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Wednesday May 1, 2013 - 21:14:25 GMT
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Forex - Westpac Morning Report

Morning Report Thursday 2 May 2013


Market wrap
Global market sentiment: Risk appetite was curbed last night amid some weak economic data from the US, and earlier, China. The S&P500 is currently down 1.0%, commodities particularly affected (Brent oil -2.5%, copper -4.0%, gold -1.1%, and iron ore -1.6%. US private sector payrolls disappointed, and earlier, China’s official PMI fell. The Fed’s monthly policy meeting just conclude left the door open to further QE, but also allowed for a withdrawal if the economy improves. The latter allowance slightly surprised the market and extended the equities decline.

Interest rates and currencies: US 10yr treasury bond yields are around 4bp lower, as is the USD index EUR initially spiked from 1.3170 to 1.3240 but reversed the gains in NY. AUD fell from around 1.0370 to 1.0265. NZD also fell, from 0.8580 to 0.8480. AUD/NZD was volatile, spiking from 1.2070 to 1.2140 and currently at 1.2090.

Economic wrap
US FOMC maintains accommodative policy stance, with only minor tweaks to the statement. The opening paragraph noted that “economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance... but fiscal policy is restraining economic growth.” This is slightly more cautious re the job market and more emphatic about fiscal policy than the March statement which noted “a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months... but fiscal policy has become somewhat more restrictive.” Also, regarding the asset purchase outlook, this was added in today’s statement: “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” This makes clear that policy may yet be eased further, to ensure no inference could be drawn that the next policy shift would only be towards a less accommodative stance. As in March, “the Committee continues to see downside risks to the economic outlook.”

US ISM factory index slips from 51.3 to 50.7 in April, pretty much in line with our 51.0 forecast, and the lowest reading for the year so far. This is the fourth year running that the ISM has given up early year gains in the second quarter, so there may be some statistical distortion at play. Most other business surveys have shown similar patterns since the recovery from the 2008/09 recession began. The April detail had production up from 52.2 to 53.5, orders up from 51.4 to 52.3. but jobs down from 54.2 to 50.2, so it is not clear that the industrial sector is close to stall speed despite the headline.

US construction spending fell 1.7% in March due to a 2.9% decline in non-residential spend; the residential component rose 0.7% on top of a 2.2% Feb rise, still failing to fully reverse the near 4.5% fall in residential spending between October and January.

US ADP private payrolls rose 119k in April, is the lowest since the run of softer outcomes in Q2 and Q3 last year (the pattern of early year strength fading mid year shows up in a lot of the US data. We expect a 120k rise (including government jobs) in the official BLS payrolls report for April, due Friday.

UK PMI factory index improved from 48.6 to a less contractionary 49.8 in April, the least weak outcome since April last year apart from the two 50+ readings in Dec and Jan. Other data included a 0.98% yr rise in house prices in April, according to the Nationwide, the (equal) fastest pace of gain since late 2011.

Event risk today: Looking ahead today, Australian terms of trade and building permits are minor movers. Most important will be tonight’s ECB meeting, a rate cut expected. NZD/USD should push below 0.8480 given the weak run of global data during the past few days.





Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 2 May 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 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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