Wednesday November 7, 2007 - 20:05:15 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Westpac Institutional Bank - Morning Report
Morning Report Thursday 8 November 2007
New Zealand dollar
NZD rallies to three month high then fails. The NZD rallied strongly for much of Wednesday as questions continue to arise about the depth of the credit crisis and the resulting weaker USD. The currency rallied early in the day as stop loss orders were triggered around 0.7790, with the NZD subsequently benefited from a strengthening AUD, rallying to 0.7885 into the local close. The soft USD helped support the NZD offshore but a late bout of risk aversion and rumours of the RBNZ checking rates saw the currency fall sharply to close at 0.7800.
Hawkish RBA gives AUD wings. The AUD reached another record high yesterday rallying to 0.9401 before reversing late in the day. Earlier on the RBA hiked their cash rate by 25bps as expected and the accompanying statement uncovered a hawkish central bank concerned about inflation remaining at the top end of the tolerance band. The currency rallied from 0.9270 to 0.9401 also buoyed by higher commodity prices and a weaker USD. AUD/USD suffered the same fate as the NZD late in the day and fell back to 0.9320 just prior to the close as lower equities and risk aversion returned.
Records continue to tumble amidst rumours and fear. The USD continued to plummet against all of its major counterparts overnight as an array of bad news stories drove it to new record lows. As has been the case in recent sessions, further rumours of credit related write-downs hit the market and another large company, General Motors, reported its biggest quarterly loss in more than two years. If this wasnâ€™t enough, the USD got a final kick in the teeth as a Chinese official was reported as saying the central bank of China would be reducing its holdings of US assets. The biggest winners overnight were undoubtedly the Sterling and yen which surged to highs of 2.1072 and 112.77 respectively, while the euro managed a new all time high of 1.4713. Attention now turns to Fed Chairman Bernankeâ€™s testimony tonight for an insight into the real state of the US economy.
Economic data and events
US productivity growth 4.9% annualised in Q3. Productivity growth picked up more than we expected in Q3, because hours worked declined 0.5% in contrast to the 1.2% annualised increase in hours reported in the payroll report. Consequently the various unit cost measures were all very soft. Even though this report does not actually measure productivity directly (rather it derives it from other published statistics), the message is comforting in that it suggests the economy can continue to grow robustly without hitting productive capacity constraints that might generate inflationary pressures.
US wholesale inventories were revised up from 0.1% to 0.7% in August and posted an even stronger 0.8% gain in September. This is a very strong stock-building picture that, all else being equal, should see Q3 GDP growth revised up from 3.9% in the advance report to comfortably above 4.0% when the preliminary GDP figures are published at the end of this month.
Fedspeak: Jeff Lacker (Richmond Fed president) said that while he supported last weekâ€™s rate cut there were â€śgood arguments on each side of the debateâ€ť. Maybe Chairman Bernanke will provide more insights in his testimony to the Joint Economic Committee tonight.
German industrial output rose 0.3% in Sep, a third consecutive gain in the face of expectations of an output contraction. This could see Q3 GDP growth forecasts tweaked a little higher (data due next week).
UK consumer confidence eased slightly in October on the Nationwide measure but is still higher than before the credit crunch and consequent run on Northern Rock bank in September. Also, UK shop prices jumped to their fastest pace this year so far in October, led higher mainly by food prices. This news, on top of evidence of sharply higher inflation on the continent last month, suggests there is considerable upside risk surrounding the UK October CPI. We are now forecasting a jump from 1.8% yr to 2.3% yr (data due 13/11).
Country Release Last Forecast
NZ Q3 HLFS Employ/Unemploy 0.7%/3.6% 0.7%/3.4%
Aus Oct Employ/Unemployment 13.0k/4.2% 25k/4.2%
US Initial Jobless Claims w/e 3/11 327k 325k
Oct Chain Store Sales %yr 1.7% 2.1%
Jpn Sep Machinery Orders â€“7.7% 4.0%
Oct Bank Lending %yr 0.6% 0.7%
Eur ECB Repo Rate Decision 4.0% 4.0%
UK BoE Repo Rate Decision 5.75% 5.75%
Sep Leading Index â€“0.2% n/f
Can Oct Housing Starts 281k 210k
Sep New Housing Prices 0.4% n/f
Latest Research Papers/Publications
â€˘ NZ Q3 LCI and QES Review (5 November)
â€˘ NZ Weekly Forex Outlook (5 November)
â€˘ NZ Q3 labour market preview (31 October)
â€˘ NZ Weekly Forex Outlook (29 October)
â€˘ RBNZ OCR Review (25 October)
These papers/publications are available on Online Research on
Westpac Institutional Bankâ€™s website (www.wib.westpac.co.nz)
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 8 November 2007. 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 regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. Â© 2004 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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