Thursday August 29, 2013 - 21:52:35 GMT
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Westpac Institutional Bank - www.westpac.co.nz
NZ Morning Thoughts - Sentiment improved, benefiting the US dollar, US interest rates and global equities.
NZ Morning Thoughts - FX & IR
Sentiment improved, benefiting the US dollar, US interest rates
and global equities.
6:06AM, 30 Aug 2013
Syrian situation appeared to be on hold, the US and UK meeting some domestic
political resistance to a military strike. Battered emerging markets partly
recovered. And US economic data surprised, Q2 GDP revised from 1.7% to an
above-consensus 2.5%. The S&P500 is currently up 0.5% and oil prices are
down around 1.0%.
rates: The US 10yr treasury bond yield initially rose from 2.78% to 2.83%
(peaking just after the data), but then slid to 2.74%. A 7yr auction was an
average affair, the bid-cover ratio 2.4 (vs 2.7 average), consistent with the
week’s 2yr and 5yr auctions. Fed hawk member Lacker predictably said the
conditions for tapering have been met.
Australian 3yr government bonds yields initially rose from 2.76% to 2.81% but
later slumped to 2.76%, while the 10yr yield spiked from 3.91% to 3.97% and is
now back at 3.90%.
The US dollar index is around 0.6% higher. EUR fell from 1.3320 to 1.3220,
helped by some disappointing German data. USD/JPY rose from 97.60 to 98.52. AUD
fell from 0.8979 to 0.8916. NZD fell from 0.7840 to 0.7750. AUD/NZD rose
from 1.1450 to 1.1515.
Q2 GDP growth was revised up from 1.7% annualised to 2.5% annualised,
predominantly due to the 0.8 ppts drag on the GDP bottom line from net exports
being revised away, because of stronger export growth and weaker import growth
than previously reported.
initial jobless claims fell 6k to 331k in the week ended 24/8, continuing to
run close to the lowest level for claims in five years.
Canadian current account deficit was C$14.6bn in Q2, just over a billion
dollars wider than in Q1. Meanwhile, industrial product prices jumped 4.2% in
July, led by higher fuel costs.
unemployment rose 7k in August, its first rise in three months, although the
jobless rate was steady at 6.8%. The preliminary CPI fell from 1.9% yr to 1.5%
yr in Aug, the lowest inflation rate since May.
risk today: Building permits and money supply (both minor for markets), while
Australia has private sector credit. US data will again be the highlight,
including consumer confidence and the PCE inflation, and there’s Fedspeak from
Bullard. During the weekend there’s China’s official manufacturing PMI.
1 day: 0.7750 below is vulnerable.
NZD/USD 1-3 month: If the Fed starts tapering in Sep or Oct, the downtrend
since April should resume (confirmed by a break below 0.7684) and could run as
far as the low 0.70’s.
1 day: Short term momentum remains negative, 0.8915 at risk of giving way
AUD/USD 1-3 month: The downtrend since April should resume and target the low 0.80’s.
The Australian data flow is unsupportive, and the RBA is likely to ease further
to 2.0% by Q1 2014.
1 day: Stuck inside a 1.1440-1.1540 range.
AUD/NZD 1-3 month: The downtrend since March should resume and targets
1.1000- during the months ahead. Relative fundamentals (e.g. RBA easing
to 2.0% vs RBNZ stuck at 2.5%) favour the NZD medium term.
yields 1 day: In response to changes in US and Australian bond yields overnight
(see above) the 2yr should open unchanged at 3.41% and the 10yr should open
down 1bp at 4.92%.
NZ swap yields 1-3 month: The uptrend since June 2012 remains intact
despite this downward correction since mid-August. By Dec-2013 the 2yr could
reach 3.80% based on NZ’s improving fundamentals and eventual RBNZ tightening
in 2014. The US-influenced 10yr yield targets a sustained break above 5.00%.
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