Monday July 22, 2013 - 21:26:01 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex - Westpac Morning Report
Morning Report Tuesday 23 July 2013
Global market sentiment: Sentiment remained upbeat amid little news flow. The S&P500 is currently up 0.2% having earlier made a fresh record high. US existing home sales disappointed, as did the Chicago Fed’s survey on national activity, but the interpretation appeared to be bad news is good because it delays tapering.
In the UK, a future King was born.
Interest rates: US 10yr treasury bond yields eked a narrow 2.46%-2.49% range.
Australian 3yr government bonds yields were similarly restrained, between 2.62% (one-month low) and 2.65%.The 10yr ranged sideways between 3.64% and 3.68%.
Portuguese 10yr yields fell 41bp to a one-month low after its president expressed confidence in the government and declared there will be no early election.
Currencies: The US dollar index extended a multi-week decline. EUR rose from 1.3145 to 1.3218 – a one-month high. USD/JPY fell from 100.15 to 99.29. AUD rose from 0.9185 to 0.9270. NZD rose from 0.7908 to 0.7975. AUD/NZD traded sideways between 1.1610 and 1.1640, exhibiting little impact from the weekend’s earthquake in Wellington
US existing home sales, measured at completion, fell 1.2% in June, a little surprising given the 11% rise in pending home sales in the year to date (Jan to May). Sales completions are only up 5% ytd (Jan to June) which could indicate more sales falling through (a function of higher mortgage rates since Fed tapering speculation took hold in late May?) or longer settlement times. We expect a modest 0.5% rise in new home sales in June (data due Wednesday), a “compromise” forecast that attempts to reconcile uplifted homebuilder sentiment with higher mortgage rates and the 6% fall in single family home starts in the first half of 2013.
French finance minister says France in worrying situation. M Moscovici said “We are also now in a recession, or a stagnation in our country... When I look at the figures, I see that we are in a situation which is worrying. He expects growth to return in the second half of this year, even as the German Bundesbank said it expected growth to slow in Q3 after a weather-related acceleration in Q2 from Q1’s anaemic 0.1% GDP growth.
Portugal avoids early election. President Silva has endorsed the coalition government of PM Coehlo after his “ideal solution” of a consensus pact between the coalition and the opposition socialists could not be agreed; he backed down from his previous intention to call early elections rather than support the Coehlo coaltion which was rocked by key resignations earlier in the month. 10 year bond yields fell back to 6.4% today from over 7% last week and a recent peak of over 8% at the height of the political crisis. 6.4% is where yields were before the first resignation. An early election, with the now anti-austerity opposition well ahead in the polls, would have threatened the hoped for smooth transition from bailout back to market access in June 2014.
Event risk today: It’s a quiet day, eventwise. The local calendars are empty. Tonight in the US there are house prices and the Richmond regional manufacturing survey.
NZD/USD 1 day: A multi-day upward correction continues to unfold, today targeting 0.7990 above.
NZD/USD 1-3 month: Despite the recent upward correction, the downtrend since April remains intact and could run as far as the low 0.70’s. However, we need to see 0.7680 break for confirmation. Fed tapering expectations will remain a depressant and NZ’s economic data momentum is likely to slow during the next few months.
AUD/USD 1 day: A multi-day upward correction continues to unfold, today targeting 0.9290 above.
AUD/USD 1-3 month: Despite the recent upward correction, the downtrend since April remains intact and could ultimately run as far as the 0.80’s The Australian data flow is unsupportive, and the RBA is likely to ease further to 2.0% by Q1 2014.
AUD/NZD 1 day: 1.1600 below is vulnerable today.
AUD/NZD 1-3 month: The downtrend since March remain strong and targets 1.1500 next, possibly as far as 1.1100. Relative fundamentals (e.g. RBA easing to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.
NZ swap yields 1 day: In response to changes in US and Australian bond yields overnight (see above) the 2yr should open unchanged at 3.16%. The 10yr should open up 1bp at 4.46%. Our outlook for the week ahead is for NZ interest rates to fall.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 23 July 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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