Westpac Global Markets Strategy Group
Wednesday 7th December 2011
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The wait. The equities rally which started on 28 November stalled last night, traders lacking conviction ahead of the ECB meeting on Thursday and the EU Summit on Friday.
There was only minor news for markets. Around the NY open, Standard & Poor's placed the EFSF bailout fund under negative watch, saying it could drop one or two notches from AAA if its guarantors are downgraded. This only weighed on markets briefly, the move seen as a logical extension of yesterday's European ratings warnings. Later, the German Finance Minister put a positive spin on yesterday's ratings news, saying it should help galvanise Eurozone decision-makers.
The S&P500 is currently unchanged, as is the VIX barometer of risk aversion. The CRB commodities index is similarly unchanged, although copper is down 1.1%. US 3mth Libor continued its rise, up 0.4bp to 0.54%. suggesting funding concerns remain acute.
The US 10yr treasury yield is 2bp higher at 2.06% during an uneventful session, although the 4-week treasury bill auction was a jaw-dropper with a record 7.7 bid-cover ratio and 0.00% yield (versus 0.02% last week). Eurozone peripherals recorded only modest changes apart from the Greel 10yr which gained 69bp in yield to 33.09% - a fresh record.
The US dollar index is unchanged, spending the London and NY sessions inside a narrow range. EUR made an intraday low of 1.3336 early London, rose to 1.3428 by midday, and then drifted. GBP underperformed most, falling from 1.5664 to 1.5561 during NY. The BOE expanded its liquidity window for banks in a bid to address increasing financial market strains caused by the Eurozone crisis. USD/JPY was stuck between 77.64 and 77.84. AUD made an intraday low of 1.0156 early London and rose to 1.0255 by midday, consolidating thereafter. NZD similarly rose from 0.7740 to 0.7807. AUD/ND ranged between 1.3110 and 1.3165.
AUD/USD and NZD/USD outlook next 24 hours: The Australian Q3 GDP report today will dominate local markets. There was little overnight to alter our assessment of near-term direction, the AUD and NZD in a consolidation pattern since 30 November. Any AUD break above 1.0325 area resistance targets 1.0450. A NZD break above 0.7835 then targets 0.7910.
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