ANZ Research
Monday 7th November 2011 |
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OUTLOOK
CURRENCY: Little data in our local session places the focus back on Greece, where pressure from the EU should see a decision on the bailout package tonight.
RATES: After very quiet overnight trading in the kiwi overnight, local rates are expected to open unchanged.
REVIEW
CURRENCY: US Payrolls and unemployment data was a mixed bag. Markets remained tentative as Greece’s future and the EU as we know it still hang in the balance.
GLOBAL MARKETS: After a relief rally on Thursday, markets had a less positive day on Friday. US and European equities both ended in the red, though Asia had a better day. US bond yields dipped a touch on safe-haven demand, but Italian bond yields jumped sharply to a scary 6.37%. Commodities had a mixed day, with energy up, metals down, and ags mixed.
KEY THEMES AND VIEWS
A WEEK IS A LONG TIME IN POLITICS. Greek PM George Papandreou has had quite a week in the job, likely his last. Early success with a 50 percent write-off of Greek sovereign debt; pandemonium in light of his unilateral decision to call a referendum on the imposed strict austerity measures; the EU threatening to cut him out of their will and their currency union; the withdrawal of the referendum; and narrowly surviving a confidence vote. Now all the attention is on whether Greece can cobble together a unity government, with talks occurring now. The opposition leader, Antonis Samaras, had been demanding snap elections instead, but has softened his stance, saying he is “determined to help” as long as Papandreou steps down first. An announcement is expected very soon, and indeed it better happen fast, as the next tranche of bailout money is needed urgently. A relief rally may result from a resolution, but one suspects it will be short-lived.
Meanwhile in Italy, Silvio Berlusconi is coming under increasing pressure. It was revealed on Friday that he turned down an IMF offer of aid but had agreed to IMF monitoring of Italy’s reform efforts. Turning down cash is not as odd as it may first appear. Accepting aid invites the market to assume the worst about the sustainability of their position, and if that aid is not actually going to be sufficient if push comes to shove, then it could well be a poisoned chalice. An inadequate bailout is worse than no bailout at all. The decision to accept IMF monitoring was likely made in bad grace under extreme pressure from other EU leaders. Italy’s failure to implement agreed structural reforms has been a key source of market scepticism. In the weekend tens of thousands rallied in Rome to demand Berlusconi’s resignation, and his deputies are deserting. His departure would likely be viewed favourably by the markets, as long as the replacement was seen as credible.
OTHER EVENTS AND QUOTES
• “The job of the IMF is to help countries in distress, not to support currency systems.” British PM David Cameron explains why the G20 baulked this weekend at a bigger role for the IMF in bailing out Europe.
• US payrolls a mixed bag. While the headline of +80K disappointed relative to expectations of a 95K rise, the survey detail was more positive, with significant upgrades totalling 102k to the August and September results. Given market fatigue, there was little interest in the release.
NZDUSD: Waiting in the wings
NZD was somewhat pushed around in Friday’s offshore session, but the flightless bird held its own to close the week’s trade within familiar ranges. With an answer expected from Greece today the NZD may be lofty in today’s local trade.
Expected range: 0.7890 – 0.7990
NZDAUD: Range trading
Range trading endured overnight as the markets treat the NZD and the AUD with the same level of respect. Ranges should remain subdued today with bottom side support set to hold at 0.7620.
Expected range: 0.7620 – 0.7700
NZDEUR: The world waits
All eyes are on Europe again today as the world waits to see what the outcome will be on the Greek bailout saga. NZDEUR should remain on the front foot as the world stays optimistic that a reasonable outcome will prevail.
Expected range: 0.5730 – 0.5800
NZDJPY: Boxed in
The NZDJPY formed a trading channel in the closing session of last week. With all eyes on Greece the market was tentative to push this cross one way or the other. We should see risk sentiment on the cards today with moves higher likely should we break the top side 62.30 resistance.
Expected range: 61.80 – 62.50
NZDGBP: Cut short
A further push to the down side was cut short as the NZD managed to claw back some losses endured against the GBP over the last week. Resistance at 0.4965 will be our first port of call today, any push through here we will likely see the cross gravitate back towards 0.50p.
Expected range: 0.4940 – 0.4995
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