Wednesday 16 May 2012 Market wrap
US equity markets were choppy on mixed news flow, little changed until a late NY session slide. The main negative influence earlier was Greece’s announcement it will hold fresh elections, probably on either 10 or 17 June, after several attempts at forming a coalition government failed. There was also a report Greek depositors withdrew around EUR 700m from Greek banks on Monday, raising the spectre of capital flight. Economic data was mainly positive, US retail sales and NY regional manufacturing solid, while European GDP of 0.0% for Q1 means it has narrowly missed entering a technical recession (thanks to Germany’s strong result). The S&P500 is currently down 0.5%, while the CRB commodities index is up 0.2% (oil and copper -1.3%, gold -0.6%). US 10yr treasury yields are unchanged at 1.77%, as are Australian 3yr yields. Eurozone peripheral yields continued to rise, Greece +225bp to 29.83%.
The US dollar index (DXY) surged to a four month high. EUR fell from 1.2870 to 1.2725 as concerns of contagion from a possible Greek exit from the Eurozone mounted. USD/JPY rose from 79.90 to 80.33. AUD poked above parity early in London but then fell after midday from 1.0015 to 0.9922. NZD performed poorly, perhaps partly due to a surprisingly weak dairy product auction which saw spot whole milk powder prices fall 9.6%. It fell from 0.7798 to 0.7682. As a result, AUD/NZD rose from 1.2830 to 1.2920.
Economic wrap
US retail sales growth slows to 0.1% in Apr. Modest or moderate sales growth in most storetypes was offset by a sharp 1.4% fall in building materials (eg DIY) and a pull-back in apparel, evidence that March’s solid 0.7% sales growth was in part due to milder than normal weather earlier this year. Core retail sales ex autos and gasoline were also up just 0.1% after rising 0.8% in March.
US CPI flat in April. Energy prices fell 1.7% in April, their first decline this year, offsetting modest gains in most other categories. Core prices held at 0.2% in the month and 2.3% yr, same as in March.
US NY Fed factory index jumps from 6.6 to 17.1 in May, although this did not fully reverse the 14 pts drop in April. The May detail showed shipments surge from 6.4 to 24.1 but orders and jobs just up modestly. The NAHB housing market index rose from 24 to 29, in May, a five year high. Business inventories rose 0.3% in March, the new information being a 0.4% retail inventories gain. In March total net TIC flows shifted from a $93bn inflow to a $50bn outflow although net long term inflows rose from $10bn to $36bn.
Euroland GDP flat in Q1. German GDP growth of 0.5% (more than reversing Q4’s 0.2% contraction) offset contractions in Italy (–0.8%) Spain and elsewhere. French GDP was stalled in Q1 after growing 0.1% in Q4 last year. With this advance report we don’t see the levels so don’t know if GDP was rounded up or down. Given Q4’s –0.3% GDP growth pace, Euroland is in shallow recession if the former, or if the latter, stagnating. Either way it is clear that Germany is doing most of the lifting again, although favourable weather may have helped at the expense of Q2 data. The annual growth pace slowed to 0.0% yr in Euroland; Greece also reported today; GDP declined at a 6.2% yr pace in Q1.
German ZEW analysts’ outlook survey down from 23.4 to 10.8 in May, its first decline in six months, indicating that the post ECB LTRO buzz has worn off somewhat and Greek/Spanish/recession risks are once again in focus. The current index rose from 40.7 to 44.1 in May, its highest since last August.
UK trade deficit little changed at £8.6bn in Mar with a 5.6% export rise offset by a 4.2% imports gain.
Greece update. The President has called fresh elections after attempts to form a government following the inconclusive May 6 vote failed. A €436mn 10 year note matured today and was reportedly repaid by the Greek government, although it is unclear who made the decision to repay.
Market outlook
AUD and NZD Outlooks: Eurozone politics will remain a market focus for a few more weeks, the forthcoming Greek elections extending the period of uncertainty with risk-averse implications. Today’s Australian wage costs data is minor, but the FOMC minutes and Fed member Bullard’s speech on the economy and monetary policy will be watched.
AUD/USD 1 day: The downtrend remains intact and upward corrections are shallow. There should be support encountered in the 0.9860-0.9895 area (Dec-11 low).
AUD/USD 1 month: Lower to 0.9800.
NZD/USD 1 day: The immediate downside target is 0.7655 (29 Dec low).
NZD/USD 1 month: Lower to 0.7600.
