Economic views and news - Friday, 10 February '12

ANZ Research

Friday 10th February 2012

OUTLOOK

CURRENCY: The NZD looks destined to be confined by recent ranges during today’s local session. European developments continue to take precedence with the ability to knock on the topside resistance a possible side effect.

RATES: Expect yields to be biased higher again. Although NZ rates trading in London was quiet, global yields rose. The RBA Statement on Monetary Policy (1.30pm NZT) will be important for the AU market, and thus ours.

REVIEW

CURRENCY: Attempts to break down through support after yesterday’s anaemic NZ employment growth result were thwarted by determined demand. Overnight a steady grind higher lifted the NZD.

GLOBAL MARKETS: Positive news out of Greece saw “risk on” mood develop, sending US bond yields higher, with 10 year Treasury yields now convincingly above 2%. Not surprisingly, peripheral European government bond yields are lower, and equity bourses were generally higher. Commodities are generally higher, led by energy and precious metals.

KEY THEMES AND VIEWS

PROGRESS IN GREECE? We should say from the outset that overnight headlines coming out of Greece are nothing if not confusing, and often contradictory. For their part, Greek political leaders have come to agreement on a series of measures to be taken, with the Greek PM announcing overnight that “discussions between the Greek government and the troika were successfully completed this morning”. From what we understand, the agreement will be discussed at the Euro area finance ministers meeting set to start shortly in Brussels, and at which the bailout will be discussed, and details of the private sector investor’s deal will be agreed. All of this then needs to be voted on by the parliament, which the media reports may happen over the weekend.

But beware, the saga may not be over yet – our London economist reports that there is still a lot of uncertainty surrounding the bailout, with the Dutch finance minister and a German government official stating that there would not be a final deal made at the EU finance minister’s meeting. Whatever the ins and outs, the upshot for us here in NZ is that we’re set for another day/weekend of headline watching, in an environment where the mood is very “risk on”, to coin a phrase.

We would also caution against getting too optimistic – as we mentioned in yesterday’s note, Greece’s troubles are far from over, and the outlook is still pretty ugly elsewhere in Europe too. We discuss below the BOE felt the need to expand their QE programme, and US Fed chair Bernanke is still pretty circumspect with regard to the US’s prospects. We have been through plenty of bouts of optimism before, so let’s not jump to the conclusion that all is well again all of a sudden.

ECB AND BOE MEETINGS. Although it has been somewhat overshadowed by Greek events, it’s worth noting that the Bank of England extended it’s QE programme, expanding the Asset Purchase Facility by £50bn to £325bn. This was, of course, widely expected by the market, and as such did not create a great stir. However, the ECB seem a little more upbeat, with Draghi removing the word “substantial” from his earlier characterisation of “downside risks”, and adding that non-standard policy measures like the LTRO announced in December had yet to be fully implemented.

NZDUSD: Flirting…
The NZD continues to move tantalisingly close to key levels but unable to produce the momentum to break either. Topside strategic sellers are looking a little more medium term and expecting some disappointment when the dust begins to settle around the Greek debt solution.
Expected range: 0.8310 – 0.8380

NZDAUD: Mysterious…
With the RBA’s Statement of Monetary Policy due early afternoon markets will be looking for indications on how their March decision will pan out. At this point the cross does not have the momentum to break recent ranges.
Expected range: 0.7715 – 0.7775

NZDEUR: Surprise…
Talk of a debt deal amongst the politicians in Greece may be the first step of a 1,000 mile journey. In the way will be plenty of opposition that will make implementation all the more difficult. Some EUR strength should be expected to weaken this cross with support possibly again under threat.
Expected range: 0.6275 – 0.6315

NZDJPY: Expectations…
A weakening JPY is helping to move this cross higher towards 65JPY. It should not sustain a move above this level today although it may come close.
Expected range: 64.30 – 64.95

NZDGBP: Presented…
The BoE delivered the increase in the Asset Purchase Target programme of GBP50bio that markets expected. It had little impact on this cross although assisted in avoiding a break of support at 0.5255.
Expected range: 0.5255 – 0.5295

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