ANZ Research
Wednesday 16th November 2011 |
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OUTLOOK
CURRENCY: Do not expect any respite in the near term for the Australasian currencies as concerns around Europe increase. Expect any topside attempts to find many strategically positioning themselves for lower levels.
RATES: Expect local interest rates to pare back yesterday’s gains. The market was well and truly squeezed yesterday as punters scrambled to get duration on board. The composition and volume of the tomorrow’s NZGS bond tender (announced today) will be the key to short term price action.
REVIEW
CURRENCY: Even a better Global Dairy Trade auction result in early morning trading was not enough to counter the weight of developments offshore as investors become increasingly nervous on European prospects.
GLOBAL MARKETS: Our London colleagues report that it was another classic “risk-off” day from the get-go, with rising peripheral bond yields and widening spreads to German bunds the main focus.
KEY THEMES AND VIEWS
EUROPE STILL IN FOCUS. So much for the shift in focus (towards the US) we spoke of yesterday. Despite a slew of better than expected US data, the focus remains on Europe, with Italian bond yields back above 7%, and the France-German bond spread widening a further 26bps. Data showed that Eurozone GDP grew at 0.2% in Q2, and although Germany and France grew (by 0.5% and 0.4% respectively), the Dutch and Portuguese economies shrank, while Spain, and Belgium stalled. Not a great result if you’re in debt.
As noted, the US data was solid, continuing the run of reasonable data of late. The US economy may be weak, but it is certainly not capitulating as a result of depressed sentiment. Retail sales rose by 0.5% in October, with sales ex-autos up an even stronger 0.6%, and sales ex-autos and gas up 0.7%. Inflationary pressures are also easing, with producer prices falling by 0.3% in October. Better still, the US Empire manufacturing survey suggests renewed momentum in manufacturing activity in the NY region. This is all good news, and has helped US equities rally, despite the rout in Europe.
DAIRY PRICES RISE. Last night's GlobalDairyTrade auction produced a solid, albeit small, rise in the all products (trade weighted) index from the previous event of 2.6%. Importantly the WMP (Whole Milk Powder) rose 2.4% across all contracts with the largest increase being seen in the Feb12-Apr12 contracts rising to USD3,557/mt (+3.4%).
OTHER EVENTS AND QUOTES
• Chicago Fed President Evans calls for calling for “increasing amounts of policy accommodation” to reduce a 9 percent unemployment rate that’s far above the Fed’s objectives, adding that “we ought to be behaving as if there’s a very big problem out there”.
• However, St Louis Fed President Bullard countered “outright asset purchases are a potent tool and must be employed carefully”, adding that “Increases in the size of the balance sheet entail additional inflationary risks if accommodation is not removed at an appropriate pace”.
• Ever the pessimist, BOE Governor King says inflation could fall more sharply than currently expected due to spare capacity and “substantial risks” to the outlook for the global economy.
NZDUSD: Deeper and deeper…
Expect further probing of lower levels for the NZD as European concerns increase. With little on the local front to alleviate the situation support levels could again come into question. The overnight Global Dairy Trade auction results clearly demonstrate that the world still requires food and in times of trouble one can argue the case for more demand in this area.
Expected range: 0.7666 – 0.7727
NZDAUD: Driving along…
Yesterday’s RBA Board meeting minutes demonstrated the awareness of the global picture and the potential impact on the Australian economy. It does also highlight the vulnerabilities of the New Zealand economy to the current crisis and hence the NZD slipped further against the AUD. More to come.
Expected range: 0.7545 – 0.7605
NZDEUR: Growing concerns…
Relatively good European economic releases helped to ensure weakness of the NZD over shadowed that of the EUR. Support at 0.5665 was flirted with but has held. Expect further tests of this level not to be so flattering.
Expected range: 0.5665 – 0.5705
NZDJPY: Yield ignored…
The benefits of a higher yield are currently being ignored by Japanese investors as they look around for more lucrative trades. Further moves lower should ultimately lead to a test of 58.36 perhaps later this week.
Expected range: 58.80 – 59.70
NZDGBP: Backing up the bus…
Slightly lower annualised UK inflation has helped provide some relative support to the GBP as the NZD eases lower. Further moves towards the low 0.48GBP region are likely.
Expected range: 0.4820 – 0.4870
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