Market wrap
Yesterday’s Asian session rally in risk assets wilted. Earlier reports that China would provide support for the Eurozone rescue influenced markets until around midday London, but fresh reports that Eurozone officials were considering delaying the next Greek bailout package until after the April elections reversed sentiment. The S&P500 is currently down 0.2% from an earlier position of +0.6%. US manufacturing indicators from the NY regional survey and industrial production report were positive but had only a brief market impact. The CRB commodities index is up 0.2%, oil +0.6%, copper -0.3%, and gold +0.4%. The US 10yr treasury yield is 3bp lower at 1.91%, the FOMC minutes due in 30 minutes. Some Eurozone peripherals were under pressure, Greece’s 2yr yield up 2570bp to 209.60% - a new record high, Italy’s 10yr up 17bp and Spain’s 10yr up 15bp.
The US dollar index is around 0.3% stronger and at a three-week high. Under-performer EUR fell from early London’s 1.3191 to 1.3053, slightly above-consensus (but still negative) GDP results largely ignored. USD/JPY made a fresh four-month high of 78.66 in Asia, slipping to 78.20 in NY. AUD extended domestic session gains to 1.0777 but fell with the EUR from midday London to 1.0703. Out-performer NZD was unruffled by a 3% fall in dairy prices at the Fonterra auction, peaking at 0.8422 – a fresh five-month high – before slipping to 0.8346 in NY. AUD/NZD found support at around 1.2800.
Economic wrap
US NY Fed factory index jumped from 13.5 to 19.5 in Feb, although the detail was less dramatic than the general business conditions headline. Orders slipped from 13.7 to 9.7, jobs from 12.1 to 11.8, although shipments remained solid up from 21.7 to 22.8 in Feb.
US industrial production was just flat in Jan, way weaker than expectations. Factory output rose 0.7% but this followed a substantial upward revision to Dec from 0.9% to 1.5%. Once again autos were prominent in the detail with a 6.8% rise. However a 2.5% fall in utilities and 1.8% mining decline pulled the IP headline back to zero.
US NAHB housing market index up 4 pts to 29 in Feb, its highest since May 2007 when sub-prime mortgage concerns had already started to surface but still more than a year prior to the recession. More evidence here that the US housing market has bottomed out.
US net long term TIC data showed an $87.1bn inflow into the US in Dec consistent with the ongoing safe haven the dollar provided from European woes before the ECB’s LTRO seemed to turn things around by January.
Euroland GDP contracted 0.3% in Q4 last year, the first decline since mid 2009, taking the level of activity back to where it was at the end of Q1 last year. The annual pace of growth slowed from 1.3% yr to 0.7% yr in Q4. The national breakdown showed Germany down 0.2%, Italy down 0.7%, Spain off 0.3% but French GDP grew by 0.2%. Early survey evidence for Q1 this year suggests that if Europe is in recession, at this stage it is not a deep one, with the larger economies, between them, still generating enough activity to mostly offset the devastating economic slumps in countries like Greece and Portugal which contracted at annual paces of –7.0% and –2.7% respectively in Q4 last year.
Bank of England quarterly inflation report. The BoE’s new central projection for inflation has it below 2% for the second half of this year and all of 2013 but returning to 2% in just after 2 years time, which is a weak signal that yet more QE might be announced beyond the current £325bn program. That compares to a substantial CPI undershoot two years out in the November report (which did of course presage further QE, announced last week).
UK unemployment rose 7k in Jan on the benefit claimant count, its fastest since Sep. The separate household survey for Q4 last year showed a surprise 60k bounce in jobs in Q4, after falling 196k in Q3, so the 48k rise in unemployment in Q4 reflected increased participation in the job market. The jobless rate held steady at 8.6% in Q4, its highest in sixteen years.
Market outlook
AUD/USD and NZD/USD outlook next 24 hours: Australia’s employment report is the local highlight, a rebound from the previous weak result possible. NZ has consumer confidence and PMI. Trend support for AUD today is at 1.0660. Similarly NZD channel support is at 0.8300, a break of which would have longer term bearish implications.
financial 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 without
notice 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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