Thursday 22 March 2012
Market wrap
There was little news to drive markets last night, commodity currencies underperforming and US treasuries outperforming. US data showed mortgage applications and existing home sales weakened slightly but had no obvious market impact. In other news of interest, giant fixed income fund PIMCO said it was bullish the US dollar, particularly versus the EUR, GBP and AUD. A US advisory firm added to the bearish-EUR tone by suggesting the ECB was being prodded by Germany into formulating a stimulus exit plan. Bernanke testified to the House but added little for markets. The S&P500 is currently unchanged after being down 0.4% during early NY. Commodities are slightly firmer, oil +0.9%, copper +0.3% and gold +0.2%. US 10yr treasury yields are 8bp lower at 2.28%, partly reversing the 50bp selloff this month. Quarter-end portfolio rebalancing may benefit bonds and hurt equities during the week ahead. Spanish government bonds were sold, the 10yr up 18bp to a one-month high, amid fears it may default.
The US dollar index (DXY) is up 0.1%. EUR made a short-term peak of 1.3285 during the London morning and reached 1.3179 by midday NY. The UK Budget was well received and BOE minutes showed two members wanted a larger expansion of QE but GBP followed EUR lower from 1.5920 to 1.5820. Safe-haven yen outperformed, USD/JPY falling from 84.10 to 83.40 from midday London. AUD fell from 1.0525 to 1.0421, settling at 1.0455. NZD similarly fell from 0.8220 to 0.8120 before 0.8150. AUD/NZD remained inside 1.2805 and 1.2840.
Economic wrap
US existing home sales fall 0.9% in Feb but were revised higher in Jan so the annualised pace of sales at just under 4.6mn was the second highest (after Jan) since the last days of the 2010 tax credit for home buyers, when sales were plummeting. In contrast, in 2012, sales are trending slowly higher, consistent with other evidence that the US housing market is lifting itself off the floor. What’s more, median prices were up 0.3% yr in Feb, their first annual gain since 2010. However 31% of pending sales contracts fail to close, down from 33% in Jan but still well up on 9% a year ago, evidence that denied mortgage applications are still a constraining factor for the market.
Fedspeak: Fed chair Bernanke told Congress that higher energy prices create both short term inflation pressures and a drag on the economy by acting as a tax on household purchasing power.
UK Chancellor Osborne delivers 2012 budget. The deficit is forecast to be £126bn in FY11/12, falling modestly to £120bn in FY12/13, little changed from the November statement projections after February public sector net borrowing data showed a much larger than expected £15bn shortfall. Economic growth is forecast to be 0.8% this year, and 2% in 2013 (cf Westpac on 0.0% and 0.7% respectively, largely due to our more pessimistic view on Europe). Measures included a substantial rise in the tax free threshold to over £9k, cutting the top income tax rate from 50% to 45%, increased stamp duty for houses over £2mn, and changed child benefit arrangements. Further welfare cuts were foreshadowed. The intention is to meet the fiscal mandate: eliminating the structural current deficit by 2016/17, and to have debt as a % of GDP falling in 2015/16. It is forecast to peak at 76.3% in 2014/15. With the growth forecasts little changed and the budget projections close to those in the November statement this remains an austerity budget that either unnecessarily slows down the economy or that helps the economy by lowering interest rates depending on which side of the fence you sit.
Bank of England MPC March meeting minutes showed a 7:2 split with the minority favouring an immediate further £25bn expansion of the asset purchase program from $325bn to $350bn, reflecting concern that “significant risks to economic activity night result in inflation falling materially below target”. Other committee members saw upside risks to the inflation outlook but preferred to leave policy settings unchanged.
Market outlook
AUD/USD and NZD/USD outlook next 24 hours: NZ Q4 GDP is a local highlight, a market response likely if <0.4% or >0.7% prints. China PMI (HSBC version) will later be watched closely given the recent increase in focus on its growth trajectory.
AUD briefly and slightly breached the 1.0423 support level required to keep the short-term bullish view alive. A sustained breach today would warn of a larger fall ahead. NZD is comfortably above the comparable support level, 0.8060.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 22 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’s
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.
