Economic views and news - Monday, 12 March '12

ANZ Research

Monday 12th March 2012

OUTLOOK

CURRENCY: With little by way of local data to trade off this week the NZD will again look to offshore direction and demand. Expect initial weakness to deliver support tests under 0.82USD.

RATES: The NZ rates market was very quiet in Friday’s London session. Likewise for the Australian market. Rates look set to open unchanged today.

REVIEW

CURRENCY: Further attempts to make new ground on the topside failed as the EUR was unable to combat USD strength that came off the back of more robust US February employment data.

GLOBAL MARKETS: Global stocks eked out a small gain, largely underpinned by US payrolls figures. The lift in the USD looked firmer with USD/JPY pushing through to 82.40 and EUR/USD hitting sub 1.31. And if the USD is up, everyone else, including the NZD is down. Fixed income markets initially took there lead from better payrolls figures but retraced on ISDA / Greece news. Periphery spreads were essentially unchanged despite the PSI triggering collection actins clauses (CACs) which most savvy participants would have deduced could only mean and ISDA credit trigger. Portuguese and Spanish bonds narrowed to Bunds but Italian bonds widened.

KEY THEMES AND VIEWS

BUY THE RUMOUR AND SELL THE FACT is an overused phrase but still aptly sums up Friday. The Greek government announced that 85.8% of private bondholders had agreed to its bond swap. As a result, the government was then able to utilise CACs to raise participation to 95.7%, over the threshold required to receive the bailout. Given that CACs were invoked, this resulted in a credit event according to ISDA. Those of a glass half empty variety will take this as upping the ante on who is next with Portugal still murmured and the potential for a chain reaction (on both this and dependent on who holds/insures the current CDSs on Greece – recall the experience of AIG in the US). The glass half full will note that the default has been orderly and at least CDSs still offer some protection for buyers of sovereign risk. Spanish, Portugese and Italian spreads to Bund hardly moved though the ISDA decision was around market close. With most Greek debt now in EU, ECB and troika hands, there seems little downside surprise potential though with Greece’s inevitable trajectory well flagged over a year ago, we’d take this with a grain of salt.

DATA WRAP. US non-farm payrolls printed a little better than expected, supporting risk appetite, though at the margin price action on the night suggesting the market was banking on an outcome above consensus. Of more note was the general tone of Chinese data, with trade figures showing the largest February deficit in 22 years. Stripping out the lunar year effect, data for the January and February combined showed 6.8% lift in exports and a 8.2% rise in imports, for a trade deficit of $4.2bn. Hope is that March will see a rebound, but stepping back pretty well all indicators across January and February have moderated – most from a gallop to a canter of course, and recall the growth “target” is now sub 8%. Nonetheless, the flipside to this is more hope/conviction for a further loosening in monetary policy. The obvious risk here is that high oil prices become problematic for the inflation outlook.

OTHER EVENTS AND QUOTES
• EU calls Greece’s debt swap “a resounding success.

NZDUSD: Looking lower…
USD strength to start off this week should combine nicely with uncertainty around the European arena to deliver support tests. A dip under 0.82USD is likely to come early in the week as markets look to test the resolve of buyers.
Expected range: 0.8150 – 0.8250

NZDAUD: In the wings…
Testing topside levels resistance is possible for this cross given the recent run of weaker Australian data. Australian holidays in several cities today may well start the week of quietly and contain things within the 0.77AUD handle.
Expected range: 0.7720 – 0.7790

NZDEUR: Majority rules…
Markets are likely to have difficulty moving past the Greek debt restructure in the early part of this week. It should ensure that concerns remain around the EUR and keep this cross supported for now. Moves back into the 0.63EUR zone are not out of the question just too difficult today.
Expected range: 0.6230 – 0.6290

NZDJPY: Trounced…
Stronger US February employment growth was enough to deal another blow to the already crippled JPY. It drove this cross back towards 68JPY and may help deliver further topside moves for this cross today.
Expected range: 67.25 – 68.30

NZDGBP: Rising again…
Weaker UK economic data proved the spark to assist this cross back firmly into the 0.52GBP zone. It should continue there today as markets await the UK employment data later this week.
Expected range: 0.5220 – 0.5260

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