Westpac Global Markets Strategy Group
Friday 2nd December 2011
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Risk markets consolidated after a three-day rally. A smattering of minor news included the positive results from the French and Spanish bond auctions worth EUR3.8bn and EUR4.3bn respectively.
ECB chief Draghi told the EU Parliament that the downside risks to economic growth had increased (a possible clue regarding a rate move at next week’s meeting), but added that bond purchases must be limited.
US news was mixed, some decent manufacturing activity data but higher jobless claims, and the state of Massachusetts sued major US banks for deceptive foreclosure practices.
The S&P500 is currently down 0.3%. Commodities are lower, the CRB index -0.7%, oil -1.3%, copper -1.1%, and gold -0.6%.
US 10yr treasury yields are 4bp higher at 2.10% suggesting better sentiment than do equities and commodities. Eurozone peripheral yields fell sharply after the French and Spanish auctions, Spain’s 10yr down 49bp to 5.74%.
The US dollar index is little changed. EUR was rangebound inside 1.3417 and 1.3521, the dip to the lower bound following Draghi’s speech. USD/JPY eked a slightly ascending 77.56-77.81 range.
AUD slipped to 1.0151 during the London morning following the EUR, but recovered to 1.0265 in NY. NZD similarly dipped to 0.7724 but recovered to 0.7806. AUD/NZD ranged between 1.3110 and 1.3170. The major Australian and NZ banks were downgraded by Standard & Poor’s by one notch to AA- as widely expected.
AUD/USD and NZD/USD outlook next 24 hours: Tonight’s US payroll report is the main event, but the next few days pose upside risks from the ECB meeting and EU summit. AUD’s corrective rally may extend to at least 1.0350. NZD could push further to 0.7910.
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