Wednesday December 1, 2010 - 19:36:34 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report (Westpac)
Morning Report Thursday 2 December 2010
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A positive reversal in sentiment was inspired by a string of decent PMI reports from China, Korea, UK, and Switzerland, as well as a Reuters report during the NY session that the US was ready to back an enlarged EU support fund via the IMF. The US Treasury later denied any discussion had occurred, but markets largely held the gains. Most equity indices globally recorded solid gains, the S&P500 currently up 2.1%. The CRB commodities index is up 2.1%, with oil +2.9% and copper +3.1%. Us treasuries were sold heavily, the 10yr yield rising 16bp to 2.96%. The Fed's Beige Book report on regional economic conditions was mixed but moderately more optimistic, supporting the yield gains. Peripheral Eurozone government bonds outperformed German equivalents, particularly the Irish 10yr with a 40bp decline compared to +11bp for bunds.
The US dollar fell sharply after the Reuters report. EUR ground steadily higher throughout, from 1.3020 to 1.3120, with a final spurt to 1.3190 before settling around 1.3115. USD/JPY benefited from the risk-seeking mood, from 83.40 to 84.40.
AUD gained from 96.00 to 0.9660 during early Europe, and then languished until the US spike saw it above 0.9680. NZD rose above 0.7500 and has settled slightly below. AUD/NZD hovered around 1.2900.
US ISM factory edges down from 56.9 to 56.6 in Nov. The detail showed production (-8) orders (-2) and jobs (-0.2) all fell, although all three remained above 50, indicating a slower pace of expansion, not contraction. Slower supplier deliveries (up 6) and faster inventory accumulation (up 3) provided the offset to the weaker readings for the first three components of the composite.
US ADP private payrolls up 93k in Nov. That is the fastest gain yet this cycle; also Oct was revised up from 43k to 82k - adding to the sense the labour market is already benefiting from the reacceleration in GDP growth in Q3. If the recent tendency of this indicator to substantially underperform non-farm payrolls continues, this suggests upside risk to our forecast for a 140k Nov gain. Also, corporate layoff announcements amounted to 49k in Nov, up from 38k in Oct and little changed from 50k a year earlier.
US construction spending up 0.7% in Oct. This unexpected rise reflected a sharp 2.4% rise in private residential spending, the fastest since the closing days of the tax credit for homebuyers.
US productivity growth was revised up from 1.9% to 2.3% in Q3, but unit labour costs were unrevised at -0.1%.
Fed GFC details released. The $3.3trn of aid provided during the financial crisis included loans to foreign backs and corporates such as MacDonald's.
US Fed Beige Book underscored the recent improvement in US data, with 10 of the 12 regions reporting a modest pickup in activity. Manufacturing remains a point of strength, and most regions also reported some improvement in retail spending and professional services. Hiring is picking up, though wage pressures are subdued. Housing construction and sales remain sluggish across the country.
Euroland PMI factory revised from 55.5 to 55.3 in Nov - a rare (this year) downside revision, although it still leaves in place back to back gains in Oct-Nov. Meanwhile in Germany, retail sales rose 2.3% in Oct, but back revisions meant that the annual sales pace remained weak, at -0.7% yr its lowest since April.
UK PMI factory up from 55.4 to 58.0 in Nov, its highest in sixteen years. Solid gains in exports and the highest ever reading for jobs contributed to the stellar result.
UK house prices down 0.3% in Nov, pulling the annual pace down to 0.4% yr, its lowest since Sep last year (Nationwide index).
AUD/USD and NZD/USD outlook next 24 hours: AUD could probe higher today to 0.9700, while NZD should remain above 0.7400 support.
.Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 2 December 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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