Thursday March 7, 2013 - 19:44:41 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Friday 8 March 2013
Global market sentiment: Risk appetite remained elevated on US data while the ECB wasn’t as gloomy as expected. US jobless claims fell more than expected, boosting US equities ahead of tonight’s important payrolls report. The ECB kept the policy rate at 0.75% (although the vote wasn’t unanimous) but President Draghi gave no easing signal at the press conference, disappointing some. The Eurostoxx 50 still managed to close 0.4% higher though, and the S&P500 was nudged 0.2% to a fresh five-year high. Copper was of a similar disposition, up 0.7%.
Interest rates: The positive sentiment boosted US 10yr treasury yields from 1.92% to 1.99%, the 2-10yr curve steepening from 168bp to 174bp (close to an 11-month high of 176bp). Eurozone peripheral yields continued to decline, Italy’s 10yr down 6bp to 4.60%, Spain’s down 11bp to 4.89%, and Portugal’s down 22bp to 5.93%. Australian 3yr bond yields extended a three-day rise from 2.85% to 2.91% while 10yr bond yields rose from 3.40% to 3.48%.
Currencies: The US dollar index (DXY) fell around 0.7%, reversing the previous day’s gain. EUR outperformed following Draghi’s comments, rising from 1.2980 to 1.3117. Safe-haven yen underperformed, rising from 94.00 to 95.09 – a four year high. AUD rose from 1.0240 to 1.0289. NZD initially followed suit, from 0.8270 to 0.8314 but had a stronger reaction to the Draghi disappointment and slumped back to 0.8264. AUD/NZD accordingly rose from 1.2365 to 1.2420, perhaps a symptom of extreme long NZD positioning.
US trade balance widened by more than $6bn to $44.4bn in Jan as exports reversed 1.2% and imports bounced 1.8%. Oil accounted for less than half of the increased deficit but most of the imports rise. The real ex oil deficit was little changed but the total deficit rose almost $4bn in real terms. US initial jobless claims fell 7k to 340k at the start of March. That is a six week low with no obvious special factors at play. Meanwhile Challenger reports a 7%yr rise in layoff announcements. Still on the labour market, productivity growth was revised from –2.0% to –1.9% and unit labour costs went from 4.5% to 4.6% in Q4 following the revised GDP data.
Canadian trade deficit narrowed from C$0.33bn to C$0.24bn in Jan, as exports just outpaced imports with a 2.1% vs 1.9% gain. Meanwhile building permits rose 1.7% with residential bouncing 17.6% offsetting a 19.2% fall in non-res.
ECB on hold at 0.75%. ECB chief Draghi acknowledged that a rate cut was discussed by the Council but the “prevailing consensus” was for no change. The ECB’s latest staff projection midpoint foir GDP is exactly in line with us this year on –0.5%, but their hopeful financial market and global trade assumptions mean that their 2014 forecast is unrealistic at 1.0% (as was their 2013 forecast of 1.1% a year ago). Draghi cited the partial repayment of LTROs after one year, reducing the ECB’s balance sheet as evidence that downside risks, while still present, are diminishing. Indeed “uncertainties about the resolution of sovereign debt ... issues” has not been cited as a downside risk since late last year. He’s getting complacent we fear, just like he did after the 2 LTROs a year ago!
German factory goods orders fell 1.9% in Jan, for a –2.5% yr pace of decline. Consumer, capital and intermediate goods all recorded lower orders.
Bank of England on hold at 0.50%; asset purchase program held at £375bn.
Event risk today: NZ’s Q4 manufacturing activity will feed analysts’ GDP forecasts but shouldn’t rattle the NZD, nor should QV house prices. The Australian calendar is bare but China reports its trade balance today and lots more tomorrow (CPI, industrial production etc). Tonight’s US payrolls report is the day’s highlight for markets.
NZD/USD 1 day: 0.8263 is pivotal, a break below this neckline heralding a 1 cent fall.
NZD/USD 1-3 month: The positive trend since May has been broken and we now target around 0.8100 during the month ahead. Our view of a fresh high later in 2013 remains intact though.
NZ 2yr swap yield 1 day: Opening today up 2bp at 3.00%.
NZ 2yr swap yield 1-3 month: Following the current consolidation, which could yet extend lower to the 2.80%-2.90% area, a rise above 3.20% should ensue.
AUD/USD 1 day: We expect a 1.0220-1.0300 range to contain today ahead of any US payrolls surprise.
AUD/USD 1-3 month: Remains inside an 18-month consolidation triangle, which should see it reach at least 1.0100 before an eventual break above 1.0600.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 8 March 2013. 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
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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. © 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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