Tuesday April 23, 2013 - 20:15:44 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Wednesday 24 April 2013
Global market sentiment: Equity markets rallied again. The S&P500 is up 0.8% currently and has pared around 70% of the mid-April slump during the past three days. Catalysts overnight included consensus-beating US company earnings reports, US home sales data, expectations the ECB will ease next week following disappointing German PMI data, and the BOE announcing it will enhance its lending to companies scheme. The Eurostoxx 50 closed 3.1% higher. Commodities were less optimistic, though, suffering from China’s weaker PMI reading yesterday. The CRB index is down 0.6%, copper -1.3%, gold -0.9%, and iron ore -1.2%.
Interest rates: The US 10yr treasury yield initially fell from 1.69% to 1.64% but bounced with equities during the London session to 1.71%. A 2yr auction went at market yield and a 3.7 bid-cover ratio (vs 3.7 average). Eurozone peripherals continued to perform, Italy’s 10yr yield 12bp lower and Spain’s down 21bp – both to a 30-month low. Australia’s 3yr bond yield rose with US rates, from 2.57% (fresh 4-month low) to 2.65%, while the 10yr rose from 3.09% to 3.17%.
Currencies: The US dollar index is around 0.4% higher. EUR fell sharply from 1.3084 to 1.2973 following the German PMI report and spent the remainder of the day consolidating. USD/JPY rose from 98.49 to 99.53, a US advisory firm note predicting the BOJ will renew its commitment to 2% inflation at its next meeting. AUD firmed with equities from 1.0223 to 1.0269. NZD similarly firmed from 0.8361 to 0.8418. AUD/NZD ranged between 1.2180 and 1.2235.
US new home sales rose 1.5% in Mar but revisions were to the down side (Feb cut from –4.6% to –7.6%). The March annualised sales pace of 417k is 6.3% below the five year high point for sales of 445k seen In January and 70% below the July 2005 sales peak of 1389k. Recent sales strength is believed to be in part driven buy a shortage of decent established homes available for sale.
US Richmond Fed factory index slowed from 3 to –6 in Apr, even weaker than our bottom end forecast of –3. Jobs, shipments and orders were all weaker.
Canadian retail sales rose 0.8% in Feb, including a 0.7% rise excluding autos. Furniture and clothing sales were down but all another storetypes posted gains.
Euroland PMI composite unchanged at 46.5 in April advance report. The German PMI advance factory and services for April were both weaker with services back under 50 for first month since November; France however saw a small rise in the factory PMI and services rose from 41.3 to 44.1, still very soft but closing the gap with Germany from 9.7 pts in March to just 5.1 pts in April.
Bank of Spain estimates 0.5% Q1 GDP contraction: they are usually no more than 0.1% off the published pace (official data due 30/4). That is the seventh consecutive quarter of recession.
UK business optimism in the qtrly CBI industrial survey improved from 0 to 5 between Jan and Apr but in the Apr monthly survey orders fell from –15 to –25, with export orders the apparent driver. Sterling depreciation may not help exports if trading partner economies are in recession.
Event risk today: Plenty of local risk today, starting with the RBNZ meeting (should repeat the previous balanced policy outlook), Australian Q1 CPI (Westpac slightly sub-consensus at 0.6% vs 0.7%), and then an RBA speech (Dep. Gov. Lowe in Shanghai). Tonight there’s the US durable goods report.
NZD/USD 1 day: The kiwi unsuccessfully probed 0.8380 below yesterday but we favour another crack during the next few days.
NZD/USD 1-3 month: The uptrend since June 2012 remains intact as long as 0.8160 holds. The currency benefits from NZ’s strong fundamentals plus a resurgence of NZGB inflows.
AUD/NZD 1 day: Downward momentum has waned, indicating the selloff is ripe and a correction is due.
AUD/NZD 1-3 month: The trend decline to 1.2100 and lower remains in progress. Relative fundamentals (including RBA vs RBNZ) favour the NZD medium term.
NZ 2yr swap yield 1 day: Opening up 2bp at 2.86%.
NZ 2yr swap yield 1-3 month: The downward correction which started on 15 Feb could yet extend lower to the 2.70%-2.80% area. As long as that area holds though, we expect an eventual rise above 3.20% based on NZ’s improving fundamentals and eventual RBNZ tightening.
AUD/USD 1 day: We expect the decline since 11 April to extend below 1.0221.
AUD/USD 1-3 month: The sideways consolidation since August 2012 remains in progress. Within that, the multi-week outlook is negative.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 24 April 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
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 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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