Economic views and news - Wednesday, 1 February '12

ANZ Research

Wednesday 1st February 2012

OUTLOOK

CURRENCY: Global PMI releases should be followed with interest today, particularly from China, as markets look to continue the weak USD theme. NZD topside attempts should again be quelled around the 0.83USD level.

RATES: More interest in the kiwi in the overnight London session. We expect local rates to open a touch lower in yield given overseas moves.

REVIEW

CURRENCY: Support tests were non existent for the NZD after it broke its topside shackles yesterday. Overnight the drive higher in risk was led by the NZD with only a marginal retracement taking place.

GLOBAL MARKETS: European markets started on a positive note, but eased later in the session as the US market opened weaker. The Euro Stoxx 50 closed 0.5% up from the previous close, with US equities down 0.3% at the time of writing. Government bond yields were generally lower, with small falls in the US and UK, and larger falls in Italy and Portugal (the 10-year yield is now 14.94%). French yields inched up, with Greek 10-year yields up 17bp to 28.75%. The stronger USD contributed to a 0.5% fall in the CRB commodity price index, with natural gas prices down 8.3%. Oil and gold prices were broadly unchanged.

KEY THEMES AND VIEWS

DOWN TO THE WIRE…AGAIN. As we commented yesterday, watching the European debt crisis gradually unfold and the market reaction to events reminds us of watching a mouse on an exercise wheel. Despite a lack of new decisions from the recent EU leaders’ summit, the market had been cheered that agreements around earlier, vaguer goals (including the deficit control treaty, commencement of the €500bn ESM from July 1 this year) were at least achieved. The situation in Greece remains tenuous, with the Greek PM pledging yet another last ditch effort to prevent the collapse of a second rescue package. Merkel has indicated a reluctance to boost the October offer of €130bn in loans, forcing an even greater write-down for Greek bond investors. Here we go again. Meanwhile the ECB’s “temporary” bond programme is not shaping up to be as such, with the ECB still believed to be in the market, even after previously handing banks €489bn in cheap liquidity. While the ECB’s actions have been effective in capping government bond yields, they must soon be reciprocated by more budget discipline.

OTHER EVENTS AND QUOTES
•     US consumer confidence slumps. The headline index (61.1) is still well above recent October lows (40.9), but the index is still a long way below historical averages (92.7). The drop was driven by a slump in the present situation index to (38.4), despite the easing unemployment rate. The expectations index eased slightly (to 76.2), but the role of the US consumer as the engine of world growth still looks on shaky ground.
•     Merkel on Greece: “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
•     The ECB’s Nowotny says he “can’t be sure” that Greece will be able to carry out the necessary fiscal and economic measures and stay in the single currency.

NZDUSD: Not looking back…
Expectations of a corrective move for the NZD yesterday were swamped by demand locally and offshore. The overnight attempt to break into 0.83USD territory was quickly reversed after weaker US January consumer confidence data. Today expect a more subdued NZD as it consolidates further.
Expected range: 0.8212 – 0.8282

NZDAUD: Still building…
The continued expectations of an interest rate cut in Australia is helping to provide a further lift to this cross. Moves into the 0.78AUD zone are unlikely today but still a real possibility as next week’s RBA decision approaches.
Expected range: 0.7752 – 0.7792

NZDEUR: Relative attractiveness…
In an environment where the Greek debt talks drag on the relative attractiveness of the EUR, the NZD stands out. The lift into the 0.63EUR zone was not an easy one and may be reversed today.
Expected range: 0.6280 – 0.6320

NZDJPY: Doing the real work…
Yield demand has assisted in lifting this cross as the NZD does all the work. JPY strength continues to test the patience of Japanese officials and some intervention cannot be ruled out. This would see the cross lift towards more major resistance around 64JPY but is not likely today.
Expected range: 62.70 – 63.40

NZDGBP: Last throes perhaps?
This cross has also managed to eek out moves higher but they have been restricted by GBP strength. A similar theme is expected today with limited ability to move above 0.5250 likely.
Expected range: 0.5215 – 0.5255

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