Westpac Global Markets Strategy Group
Friday 20th January 2012
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Another small rally in equities. The S&P500 continued its run of small daily gains, up 0.5% as we write.
The news flow was net positive, but not dramatically so. French and Spanish bond auctions for 7yr and 10yr maturities went well, and Austria saw good demand at its 50yr auction. Q4 US earnings reports from Bank of America and Morgan Stanley helped those shares outperform, and US jobless claims data was encouraging (although other releases were mixed).
The CRB commodities index is 0.3% higher, oil -0.3%, copper +1.3% and gold -0.4%. US 10yr treasury yields are 9bp higher at 1.99%, finally reacting to the week’s positive sentiment. Eurozone peripherals were well behaved, apart from the Greek 2yr note’s yield which rose 1917bp to a record high of 189.88% amid opaque negotiations with bondholders.
The US dollar index is around 0.4% weaker and is breaking below the upward channel which started on 9 November. EUR has broken above its descending channel, rising from 1.2840 to 1.2941 in London and NY. Safe-haven yen underperformed, USD/JPY rising from 76.70 to 77.32.
AUD and NZD also underperformed, thanks to weak inflation and jobs reports, respectively, yesterday. AUD found an overnight low at the London open at 1.0371 and rose to 1.0434 but reversed in NY to 1.0395. NZD consolidated in a narrow 0.8002 to 0.8029 range. AUD/NZD firmed from 1.2940 to 1.3010in London but slipped in NY to 1.2960.
AUD/USD and NZD/USD outlook next 24 hours: In the only local event worth watching today, Australia’s terms of trade today is expected to slip. AUD should again remain inside a 1.0360-1.0450 range. NZD remains inside an ascending channel which started on 15 December, today’s likely range 0.7980-0.8080.
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