Sunday January 17, 2010 - 20:43:56 GMT
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Westpac Institutional Bank - www.westpac.co.nz
Forex Research - Morning Report
Morning Report Monday 18 January 2010
News and views
The US dollar held up well amid a generally risk averse Friday sessions, despite US economic data generally improved and close to expectations. Leading weekly indicator, the ECRI index, consolidated at recent highs and gives no hint of a double dip. US equities fell during Friday's NY session after the first two bellwethers of the earnings reporting season, Alcoa and JP Morgan, disappointed investors. The S&P500 fell sharply at the open and remained depressed to close down 1.1%, threatening to break below the March 2009 trendline. Earlier, European equities had also closed in the red. Commodities were mostly weaker, attributed to the stronger dollar and weaker equities, oil -1.8%, copper -0.6%, and gold -1.0%. US 10yr notes shed 6bp and the curve shape change little.
The US dollar index added to its Sydney session gains for a +0.7% move on the day, its safe haven identity returning for a session at least. EUR fell around a cent and consolidated around its lows between 1.4350 and 1.4400, its Asian session sell-off driven by spurious rumours of Merkel's resignation. Sovereign risk anxiety continued, Greece's CDS at 344bp, while Ukraine's CDS blew out to 1400bp. USD/JPY consolidated near recent lows between 90.60 and 91.20.
AUD closed Sydney around 0.9280 looking heavy and continued further to just below 0.9220 during NY.
NZD consolidated around its domestic closing lows between 0.7360 and 0.7400. AUD/NZD fell from 1.2565 to 1.2490.
US NY Fed index rises from 5 to 16 in Jan. Although this reversed less than half of the 29 pt slump in the Empire headline through Q4 last year, and left the headline below its November reading, the orders, shipments and job indices all posted sufficient gains to lift them back above where they were in November. In other words, the key detail in the survey was more up-beat than the headline.
US UoM Consumer sentiment posted a modest gain to 72.8 in the preliminary Jan report, just shy of Westpac's 73.0 forecast. The current measure rose but expectations were wound back somewhat, perhaps in part due to rising inflation expectations.
US industrial production posted a 0.6% gain in December, its sixth consecutive gain, largely due to a near 6% surge in utility output as the weather turned unseasonally cold. Excluding that and a 0.2% rise in mining output, factory output actually fell slightly - consistent with the decline in manufacturing hours worked reported in the December payrolls release.
US CPI posted subdued 0.1% gains for both the headline and core rates in Dec. Food and energy both posted 0.2% gains but these were partially offset by flat housing costs, a fall in recreation and subdued medical care prices. Base effects continued to drive the headline annual rate higher but the core annual rate rose just a tick to 1.8% yr.
Euroland Dec CPI was confirmed at 0.9% yr and the core rate edged up 0.1 ppt to 1.1% yr (still the second lowest reading since early 2001). Nothing here to justify any concern about the inflation outlook. The Euroland trade surplus narrowed in Nov to EUR3.9bn due to weaker exports and a rise in imports. The October surplus was revised lower too. These outcomes are consistent with widespread European business, political and policy-maker concern about the strength of the euro.
Canadian auto sales fell 6.0% in Nov, just shy of previous guidance from StatCan for a 7% fall. Their guidance for December was for sales to be up 2%.
AUD/USD and NZD/USD outlook today: US equities are vulnerable to a breakdown, although the implications for AUD and NZD are less assured. For today, the negative tone for risk should weigh. AUD looks ready to correct its post 23 December rally, targeting 0.9100-0.9200. NZD should correct to 0.7200-0.7300 before advancing.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 14 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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