Monday 26 July 2010

Morning Report
Foreign Exchange Market News and views
Previous Range Today’s Open Expected Risk markets nudged higher. Ending the week on a positive note, US equities
Asia Overnight 8.00am NZD cross Range Today marked time until the release of the European bank stress tests, pushing above
last week’s resistance levels to close up 0.8% on the day. On the face of it, that
NZD 0.7232-0.7275 0.7226-0.7291 Ï0.7263 0.7220-0.7300
only seven out of 91 banks failed the tests and the aggregate capital shortfall
AUD 0.8903-0.8951 0.8896-0.8972 Ï0.8944 Ï0.8121 0.8900-0.9000 was only €3.5bn was impressive, and most markets gained to some degree, but
JPY 86.73-87.23 86.84-87.51 Ï87.73 Ï63.72 87.00-88.20 skepticism over the severity of the tests may see markets proclaiming the exercise
a whitewash and selling risk later this week. Commodities consolidated Thursday’s
EUR 1.2882-1.2917 1.2794-1.2966 Ð1.2882 Ï0.5638 1.2800-1.2900
surge, oil down 0.4% and copper up 0.7%. US 10yr treasuries rose 6bp in yield to
GBP 1.5250-1.5291 1.5259-1.5450 Ï1.5404 Ð0.4715 1.5350-1.5450 2.99%, steepening the 2-10yr curve by 4bp.
The US dollar was volatile but changed little on the day. EUR bounced on the
NZ Domestic Market (Previous day’s closing rates) German IFO report, then sagged on negative rumours ahead of the stress tests,
Cash Curve Govt Stock Swap Rates (Qtrly)
falling from 1.2966 to 1.2794, the results then helping push it to 1.2930 during
the two hours afterwards. Safe-haven yen underperformed the majors, USD/JPY
Cash 2.75% Nov-11 3.78% 1 Year 3.85% rising from 87.00 to 87.70.
30 Days 2.99% 2 Years 4.24%
Apr-13 4.26% AUD traded sideways between 0.8900 and 0.8970, the stress tests seeing it close
3 Years 4.50% the day at the upper end of the range.
60 Days 3.08%
Apr-15 4.71% 4 Years 4.68%
90 Days 3.25% NZD similarly trade between 0.7230 and 0.7290, closing around 0.7270. AUD/
5 Years 4.83%
180 Days 3.44%
Dec-17 5.13% NZD was volatile but directionless around 1.2300.
7 Years 5.09%
1 Year 3.79% May-21 5.40% 10 Years 5.36% German IFO survey jumped to a three year high of 106.2 in July and posted a
record monthly gain of 4.4 points. Both the current assessment (106.8 from 101.2)
and the expectations (105.5 from 102.5) components posted unexpectedly large
World Bourses and Indices increases. The survey is further evidence, after yesterday’s positive PMI surveys,
AUD USD that growth in the eurozone, or at least Germany, may not be as weak as originally
Cash 4.50% 0.00 Fed Funds 0.00-0.25% expected over the next quarter.
90 Day 4.84% +0.01 3 Mth Libor 0.49% -0.01 UK GDP came in much stronger than expected 1.1% in Q2 versus expectations
3 Year Bond 4.76% +0.07 10 Year Notes 3.00% +0.07 of 0.6%. The driver of the move higher was services. In particular, all major
10 Year Bond 5.20% +0.05 30 Year Bonds 4.02% +0.07 categories saw rises (business services, finance and construction). Construction
bounced 6.6% for this quarter but the source of construction for GDP is a new
NZX 50 2994.9 +13.5 CRB 266.6 -0.3 monthly business survey (rather than the old outputs survey), which makes for
S&P/ASX200 4458.4 +83.7 Gold 1189.1 -6.2 comparison from 2009 and 2010 difficult. On the production side for the quarter,
Nikkei 9431.0 +210.1 Copper Fut. 319.50 +3.20 mining and electricity et al deteriorated, agriculture saw a small rise, while
FT100 5312.6 -1.2 Oil (WTI) 78.63 -0.35 manufacturing rose 1.6%. Westpac’s expectations are for this to be the peak for
S&P500 1102.7 +9.0 NZ TWI 68.11 +0.20
the year in GDP. A higher starting point, however, reduces the negative output
gap. This, in turn, should put some upward pressure on the level of the BoE’s
inflation forecasts. Despite this, we do not anticipate the BoE will adjust rates
Upcoming Events anytime soon but this report will no doubt further the debate within the MPC.
Date Country Release Last Forecast Canadian CPI fell 0.1% in June taking the annual rate down to 1.0%. The core
26 Jul Aus Q2 PPI %qtr 1.0% 0.7% rate also fell by 01% on the month. The headline rate was weighed down by a
US Jun Chicago Fed Activity Index 0.21 – fall in gasoline prices which fell for the first time since October 2009. The slightly
Jun New Home sales –32.7% 0.0% softer inflation report combined with the weaker than expected retail sales data
Jul Dallas Fed Manuf. Activity Index –4.0 0.0 earlier this week are in line with the Bank of Canada’s modest reassessment of
Jpn Jun Trade Balance ¥bn sa 416 539 their outlook for the next two years as reported in the Monetary Policy Report on
UK Jul House Prices %yr 2.1% – Thursday.
27 Jul US May House Prices %yr 3.8% 3.9%
Jul Richmond Fed Factory Index 23 10
Jul Consumer Confidence 52.9 54.5 Outlook
Jpn Jun Corp Services Price Index %yr –0.8% –0.9% AUD/USD and NZD/USD outlook next 24 hours: Asia and Europe have yet
Eur Jun M3 sa 3 mth ave. –0.2% –0.1% to price the stress test results, so further gains are possible, although strength in
Ger Aug GfK Consumer Confidence Survey 3.5 3.5 both currencies is waning. AUD may initially challenge 0.9000 overhead, a later
28 Jul NZ Jul NBNZ Business Confidence 40.2% – correction the possible to the 0.8860-0.8900 area. NZD’s parameters are 0.7200
Aus Q2 Headline CPI %qtr 0.9% 0.9% and 0.7300.
Q2 Avg RBA Underlying CPI %qtr 0.8% 0.9%
US Jun Durable Goods Orders –0.6% 1.0%
Fed Beige Book
Jpn Jul Small Business Confidence 47.4 –
Ger Jun CPI %yr 0.9% 1.1% Imre Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
Can May House Prices %yr 12.9% – With contributions from Westpac Economics

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