Economic views and news - Thursday, 2 February '12

ANZ Research

Thursday 2nd February 2012

OUTLOOK

CURRENCY: Positive equity markets will continue to support Australasian currency moves today as will the stronger global PMI releases that have been delivered. Topside resistance around 0.8380 may well be reached.

RATES: Further offering interest was evident in the kiwi overnight. Local rates are expected to open a touch lower in yield this morning.

REVIEW

CURRENCY: A quiet local session was set on fire after the Chinese January PMI release yesterday. The NZD continued to burn strongly overnight taking out topside resistance levels with relative ease.

GLOBAL MARKETS: Improving risk sentiment helped boost equities, with the banks and carmakers leading the rally. The Euro Stoxx 50 rose 2.2%, with the FTSE100 up 1.9% and the S&P500 up 1.2% from the previous close at the time of writing. US, UK, German government bond yields rose, while yields eased in France, Italy and Portugal. Greek yields edged up. Commodity prices on the CRB measure were unchanged, with small increases for gold and oil but further falls for natural gas.

KEY THEMES AND VIEWS

LIQUIDITY AND HOPE VERSUS SUBSTANCE? Better than expected data, supportive comments by the rating agencies on Portugal and rumours of an agreement on the Greek PSI have underpinned the most recent bout of Europhoria.

Media reports suggest the new Greek package will compromise a 72% haircut, 3.6% coupon and a GDP warrant (which will pay creditors when GDP exceeds target) for private holders of Greek government debt.

Comments by the German Deputy Finance Minister Kampeter regarding the Greek situation (“they have to do it the hard way”, “you only get solidarity when you offer solidity and solidity means reforms in Greece and fiscal consolidation”), illustrates the growing resistance amongst German politicians to boost the October offer of €130bn. A long road lies ahead.

How much substance is behind the recent rally? Not much, according to estimates collated by Bloomberg, which showed that around 60% of European companies have reported earnings short of forecasts.

OTHER EVENTS AND QUOTES
•         US manufacturing ISM gains. Although the headline ISM remains lower than for most of 2010, in the last three months it has reversed just under half of last year’s fall. January gains in new orders, supplier deliveries and inventories offset falls in production and employment.
•         Fitch comments on Portugal. “The government there is committed and credible. The economy is highly indebted, but they are working on organising a debt for equity swap,” “That is the right strategy and in the near term we don’t see them as a significant risk to the rest of the euro zone”. The kiss of death perhaps?
•         ECB says financial institutions tightened credit standards in Q4 and expect to make it more difficult to obtain loans in the first quarter of the year.
•         Dairy prices ease at GlobalDairyTrade auction. USD prices fell 0.9% to $3,666 per tonne, with only 28,011 million tonnes sold. Prices fell for every category, with whole milk powder prices down 0.9%.

NZDUSD: Steaming away…
Those looking for any correction in the recent NZD moves have been run over as the weak USD theme dominates currency markets. Stronger equities and global PMI releases should ensure the NZD has further topside moves today.
Expected range: 0.8310 – 0.8380

NZDAUD: Consolidation…
Anticipation of next week’s RBA interest rate decision will continue to see many looking for further topside moves on this cross. Reality should kick in once the move takes place but today further attempts to break through resistance at 0.7792 may be on the cards.
Expected range: 0.7752 – 0.7792

NZDEUR: How high?
A weak USD theme is providing support to the EURUSD currently. When the EUR loses some of the support by default then this cross could accelerate further on the topside. It appears headed for 0.6666 (1.50EURNZD) in the medium term but will take some time to achieve this level.
Expected range: 0.6300 – 0.6340

NZDJPY: Demanding work…
The NZD has again been left to do the work on this cross with yield demand continuing to ensure that support levels had little chance of breaking. Today difficulty getting through resistance at 63.80 should cap the topside.
Expected range: 63.00 – 63.80

NZDGBP: Still struggling…
A strong UK January PMI overnight assisted in ensuring the NZD did not run away from the GBP. Expect further difficulty on the topside for this cross while some positive UK sentiment remains.
Expected range: 0.5235 – 0.5275

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