Economic views and news - Monday, 5 March '12

ANZ Research

Monday 5th March 2012

OUTLOOK

CURRENCY: Local markets will be focussed this week on the RBNZ Monetary Policy Statement due Thursday. Today the NZD should find itself easing back towards support around 0.8280 as market pessimism rises.

RATES: 3mth Euribor set 1.9bp lower and 3mth GBP Libor down nearly a point, deepening the recent trend. This saw an aggressive rally in European money markets, dragging global rates with them. Although London kiwi trading was quiet, the rally is likely to be reflected in the local market open.

REVIEW

CURRENCY: Further falls through support levels for the NZD as sellers, particularly against the AUD, accentuated the move lower. Underlying demand slowed the descent.

GLOBAL MARKETS: A relatively quiet day in terms of both news-flow and data. European equities finished little changed on the day, while a broader risk-off theme saw bonds rally (10-year UST yields down 6bps, bunds down 7bps, gilts off 8bps). The stronger USD weighed on crude oil and gold prices. Pressure on oil prices was also eased by a comment by US President Barack Obama that a pre-emptive strike on Iran might generate “sympathy” for the country. The CRB index of broader commodities ended lower.

KEY THEMES AND VIEWS

EU LEADERS’ SUMMIT PRODUCES LITTLE NEW. Comments were made last week that it would be the first time in a very long time that the EU leaders’ regular summit wasn’t a crisis meeting. Perhaps that’s why little appears to have been achieved. Early headlines were negative for market sentiment, as it was revealed that around half of the €130bn bail-out for Greece would be delayed until the finance ministers received a “detailed assessment” by the EU/IMF of the implementation of 38 specific measures by next week. But on a more positive note, European leaders agreed to pay capital into the ESM faster that previously expected, potentially completing the capitalisation by 2015, a year ahead of schedule. In other developments, Spain revised up their 2012 deficit targets. This doesn’t sit well with the new tougher EU fiscal pact signed up to by 25 countries on Friday, which requires balanced budgets in the “medium term”. 2012 GDP growth is now forecast at -1.7% (+2.3% previously), while the budget deficit goal of 5.8 percent is significantly worse than that targeted by the former government (4.4%). Also, as previously signalled, Moody’s cut Greece’s sovereign debt rating to the lowest level, C, after Greece began the biggest sovereign debt restructuring ever (so far).

OTHER EVENTS AND QUOTES
•         "I'm not going to tell the other presidents or heads of state about the deficit figure that will be included in our budget. I don't have to. It's a sovereign decision." Spanish PM Mariano Rajoy.
•         Vladimir Putin looks set to reclaim the Russian presidency. Promises of spending amounting to some 5 percent of GDP by 2018 have turned around his poll performance. Allegations of fraud have been made, but at face value Putin looks likely to get about 60 percent of votes.
•         “We’re not out of the economic crisis yet but we are turning the page of the financial crisis.” French President Sarkozy shows EU politicians have learned to be less conclusive in their victory speeches.

NZDUSD: Waiting…
Expect tests of support for the NZD throughout this week as the RBNZ Monetary Policy Statement is due on Thursday. With no change to the cash rate likely the focus will be on the accompanying Statement and any indication that the cash rate might rise ahead of December. Support at 0.8250 should be out of reach today.
Expected range: 0.8250 – 0.8330

NZDAUD: Giving up…
Those looking for a larger lift on this cross appeared to reverse their positioning to close last week. Hopes of a narrowing of the interest rate differential between the trans-Tasman cousins faded as reality kicked in.
Expected range: 0.7700 – 0.7750

NZDEUR: Headache…
Further corrective potential remains for this cross despite the status of the EUR. The 200 hour moving average (0.6259) is within reach but may not be taken out today as markets await the ECB interest rate review this week.
Expected range: 0.6255 – 0.6300

NZDJPY: Still roughing it…
Topside resistance at 68.30 remains in place. Further tests are expected during the week as the JPY remains weak and subject to further weakness providing it can remain above 81.50USD.
Expected range: 67.40 – 68.10

NZDGBP: Eyeing up support…
Weakness on the NZD front was enough to assist the move lower despite the GBP failing on its topside attempts. The major support level of 0.5220 will undergo tests this week.
Expected range: 0.5220 – 0.5250

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