Economic views and news - Friday, 17 February '12

ANZ Research

Friday 17th February 2012

OUTLOOK

CURRENCY: Further consolidation work for the NZD is needed as it remains vulnerable to poor European news. Expect support levels tested overnight to be out of reach today as markets finish the week still waiting on Greek detail.

RATES: New Zealand rates trading was light in the overnight London session, with minimal trades. We expect NZ rates to open broadly unchanged.

REVIEW

CURRENCY: A deeper than expected dip overnight for the NZD as the European rot set it. Demand revealed around 0.8250 was enough to provide a solid base from which the NZD was able to recover.

GLOBAL MARKETS: “Groundhog Day”, with mixed Eurozone/Greek headlines competing with a reasonably solid US dataflow. European equities retraced earlier losses to end the session slightly down. US equities were 0.8% above the previous sessions close at time of writing. Government 10-year bond yields rose in the US, UK and Germany, and Greece. Commodity prices edged higher, led by natural gas. Crude oil prices rose 0.6%.

KEY THEMES AND VIEWS

STILL HANGING. With the EU decision on Greece not due till early next week, markets are playing a waiting game. Rumours that European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens are resurfacing. With the far right as well as the left of the Greek political spectrum now saying they will not commit to the austerity measures, a nasty confrontation with their increasingly reluctant northern European creditors (who are putting more conditionality around the aid package) is looming. To stop this blowing up, a credible package of fiscal retrenchment that has the confidence of politicians, markets and populace needs to be found. At the moment this looks to be a bridge too far, with ECB policymaker Orphanides conceding that because European leaders had failed to address the debt crisis, confidence in the region had been “seriously shaken”, and the “vision of solidarity and co-operation between its members is collapsing”.

US DATA IMPROVEMENT CONTINUES. Overnight (admittedly 2nd tier) US data revealed further signs of progress, with the fewest claims for unemployment benefits since 2008. January housing starts were also stronger than expected, with manufacturing in the Philadelphia region expanding at the fastest pace in four months. With claims for unemployment insurance falling for 3 straight weeks there is increasing conviction the long-awaited labour market recovery is underway but a long road lies ahead.

OTHER EVENTS AND QUOTES
•         Moody's warns that it may cut the credit ratings of 17 global and 114 European financial institutions in another sign the impact of the euro zone govt debt crisis is spreading throughout the global financial system
•         German coalition source: If the Eurogroup gives its position on the Greek package, the PSI will start on February 22, and end on March 9.
•         Sweden's central bank cut its benchmark repo rate by 25bps to 1.5%, with the rate set to remain at that level till Q1 next year.

NZDUSD: More reservation…
Support for the NZD in the mid 0.82USD zone was evident last night and remains in place today. It should however be out of reach given the lack of economic data releases due.
Expected range: 0.8275 – 0.8345

NZDAUD: Just got luckier…
Yesterday’s Australian January employment release was another example of luck for the AUD as it hit the NZD for a six. Topside moves appear a little more difficult and may require closer proximity to the RBA’s March decision.
Expected range: 0.7725 – 0.7765

NZDEUR: Waiting game…
Further retracements of recent gains are likely as the EUR finds a solid base at 1.2975 overnight. Expect this cross to remain in the 0.63EUR territory to close out this week’s trading.
Expected range: 0.6335 – 0.6390

NZDJPY: Having a rest…
The USDJPY side of this equation has cushioned falls on this cross and may be responsible for providing a lift today towards the topside as technical targets await a solid test.
Expected range: 65.10 – 65.90

NZDGBP: Returning confidence…
Slightly higher UK consumer confidence assisted in finding support levels for the GBP. Expect this cross to struggle to make it back to 0.53GBP levels.
Expected range: 0.5250 – 0.5295

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