ANZ Research
Monday 26th September 2011 |
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OUTLOOK
CURRENCY: Offshore weekend headlines are likely to add further uncertainty to the picture as early morning dissention amongst Europe participants may mean even a large rescue fund, if delivered, is ineffective.
RATES: NZ rates followed global moves in the London session, with the 2-yer swap trading first lower then higher. In net, NZ swap yields are likely to open unchanged.
REVIEW
CURRENCY: The NZD nudged uncomfortably close to longer-term support levels despite a valiant attempt in the local session to recover. It bounced from the lows but remained extremely headline-driven.
GLOBAL MARKETS: After a ghastly four days for markets, Friday was mixed. Equities recovered early losses to end slightly in the black in many markets (not Asia) on the back of some promising headlines, but whether these gains are sustained is questionable, given ongoing disagreement over the weekend from policymakers.
Commodities were down again, including oil. The CRB index has fallen 6.7% over the week. Gold was not immune, dropping 5% to around $US1640/oz. Some of the fall reflects pressure to meet margin calls on haemorrhaging equity positions. US Treasuries bounced back after Thursday’s massive drop.
KEY THEMES AND VIEWS
PRISONERS’ DILEMMA. The annual meetings of the World Bank and IMF occurred in the weekend, with policymakers under severe pressure to produce more than “we’re here, don’t worry” headlines. Decisive action is needed. But the mood at the meetings was grim, with major divisions between key players looking no nearer to being closed. The focus and the disagreement remains centred on whether to boost the firepower of the EFSF by allowing it to essentially borrow from the ECB like a bank.
Many talked up the possibility, but German finance minister Wolfgang Schäuble held firm: “We won't come to grips with economies deleveraging by having governments and central banks throwing —literally—even more money at the problem”.
Antonio Borges, head of the IMF's Europe department, said that policy makers are "focused on their own internal restraints, so that we don't have the outcome that we need."
Giulio Tremonti, Italian Finance Minister, was equally blunt: “Time is strategic, and there’s little of it left. We’ve wasted too much of it.”
But what is most interesting to markets is what is unsaid publicly – namely where things stand with preparations for the seemingly inevitable but officially unthinkable Greek default. This surely took up a large amount of time at the meetings (e.g. planning bank recapitalisations and firewalls). Market rumours continue to suggest the default will be sooner rather than later.
Meanwhile, head of the IMF Christine LaGarde commented that the IMF may run out of cash in coming years if the crisis escalates. With no developed nations in a position to be forking out, they will have to go cap in hand to the BRICs. Join the queue.
OTHER EVENTS AND QUOTES
• UBS head Oswald Grübel resigned following the Swiss bank’s $2.3bn loss from unauthorised trading.
• Russian President Medvedev backed Vladimir Putin as presidential candidate in the next election. Given the new 6 year term, Putin could potentially become his country’s longest-serving leader since Stalin.
NZDUSD: Still under a caution…
Weekend news will need to be digested by markets and should be the driver of the NZD today. Local trade data will be largely ignored but it continues to paint an underlying positive picture.
Expected range: 0.7725 – 0.7850
NZDAUD: Free kick…
Support levels were tested on this cross despite markets becoming increasingly aware of the possibility of an insurance cut by the RBA next week. Rising expectations in this arena should ensure this cross remains supported and in the 0.79AUD zone.
Expected range: 0.7902 – 0.7964
NZDEUR: Knock-on…
Having broken down through the longer-term support line this cross could ease further towards the 200 day moving average before finding support of substance. European plans for an eventual Greek default appear to be in the wings and once announced may clear the way for a marginal EUR recovery.
Expected range: 0.5714 – 0.5788
NZDJPY: Offside…
At this point yields appear offside with investors as they look to return funds closer to home. This may well deliver another move close to support at 58.80.
Expected range: 58.80 – 59.80
NZDGBP: Entering the red zone…
Further attempts to move into the 0.49GBP zone should be seen early this week as the GBP gains off the back of any Eurozone rescue package. Topside moves should be limited today.
Expected range: 0.4988 – 0.5048
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