Economic views and news - Monday, 5 December

ANZ Research

Monday 5th December 2011

OUTLOOK

CURRENCY: The fortunes of the NZD this week may be initially dented by Chinese data released in the weekend. The upcoming interest rate reviews and raft of economic data offshore should deliver moves lower.

RATES: Swaps traded at unchanged levels from the Friday close.

REVIEW

CURRENCY: Moves above 0.78USD were assisted by the positive US November employment data. The reversal was delivered by way of further poor news on the European front with lower possible IMF assistance.

GLOBAL MARKETS: Equities were generally up on the back of a decent US payrolls number, with the S&P 500 up almost 7½ percent in a week. European shares lost momentum throughout the day after a good start, but still managed to end up slightly.

US 10-year bond yields rose as much as 7 points to their highest level in more than a month.

KEY THEMES AND VIEWS

US DATA HANGING IN THERE. US payrolls data released on Friday gave some cause for cheer. A net 120,000 jobs were added in November, the highest for a while, albeit slightly shy of expectations, with private payrolls rising 140,000. The two preceding months were revised up by 72,000. And in a separate survey, the unemployment rate unexpectedly fell to 8.6 percent, its lowest level since March 2009. The labour market is still doing it pretty tough, however. A decent chunk of the 0.4 percent fall in the unemployment rate was explained by discouraged workers leaving the workforce, with the participation rate falling by 0.2 percent. Earnings remain weak, and average weekly hours worked have not grown all year. Leading momentum indicators such as the ISM data suggest further improvement in payrolls in months ahead. However, with such a threatening global environment and fiscal austerity on the menu the nascent recovery faces an uphill battle.

IMF BACK DOOR PLAN FACES CHALLENGES. The cunning plan to circumvent Angela Merkel’s money-printing veto by channelling funds via the IMF is facing challenges. The plan is that European central banks (and hopefully some other countries) would raise funds, either by borrowing or turning on the printing press and lend it to the IMF, who would then stand ready to lend it back to Europe, hopefully persuading markets that they can therefore feel confident lending directly to the nations in question themselves. Some US conservatives are planning legislation to block the plan, arguing that “We’re throwing good money after bad. Europe is going to default eventually, so why would you socialize their profligate spending?” Estimates of how much firepower the plan may deliver vary, but numbers of up to 200 billion euros are being bandied about. This would stll fall well short of the amount required to bail out Italy and Spain, but deteriorating markets are limiting prospects.

OTHER EVENTS AND QUOTES
• China non-manufacturing PMI fell from 57.7 to 49.7 in November, with new orders falling the most. More monetary easing in short order seems likely. However, some question the quality of the seasonal adjustment of the series and hence are discounting the fall. Fears for their own economy may partly underlie comments by Vice Foreign Minister Fu Ying in the weekend that China can’t use its vast foreign reserves to “rescue” Europe, and that China “has done its part” for the region.

NZDUSD: New week…same issues…
Moves of the NZD this week will be focused around expectations of the RBNZ Monetary Policy Statement and Official Cash Rate review on Thursday. Given the raft of economic data globally and other interest rate moves, expect support levels to be in question early.
Expected range: 0.7705 – 0.7805

NZDAUD: One more sleep…
The expected RBA cut tomorrow may well support this cross and deliver another move closer to 0.7650. Difficulties in moving above this level remain, as the prospect of the RBNZ decision later in the week looms.
Expected range: 0.7585 – 0.7635

NZDEUR: Everyone Understands Recession…
Weaker economic times are coming for Europe as policymakers flounder about looking for the ultimate solution. Expect this cross to remain elevated with the potential to spike higher as things worsen in Europe.
Expected range: 0.5775 – 0.5835

NZDJPY: Tougher going…
Despite a very brief spike into the 61JPY level on Friday night this cross should continue to find resistance in the high 60JPY area.
Expected range: 59.80 – 60.80

NZDGBP: Connected by geography…
Try as they might the UK economy is inseparable from Europe. The troubles of Europe will flow over into the UK and ensure this cross remains elevated.
Expected range: 0.4950 – 0.4995

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