Market wrap
There was little news to drive markets last night, commodity currencies underperforming and US treasuries outperforming. US data showed mortgage applications and existing home sales weakened slightly but had no obvious market impact. In other news of interest, giant fixed income fund PIMCO said it was bullish the US dollar, particularly versus the EUR, GBP and AUD. A US advisory firm added to the bearish-EUR tone by suggesting the ECB was being prodded by Germany into formulating a stimulus exit plan. Bernanke testified to the House but added little for markets. The S&P500 is currently unchanged after being down 0.4% during early NY. Commodities are slightly firmer, oil +0.9%, copper +0.3% and gold +0.2%. US 10yr treasury yields are 8bp lower at 2.28%, partly reversing the 50bp selloff this month. Quarter-end portfolio rebalancing may benefit bonds and hurt equities during the week ahead. Spanish government bonds were sold, the 10yr up 18bp to a one-month high, amid fears it may default.
The US dollar index (DXY) is up 0.1%. EUR made a short-term peak of 1.3285 during the London morning and reached 1.3179 by midday NY. The UK Budget was well received and BOE minutes showed two members wanted a larger expansion of QE but GBP followed EUR lower from 1.5920 to 1.5820. Safe-haven yen outperformed, USD/JPY falling from 84.10 to 83.40 from midday London. AUD fell from 1.0525 to 1.0421, settling at 1.0455. NZD similarly fell from 0.8220 to 0.8120 before 0.8150. AUD/NZD remained inside 1.2805 and 1.2840.
Economic wrap
US existing home sales fall 0.9% in Feb but were revised higher in Jan so the annualised pace of sales at just under 4.6mn was the second highest (after Jan) since the last days of the 2010 tax credit for home buyers, when sales were plummeting. In contrast, in 2012, sales are trending slowly higher, consistent with other evidence that the US housing market is lifting itself off the floor. What’s more, median prices were up 0.3% yr in Feb, their first annual gain since 2010. However 31% of pending sales contracts fail to close, down from 33% in Jan but still well up on 9% a year ago, evidence that denied mortgage applications are still a constraining factor for the market.
Fedspeak: Fed chair Bernanke told Congress that higher energy prices create both short term inflation pressures and a drag on the economy by acting as a tax on household purchasing power.
UK Chancellor Osborne delivers 2012 budget. The deficit is forecast to be £126bn in FY11/12, falling modestly to £120bn in FY12/13, little changed from the November statement projections after February public sector net borrowing data showed a much larger than expected £15bn shortfall. Economic growth is forecast to be 0.8% this year, and 2% in 2013 (cf Westpac on 0.0% and 0.7% respectively, largely due to our more pessimistic view on Europe). Measures included a substantial rise in the tax free threshold to over £9k, cutting the top income tax rate from 50% to 45%, increased stamp duty for houses over £2mn, and changed child benefit arrangements. Further welfare cuts were foreshadowed. The intention is to meet the fiscal mandate: eliminating the structural current deficit by 2016/17, and to have debt as a % of GDP falling in 2015/16. It is forecast to peak at 76.3% in 2014/15. With the growth forecasts little changed and the budget projections close to those in the November statement this remains an austerity budget that either unnecessarily slows down the economy or that helps the economy by lowering interest rates depending on which side of the fence you sit.
Bank of England MPC March meeting minutes showed a 7:2 split with the minority favouring an immediate further £25bn expansion of the asset purchase program from $325bn to $350bn, reflecting concern that “significant risks to economic activity night result in inflation falling materially below target”. Other committee members saw upside risks to the inflation outlook but preferred to leave policy settings unchanged.
Market outlook
AUD/USD and NZD/USD outlook next 24 hours: NZ Q4 GDP is a local highlight, a market response likely if <0.4% or >0.7% prints. China PMI (HSBC version) will later be watched closely given the recent increase in focus on its growth trajectory.
AUD briefly and slightly breached the 1.0423 support level required to keep the short-term bullish view alive. A sustained breach today would warn of a larger fall ahead. NZD is comfortably above the comparable support level, 0.8060.
Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 22 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’s
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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