Morning Report Friday 2 March 2012 Market wrap
US equities extended a five-month old rally. The S&P500 is currently up 0.6%, financials outperforming (+2.0%) as the latest ECB liquidity injection appeared to have boosted demand for peripheral Eurozone bonds. Eurozone bond auctions saw good demand, and yields were lower (Italy’s 10yr fell 24bp to a six-month low), apart from Greece which rose 165bp to a record high of 36.72%. The markets await a ruling on whether Greece’s bond restructuring constitutes a default, taking little comfort from last night’s ISDA ruling that the bond swap with the ECB does not. US 10yr treasury yields are 9bp at 2.06%, extending the selloff sparked by Fed Chairman Bernanke’s failure to provide a QE3 signal. Bernanke spoke again to the Senate but added nothing to the previous day’s speech. US data was mixed (Jan personal income and ISM manufacturing sub-consensus, jobless claims improved).
The US dollar index (DXY) is little changed, holding the previous day’s gains. EUR probed lower, from 1.3350 to 1.3282. Eurozone data for CPI and unemployment were disappointingly higher, inflation remaining stubbornly above the ECB’s 2% ceiling. USD/JPY remained elevated between 80.90 and 81.32. AUD recovered in London from the previous day’s Bernanke disappointment, rising from 1.0725 to 1.0812. NZD outperformed, rising from 0.8323 to 0.8407. AUD/NZD slipped from 1.2900 to 1.2860.
Economic wrap
US ISM factory slips from 54.1 to 52.4 in Feb, reversing most of the prior two months’ gain. The detail showed modest slippage in production and dips in jobs and orders, though all remained comfortably above 50; this is a slower growth story, not a contractionary one.
US core PCE deflator 0.2% in Jan. Back revisions saw Dec revised down slightly to 0.1% but the annual rate revised higher to 1.9% yr where it remained in Jan, though before rounding, it eased slightly from 1.91% to 1.88% yr. The report also showed weaker than expected personal income (0.3%) and spending (0.2%) growth in Jan, after a muted Q4 when spending averaged just 0.1% per month.
US initial jobless claims slipped 2k to 351k in the week ended 25/2, making the last three readings the three lowest in nearly four years. This indicates that firms are laying off fewer workers and suggests that there may be a degree of sustainability to the recent improvement in the monthly jobs growth numbers.
US construction spending fell 0.1% in Jan, with a solid 1.6% rise in the residential component offset by a 0.8% fall in non-residential.
Fed chair Bernanke testimony continued today, and included a defence of QE2 which he argued contributed to 2.5mn jobs growth, steady inflation, a flat dollar and higher equities.
Canadian current account deficit C$10.3bn in Q4, down from over C$12bn in Q4. Also industrial product prices rose 0.3% in Jan after falling 0.9% in Dec.
Euroland CPI flash estimate was 2.7% yr in Feb, up from 2.6% yr in the final Jan reading. Euroland unemployment rose from 10.6% to 10.7% in Jan, a new euro era high, with back revisions lifting the end 2011 rate 0.2 ppts higher than previously. The Euroland factory PMI was unrevised at 49.0 in Feb.
ISDA ruling on Greek debt: it’s not yet a credit event that would trigger credit default swaps, but “the situation is still evolving” and the question will certainly be revisited when the private sector haircut is finalised and transacted.
UK PMI factory slipped from 52.0 to 51.2 in Feb, still its second strongest reading since the middle of 2011, suggesting less risk of industrial contraction in Q1 2012 than there was in Q4 last year. Separately, UK house prices rose 0.6% in Feb, for an annual price gain of 0.9% yr, according to the Nationwide.
