Forex- Morning Report (Westpac)

 Morning Report Wednesday 18 January 2012
Market wrap
Sentiment improved. Investors appear to have adopted a positive stance at the start of the year, switching from cash to equities according to some US surveys. That sentiment fitted price action last night, the S&P500 up 0.8% currently on some positive news flow. China’s above consensus GDP report sparked the buying yesterday afternoon, and stronger sentiment surveys from Germany (ZEW) and the US (NY manufacturing) were also encouraging. Wells Fargo, the biggest US home lender, beat Q4 earnings estimates, although Citigroup’s investment banking result was weak. The Spanish 12mth and 18mth bond auctions went well, at lower yields than previous, and the Eurozone bailout fund raised EUR 1.5bn via 6mth bills, its bid-cover ratio a respectable 3.1. Commodities performed well, the CRB index up 0.8%, including oil +2.0%, copper +2.6%, and gold +0.7%. US 10yr treasury yields are little changed at 1.85%, while Eurozone peripherals generally performed well – Greece -20bp, Portugal -16bp, Italy -12bp and Spain -5bp. Canada’s central bank remained on hold at 1.0%.

The US dollar index is around 0.5% weaker but remains in an upward trend since early November. EUR rose from 1.2725 to 1.2809 in London but shed all the gains in NY. Safe-haven yen underperformed, USD/JPY initially slipping from 76.70 to 76.55 but the bouncing to 76.85. AUD and NZD outperformed, the former continuing its China-inspired domestic session rally to 1.0450 and then slipping in NY to 1.0371. NZD rose from 0.7980 to 0.8031 and slipped back to 0.7982. Fonterra’s dairy auction was mixed, staple whole milk powder slipping 0.6%. AUD/NZD is little changed at 1.2980 after spiking to 1.3030 in London.
Economic wrap
US NY Fed factory index up from 8.2 to 13.5 in Jan. That is the third straight gain to the highest since last April. The detail was solid: orders up 8 pts to 13.7, shipments up slightly to 21.7 and jobs up 10 to 12.1.
Bank of Canada on hold at 1.0%. The statement noted that “the Bank’s overall outlook for the Canadian economy is little changed from the October MPR. While the economy had more momentum than anticipated in the second half of 2011, the pace of growth going forward is expected to be more modest than previously envisaged, largely due to the external environment. Once again there was no bias (towards easier or tighter policy) expressed.
Euroland CPI revised from 2.8% to 2.7% yr in final Dec report. The core rate was steady at 1.6% yr for the fourth month running.
German ZEW survey of analysts’ expectations jumped from –53.8 to –21.6 in Jan, the steepest rise in the two decade history of that report. This jump reversed almost half of the nine month decline between Feb and Nov last year. Why have German economists and investors suddenly become so optimistic? A very surprising outcome. The ZEW current measure however rose just 1.6 pts to 28.4 in Jan, its first rise in six months.
UK CPI fell from 4.8% yr to 4.2% yr in Dec, its third decline in a row, due mainly to lower fuel and clothing prices. Inflation may fall to 2% or lower over the next year as the economy recedes and the 2011 VAT hike drops out of the annual rate calculation Also the DCLG house price index fell 0.3% yr in Nov.
Market outlook
AUD/USD and NZD/USD outlook next 24 hours: Westpac’s consumer sentiment survey for Australia is released today, as is vehicle sales which we expect to be soft. AUD momentum remains positive, defying our expectation of sell-off this week. The immediate range is 1.0200-1.0450. Similarly, NZD should remain inside 0.7965 and 0.8030 today.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 18 January 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’s
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