.4% in Oct. Despite a 3.7% jump in energy prices, only partially offset by a slight 0.1% fall in food prices, the overall PPI was constrained by a 0.6% fall in the core PPI. That was due in large part to a 3.0% fall in auto prices and a 4.6% fall in light truck prices. Volatility in these components of the PPI is common - and Oct marks the beginning of the new 2011 model year in the auto industry - so this core PPI downside surprise might prove to be just a temporary blip. Or it could be evidence of the sort of disinflationary pressure that prompted the latest round of QE from the Fed.
US industrial production flat in Oct. Factory output rose 0.5% as we expected, but utilities fell 3.4% (due mild weather) and there was no expected offset from mining which fell 0.1%. We had expected rising commodity prices to support solid mining gains. IP has not posted a gain since Aug - that's the first two month period without output growth since Q2 last year.
US TIC data show $81bn net long term inflows in Sep. Bond purchases featured heavily as QE2 was widely expected by this stage.
US NAHB housing market index lifted 1 point in November, to reach 16 on the Index. The rise came courtesy of a small increase in sales expected in six months and in prospective buyer's traffic, though current home sales stayed level. At current levels, the index remains below the high reached in May and is indicative of a weak, though improving, housing market.
Japanese tertiary activity index came in below expectations at -0.9% in Sep after an upwardly revised +0.1% gain in Aug (prev -0.2%). Sep's weakness was relatively broadbased, though it was most prevalent in the wholesale & retail, electricity & gas and information & communication sub sectors.
German ZEW analysts' survey finds improved sentiment. The Nov expectations headline rose from -7.2 to 1.8, its first rise since April, while the current index posted its eighteenth straight rise.
UK CPI edges up from 3.1% yr to 3.2% yr in Oct, in line with Westpac's above market forecast and requiring the Bank of England governor to write his fourth open letter this year (one every three months) explaining why inflation is above the 3% upper limit of the target.
UK house prices decelerate from 8.1% yr to 6.1% yr in Sep according to DCLG government figures, consistent with other data pointing to a renewed weakening in the housing market.
Canadian manufacturing sales down 0.6% in Sep. The fall was mostly due to transportation equipment.
AUD/USD and NZD/USD outlook next 24 hours: With 0.9800 support breaking early this morning, AUD now targets 0.9620 over the next day or two. Australian wage costs will be watched. For NZD, the recent break of 0.7700 opens major support at 0.7640.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 17 November 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 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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