Market outlook
AUD/USD and NZD/USD outlook next 24 hours: The local economic calendars are bare and there is little known major event risk over the next 24 hours. AUD should remain inside 1.0715 and 1.0860 today. NZD should remain inside 0.8325 and 0.8470.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 2 March 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 equities extended a five-month old rally. The S&P500 is currently up 0.6%, financials outperforming (+2.0%) as the latest ECB liquidity injection appeared to have boosted demand for peripheral Eurozone bonds. Eurozone bond auctions saw good demand, and yields were lower (Italy’s 10yr fell 24bp to a six-month low), apart from Greece which rose 165bp to a record high of 36.72%. The markets await a ruling on whether Greece’s bond restructuring constitutes a default, taking little comfort from last night’s ISDA ruling that the bond swap with the ECB does not. US 10yr treasury yields are 9bp at 2.06%, extending the selloff sparked by Fed Chairman Bernanke’s failure to provide a QE3 signal. Bernanke spoke again to the Senate but added nothing to the previous day’s speech. US data was mixed (Jan personal income and ISM manufacturing sub-consensus, jobless claims improved).
The US dollar index (DXY) is little changed, holding the previous day’s gains. EUR probed lower, from 1.3350 to 1.3282. Eurozone data for CPI and unemployment were disappointingly higher, inflation remaining stubbornly above the ECB’s 2% ceiling. USD/JPY remained elevated between 80.90 and 81.32. AUD recovered in London from the previous day’s Bernanke disappointment, rising from 1.0725 to 1.0812. NZD outperformed, rising from 0.8323 to 0.8407. AUD/NZD slipped from 1.2900 to 1.2860.
Economic wrap
US ISM factory slips from 54.1 to 52.4 in Feb, reversing most of the prior two months’ gain. The detail showed modest slippage in production and dips in jobs and orders, though all remained comfortably above 50; this is a slower growth story, not a contractionary one.
US core PCE deflator 0.2% in Jan. Back revisions saw Dec revised down slightly to 0.1% but the annual rate revised higher to 1.9% yr where it remained in Jan, though before rounding, it eased slightly from 1.91% to 1.88% yr. The report also showed weaker than expected personal income (0.3%) and spending (0.2%) growth in Jan, after a muted Q4 when spending averaged just 0.1% per month.
US initial jobless claims slipped 2k to 351k in the week ended 25/2, making the last three readings the three lowest in nearly four years. This indicates that firms are laying off fewer workers and suggests that there may be a degree of sustainability to the recent improvement in the monthly jobs growth numbers.
US construction spending fell 0.1% in Jan, with a solid 1.6% rise in the residential component offset by a 0.8% fall in non-residential.
Fed chair Bernanke testimony continued today, and included a defence of QE2 which he argued contributed to 2.5mn jobs growth, steady inflation, a flat dollar and higher equities.
Canadian current account deficit C$10.3bn in Q4, down from over C$12bn in Q4. Also industrial product prices rose 0.3% in Jan after falling 0.9% in Dec.
Euroland CPI flash estimate was 2.7% yr in Feb, up from 2.6% yr in the final Jan reading. Euroland unemployment rose from 10.6% to 10.7% in Jan, a new euro era high, with back revisions lifting the end 2011 rate 0.2 ppts higher than previously. The Euroland factory PMI was unrevised at 49.0 in Feb.
ISDA ruling on Greek debt: it’s not yet a credit event that would trigger credit default swaps, but “the situation is still evolving” and the question will certainly be revisited when the private sector haircut is finalised and transacted.
UK PMI factory slipped from 52.0 to 51.2 in Feb, still its second strongest reading since the middle of 2011, suggesting less risk of industrial contraction in Q1 2012 than there was in Q4 last year. Separately, UK house prices rose 0.6% in Feb, for an annual price gain of 0.9% yr, according to the Nationwide.
Market outlook
AUD/USD and NZD/USD outlook next 24 hours: The local economic calendars are bare and there is little known major event risk over the next 24 hours. AUD should remain inside 1.0715 and 1.0860 today. NZD should remain inside 0.8325 and 0.8470.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 2 March 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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