Friday 26th August 2011
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CURRENCY: Another day of sideways consolidation for the NZD as the Jackson Hole symposium looms. Topside attempts should again be limited by resistance around 0.8326 with support around 0.8250.
RATES: Expect NZ rates to open broadly unchanged after a quiet London session. US Treasury bond yields are a touch lower, giving some downside bias.
CURRENCY: An extremely tame past trading day for the NZD. It attempted topside moves overnight only to have these easily extinguished as the equity market weakness kicked in.
GLOBAL MARKETS: A very choppy market today, with prices pushed around by numerous headlines and rumours. Equity markets opened positive, following on with the “risk-on” theme of recent days, pushing gold lower. Equities turned lower after the weekly US initial jobless claims unexpectedly rose, before a surprise announcement that Berkshire Hathaway will invest US$5bn in Bank of America triggered a brief spike higher.
Germany’s DAX plunged in late trade, but European equities finished down around 1%. Gold rebounded from recent lows, oil slipped, the USD strengthened, and US bonds. [sic]
KEY THEMES AND VIEWS
QE OR NO QE? All eyes are on Jackson Hole, in particular Fed Chair Bernanke’s speech at 2am NZT. The question on everybody’s lips – will he hint at more stimulus? He might, but he will probably talk more about time frames than measures to be taken. Although we have at times wondered whether QE3 may be a possibility, we tend to now think it rather unlikely. Not only is there division on the FOMC, and opposition among the tea party and others, but one has to question the efficacy of it. What’s needed now is time.
By contrast, the ECB are more likely to pursue QE, simply to buy a bit of time and to manage long end interest rates. In that environment, it makes even more sense for the Fed not to do it themselves, as the US would almost certainly benefit from some of the additional liquidity. So perhaps the better question should be, what will the next speaker – Trichet – have to say? He speaks a couple of hours after Bernanke, giving him the opportunity to lay out a road map for Europe. Whatever happens, while what gets said will be acutely interesting – what really matters will how markets react, and they have been far from rational of late.
OTHER EVENTS AND QUOTES
• All 3 major credit rating agencies affirmed Germany’s AAA credit rating after rumours did the round that a downgrade was imminent. Germany’s Achilles heel – its assumed liability for Europe. Indeed, it has below average debt compared to the rest of the Eurozone, one of the lower unemployment rates, and runs a persistent current account deficit. But we still wouldn’t put Germany ahead of France and possibly the UK.
• German stocks collapsed late in the session for no apparent reason. Indeed, the DAX fell 4% in 15 minutes. Among the reasons cited: the aforementioned downgrade rumours and talk of a short selling ban. Note that Italy, Spain and France did extend their short selling bans.
• Berkshire Hathaway said it will invest US$5bn in Bank of America, which helped restore confidence in banking shares. Warren Buffet said that “Bank of America is a strong, well led company, and I called Brian [the CEO] to tell him I wanted to invest.”
The NZD looks set to finish the week well anchored around current levels. Anticipation of something extraordinary out of the Jackson Hole symposium may well get the better of markets delivering further topside attempts but these should be limited to the low 0.83USD zone.
Expected range: 0.8265 – 0.8335
Markets appear to be ruminating on the Australian political landscape. While it has not impacted the AUD as this point concerns on this front will help this cross push towards the high 0.79AUD area.
Expected range: 0.7902 – 0.7971
With not enough momentum to push into the 0.58EUR territory yet this cross will spend another day tracking the 0.57EUR line. Looking to the weekend plenty of work needs to be done in order to avoid further chaos in markets.
Expected range: 0.5733 – 0.5793
NZDJPY: Growing nicely…
Continued demand and M&A activity should support this cross on it’s way for a test of the 64.58 resistance level. This may take place during the coming trading session.
Expected range: 63.75 – 64.58
Further realisation by markets that the UK economy is not in great shape, assisted by BoE Weale’s move back into the no hike camp for that very reason, has helped this cross to lift overnight. Having taken out the resistance at 0.5082 it will not be an easy road above 0.51GBP.
Expected range: 0.5065 – 0.5105
Source: ANZ Research
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