Thursday March 6, 2014 - 20:16:21 GMT
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Australia & NZ Morning Thoughts
Australia & NZ Morning Thoughts
The ECB disappointed the market,
boosting the EUR. It kept its policy rate on hold at 0.25% and did not
announce any new liquidity measures, rather its growth and inflation
forecasts were raised. EUR rose 1% in response, the US dollar weakened, and
this combined with a mild risk-seeking atmosphere helped AUD and NZD further
overnight. The S&P500 is currently up 0.2%.
6:13AM, 07 Mar 2014
sentiment: The ECB disappointed the market, boosting
the EUR. It kept its policy rate on hold at 0.25% and did not announce any new
liquidity measures, rather its growth and inflation forecasts were raised. EUR
rose 1% in response, the US dollar weakened, and this combined with a mild
risk-seeking atmosphere helped AUD and NZD further overnight. The S&P500 is
currently up 0.2%.
US 10yr treasury bond (futures implied) yields followed the ECB-inspired rise
in European interest rates, rising from 2.70% to 2.75%. US data was mixed,
jobless claims showing improvement but factory orders slightly disappointing.
Australian 3yr government bond yields (implied by futures)
slightly extended the earlier post-retail sales reaction, from 2.98% to 2.99%.
The 10yr yield appeared to be more influenced by the ECB, rising from 4.04% to
The US dollar index fell sharply following the ECB and made a four month low.
EUR rose from 1.3730 to 1.3873 following the ECB announcement and made a
two-month high. Safe-haven yen underperformed the majors, USD/JPY rising from
102.60 to 103.17. Outperformer AUD extended its earlier response to strong
Australian data, rising from 0.9020 to 0.9113 – a three-month high. NZD
similarly rose from 0.8420 to 0.8503 – a five-month high. AUD/NZD eked a
1.0680-1.0730 sideways range.
ECB on-hold at
0.25% at today's meeting. The ECB also failed to implement additional
liquidity measures as it lifted its growth forecast and predicted a rise in
headline inflation to 1.7% at the end of its forecast horizon. Draghi's
comments also sounded relatively relaxed with regard to the outlook and the
situation on the credit front. The introductory statement stressed that the
"information and analysis now available" fully confirm the ECB's
decision to maintain an accommodative monetary policy stance "for as long
as necessary". The forward guidance was confirmed and the easing bias
remains in place, given the "overall subdued outlook for inflation
extending into the medium term".
Bank of England on
hold at 0.5% and the asset purchase program held at
£375bn. No statement issued as usual.
data: German factory orders rose 1.2% in Jan, to be up 8.4% yr. UK
house prices accelerated to 7.9% yr in Feb, according to the Halifax.
US initial jobless
claims fall 26k to 323k in the w/e 1/3, the lowest yet this year,
but the BLS pointed out that the low claims corresponded to the states with
most snow disruption, implying claims were simply not being recorded on time.
If so, expect a catch-up claims bounce later in March. Also on the labour
market, corporate layoff announcements fell 24.4% yr in Feb; a downward
revision to productivity saw unit labour costs revised from-0,5% to -0,1% in
Q4. Separately, factory goods orders fell 0.7% in Jan, due to the previously
reported 1.0% fall in durables and a lesser 0.4% fall in non-durables.
permits rose 8.5% in Jan, led by a 26% rise in
residential approvals, offsetting a 14.6% fall in the non-residential
component. Meanwhile the Ivey PMI rose from 56.8 to 57.2 in Feb, further
recovering from the harsh winter impact in late 2013. which saw it fall from 63
to 46 between Oct and Dec.
Event risk today:
The highlight of the next 24 hours will surely be the US employment report for
February. Although consensus is for +150,000 jobs, markets may expect something
lower given the adverse weather that month. Ahead of that release we have
Australian construction activity and RBA Governor Stevens testifies to the
House Economics Committee.
AUD/USD 1 day:
Momentum strong, further upside to the 0.9170-0.9270 area expected.
AUD/USD 1-3 month:
The RBA’s neutral policy bias and net short speculative positioning support
AUD. However, there remains a question mark around Australia’s economy, with
tension between strong business sentiment and weak consumer sentiment not
expected to be resolved until the second half of this year.
NZD/USD 1 day:
Finally broke the key 0.8430 level, the next major target is 0.8550.
NZD/USD 1-3 month:
En-route to 0.8550 at least, the potential is for even higher this year,
particularly during the initial phase of RBNZ tightening.
AUD/NZD 1 day:
This mini-bounce should find 1.0730 tough to break.
AUD/NZD 1-3 month:.
By mid-year we expect another stab at 1.05 below. The multi-year decline has
already undershot fair value by around 7% we estimate. That said,
over/undershoots have historically been worth 10%, suggesting there is
potential for lower still, especially once the RBNZ cycle is underway. Our base
case is the 1.02-1.05 area should mark the cycle bottom later this year, but
we wouldn’t entirely rule out 1.00.
AU swap yields 1
day: In response to movement in Australian bond futures overnight
the 2yr should open around 2.95% while the 10yr should open around 4.46%.
yields 1-3 month: Strong inflation readings plus
the shift in stance by the RBA are partly offset by China growth worries,
expected to leave the 2yr in a 2.80%-3.05% range during the weeks ahead.
NZ swap yields 1
day: In response to overnight changes in US and Australian bond
yields the 2yr should open unchanged at 3.90%, while the 10yr should open up
2bp at 5.07%.
NZ swap yields 1-3 month:
The upward trend in NZ interest rates remains intact, mainly due to NZ’s
improving fundamentals and looming RBNZ tightening. The 2yr targets beyond
3.95% during the next few months, while the 10yr targets 5.40%. The curve
should flatten throughout 2014.
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