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Economic views and news - Monday, 5 September

Monday 5th September 2011

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OUTLOOK

CURRENCY: The cap on the NZD should continue to be lowered in the early part of this week given the developments on the US employment front. Expect selling interest to intensify should the NZD find itself poking above 0.8500USD.

RATES: NZ swap rates traded lower overnight on the back of the weak US data and are likely to open down 2-3 points today.

REVIEW

CURRENCY: A rough close to last week for global markets and hence the NZD. It was repelled easily from an hourly resistance level after the release of the poor US August employment data and never recovered properly after that.

GLOBAL MARKETS: Classic “risk off”. Equities slumped on the poor payrolls data, with the main US indexes down more than 2 percent, and European stocks hit even harder. US Treasuries long yields slid as much as 10bps in the 10 years and 15bps in the 30 years before later slightly retracing. Commodities also had a rough day. Gold was, as usual, a safe haven, rising around 3 percent, but oil fell.

KEY THEMES AND VIEWS

DIRE PAYROLLS DATA FUELS DOUBLE-DIP FEARS. It may be a very rough estimate subject to massive revisions, but this month the wild stab really hurt. Non-farm payrolls data suggested the US added no jobs at all in August, with a 17k rise in the private sector exactly offset by a 17k fall in the retrenching public sector. The number isn’t actually quite as grim as it looks, as 45k striking Verizon workers were not counted in August but should reappear next month. However, it was well below expectations, and the two previous months were revised down by 58k as well. Clearly US firms are spooked, and rightly so. Average hours worked also declined, confirming the trend is only one way at present.

In a separate (household) survey, the unemployment rate was unchanged at 9.1 percent. Confusingly, it showed a solid rise in employment and a decline in the number of “discouraged” workers. However, the “underemployment rate” (people working fewer hours than they’d like to due to economic reasons) continues to rise.

Looking through the monthly noise it is clear that the US labour market continues to weaken, and markets are now looking even more closely at policymakers for some kind of additional economic stimulus. President Obama has scheduled a speech next week to announce tax and spending initiatives, but his options are severely curtailed by both the nation’s debt position and politics. Fed Chairman Ben Bernanke also faces some tricky politics around his table, with a significant amount of opposition to any further quantitative easing. Those still looking for silver bullets are out of luck.

US FEDERAL HOUSING FINANCE AGENCY TO SUE 17 MAJOR BANKS for losses on mortgage backed investments. They claim the banks lied about the quality of the underlying mortgages. The move is in addition to banks’ negotiations with attorney generals of all states, and will complicate banks’ attempts to get an agreement protecting them from future litigation. Bank of America shares lost about a third of their Buffet Bonus in response, falling 8 percent at the open.

OTHER EVENTS AND QUOTES
•       Chinese companies’ dollar debt lost 1.5 percent in August, the most since late 2008, on bad debt fears and scepticism about reporting accuracy.
•       Mixed report cards. The IMF congratulated Ireland on being ahead of schedule with its bank restructuring, while the ECB castigated Italy for failing to pass key austerity measures.

NZDUSD: On defence…
The NZD should find itself defending technical support levels in the early part of this week. The opposition should push the NZD lower towards the next level of support. Moves across the advantage line are likely to be few and far between.
Expected range: 0.8424 – 0.8507

NZDAUD: Crash tackle…
This cross could well be crash tackled if tomorrow’s RBA decision is to leave things alone on the cash rate. This is the more likely scenario in the current environment and should keep the AUD relatively well supported.
Expected range: 0.7920 – 0.7980

NZDEUR: High tackled…
This cross was high tackled just short of the 0.6000EUR level on Friday night. It never recovered and spent the remainder of the match in a groggy state unable to make further topside attempts. Today should see it back off to find support levels.
Expected range: 0.5933 – 0.5978

NZDJPY: Foul play…
Having expended all its energy around the mid 65JPY region this cross finally saw flows completed and reversed much of the recent gains.  It held above the 200 hour moving average line but this could be in for a test early this week.
Expected range: 64.70 – 65.40

NZDGBP: Late tackle…
Further weak UK August data was not enough to dent the GBP at this point. It may find itself the recipient of a late tackle after the BoE announcement this week. At this point the cross needs another test of support at 0.5200GBP.
Expected range: 0.5200 – 0.5250

Source: ANZ Research



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