Wednesday 9th November 2011
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CURRENCY: A slow week on the data front continues with nothing from NZ today. Subdued ranges likely in local trade today as European headlines remain in the driver’s seat.
RATES: A quiet session for NZ rates during the overnight London session. An unchanged open can be expected today.
CURRENCY: Italian PM loses his majority vote and calls for his resignation were seen as a positive by the market. NZD had a sleepy night where tight ranges held.
GLOBAL MARKETS: European equities shrugged off the political uncertainties in Greece and Italy – for one day at least – and posted decent gains on positive corporate earnings results. Some better export numbers out from Germany also helped. US equities however, failed to hold on to early gains. US bond prices rose in choppy trade, while gold prices rose. Currencies largely traded within relatively narrow ranges.
KEY THEMES AND VIEWS
WAITING FOR POLITICAL CLARITY. At the time of writing, Greece still does not have a Prime Minister and Italy is still trying to get rid of theirs. Maybe the two countries can do a trade? Speculation that former ECB vice president Lucas Papademos will head a coalition in Greece continues to do the rounds. If this is confirmed, it should be greeted positively by markets, for Papademos is well known around European circles and having a technocrat in charge could help navigate Greece through what will be very testing times.
The situation in Italy remains unresolved, with Prime Minister Berlusconi losing his majority in parliament on a key vote (but still winning the vote because 321 opposition members abstained). Calls for his resignation continue to grow. However, based on Berlusconi’s past track record, he is unlikely to go quietly, and having survived 53 votes of no confidence as Prime Minister, must fancy his chances of getting through another one. Amidst all these, Italian bond yields continue to push higher, with the 10-year reaching 6.77%.
Markets are getting headline and political fatigue, with European equities choosing to focus more on some positive profit news. Indeed, almost all the national indexes in Europe posted gains.
CHINESE DATA TO BE CLOSELY WATCHED. The China data dump today will be the main focus for markets, given the growing debate over the kind of landing China will have (hard versus soft). Our China economists do not foresee a hard landing, but with external demand weakening and inflation risks diminishing, see an outright policy easing starting earlier than current market expectations.
OTHER EVENTS AND QUOTES
• Head of the Financial Stability Board Mark Carney (also BoC governor), warns that the world was “on the cusp of another retrenchment” in liquidity, noting that “As global liquidity recedes, volatility is increasing and activity falling. The effect on the real economy will soon be felt.”
• ECB governing council member Jens Weidmann: “Flirting with monetary financing may be perceived as a seemingly easy way out, but policymakers have to implement a true long-term solution to the crisis.”
NZDUSD: Sideways shuffle
Lacklustre NZD trading last night saw NZD briefly rally on the ‘positive’ news that Berlusconi no longer holds a majority in Italian Parliament. The news failing to bring any real conviction to the NZD, it stayed range bound and should remain that way, as this quiet data week proceeds.
Expected range: 0.7915 – 0.7985
NZDAUD: Similar selection
Staying within scope overnight, the AUD took more benefit from offshore proceedings than the NZD, and pushed the cross through to the top side of the recent range. Expect yesterday’s levels to continue today, with data out of Australia unlikely to be game changers.
Expected range: 0.7655 – 0.7725
NZDEUR: Formal change
The NZDEUR tried and failed to reach 0.5800 yesterday and slipped back further overnight. The single currency outperformed as the EUR positive news that Berlusconi lost his majority in the Italian Parliament and calls for his resignation could see a change of guard. Tentatively watch this pair until the change has been formally announced.
Expected range: 0.5735 – 0.5795
NZDJPY: Push through?
Testing the bottom side of recent levels this morning, NZDJPY will need a significant push through 61.70 to hit 61.50 today. However, there should be a slowdown in NZDJPY moves in our session today as there is little to excite.
Expected range: 61.50 – 62.10
Familiar bottom side support was reached overnight at 0.4940 as the GBP was a major beneficiary of European sentiment as much lower debt yields in the UK make stability appealing. Expect little change in levels in our session today as headlines from the EU remain dominant.
Expected range: 0.4940 – 0.4980
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