NZ 2yr swap yield: Opening unchanged at 2.51%
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 16 May 2012. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac’sfinancial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change withoutnotice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. © 2010 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts
US equity markets were choppy on mixed news flow, little changed until a late NY session slide. The main negative influence earlier was Greece’s announcement it will hold fresh elections, probably on either 10 or 17 June, after several attempts at forming a coalition government failed. There was also a report Greek depositors withdrew around EUR 700m from Greek banks on Monday, raising the spectre of capital flight. Economic data was mainly positive, US retail sales and NY regional manufacturing solid, while European GDP of 0.0% for Q1 means it has narrowly missed entering a technical recession (thanks to Germany’s strong result). The S&P500 is currently down 0.5%, while the CRB commodities index is up 0.2% (oil and copper -1.3%, gold -0.6%). US 10yr treasury yields are unchanged at 1.77%, as are Australian 3yr yields. Eurozone peripheral yields continued to rise, Greece +225bp to 29.83%.
The US dollar index (DXY) surged to a four month high. EUR fell from 1.2870 to 1.2725 as concerns of contagion from a possible Greek exit from the Eurozone mounted. USD/JPY rose from 79.90 to 80.33. AUD poked above parity early in London but then fell after midday from 1.0015 to 0.9922. NZD performed poorly, perhaps partly due to a surprisingly weak dairy product auction which saw spot whole milk powder prices fall 9.6%. It fell from 0.7798 to 0.7682. As a result, AUD/NZD rose from 1.2830 to 1.2920.
Economic wrap
US retail sales growth slows to 0.1% in Apr. Modest or moderate sales growth in most storetypes was offset by a sharp 1.4% fall in building materials (eg DIY) and a pull-back in apparel, evidence that March’s solid 0.7% sales growth was in part due to milder than normal weather earlier this year. Core retail sales ex autos and gasoline were also up just 0.1% after rising 0.8% in March.
US CPI flat in April. Energy prices fell 1.7% in April, their first decline this year, offsetting modest gains in most other categories. Core prices held at 0.2% in the month and 2.3% yr, same as in March.
US NY Fed factory index jumps from 6.6 to 17.1 in May, although this did not fully reverse the 14 pts drop in April. The May detail showed shipments surge from 6.4 to 24.1 but orders and jobs just up modestly. The NAHB housing market index rose from 24 to 29, in May, a five year high. Business inventories rose 0.3% in March, the new information being a 0.4% retail inventories gain. In March total net TIC flows shifted from a $93bn inflow to a $50bn outflow although net long term inflows rose from $10bn to $36bn.
Euroland GDP flat in Q1. German GDP growth of 0.5% (more than reversing Q4’s 0.2% contraction) offset contractions in Italy (–0.8%) Spain and elsewhere. French GDP was stalled in Q1 after growing 0.1% in Q4 last year. With this advance report we don’t see the levels so don’t know if GDP was rounded up or down. Given Q4’s –0.3% GDP growth pace, Euroland is in shallow recession if the former, or if the latter, stagnating. Either way it is clear that Germany is doing most of the lifting again, although favourable weather may have helped at the expense of Q2 data. The annual growth pace slowed to 0.0% yr in Euroland; Greece also reported today; GDP declined at a 6.2% yr pace in Q1.
German ZEW analysts’ outlook survey down from 23.4 to 10.8 in May, its first decline in six months, indicating that the post ECB LTRO buzz has worn off somewhat and Greek/Spanish/recession risks are once again in focus. The current index rose from 40.7 to 44.1 in May, its highest since last August.
UK trade deficit little changed at £8.6bn in Mar with a 5.6% export rise offset by a 4.2% imports gain.
Greece update. The President has called fresh elections after attempts to form a government following the inconclusive May 6 vote failed. A €436mn 10 year note matured today and was reportedly repaid by the Greek government, although it is unclear who made the decision to repay.
Market outlook
AUD and NZD Outlooks: Eurozone politics will remain a market focus for a few more weeks, the forthcoming Greek elections extending the period of uncertainty with risk-averse implications. Today’s Australian wage costs data is minor, but the FOMC minutes and Fed member Bullard’s speech on the economy and monetary policy will be watched.
AUD/USD 1 day: The downtrend remains intact and upward corrections are shallow. There should be support encountered in the 0.9860-0.9895 area (Dec-11 low).
AUD/USD 1 month: Lower to 0.9800.
NZD/USD 1 day: The immediate downside target is 0.7655 (29 Dec low).
NZD/USD 1 month: Lower to 0.7600.
NZ 2yr swap yield: Opening unchanged at 2.51%
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 16 May 2012. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac’sfinancial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change withoutnotice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. © 2010 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts
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