Economic views and news - Monday, 12 September

ANZ Research

Monday 12th September 2011

OUTLOOK

RATES: The kiwi rates market was quiet overnight, but the Aussie market rallied strongly, indicating the likely opening tone for NZ rates this morning.

REVIEW

CURRENCY: A stronger USD helped to lower commodity prices and continued concerns about European debt were enough to see the Australasian currencies weaken to close out last week.

GLOBAL MARKETS: Risk was right off the table and trampled into the carpet Friday night, on the back of European debt concerns. Equities plunged on both sides of the Atlantic, particularly European banking stocks. Treasury yields fell well under the 2 percent mark. Oil was down, and gold made a comeback on safe-haven flows. (A gold bull-run of this length (10+ years) was last seen in the 1920s, an unhappy comparison). The VIX volatility index jumped 12 percent, while the S&P GSCI commodities were broadly weaker.

KEY THEMES AND VIEWS

GREECE TRUMPS OBAMA. A generally well-received US$447bn plan by President Obama to stimulate US employment couldn’t save international markets from a firmly risk-off day on Friday. Regarding the plan, the hurdles to implementation are high and many, so the bill is for now an encouraging but abstract idea.

In Europe, on the other hand, the bad news keeps right on coming. German coalition officials anonymously said the Government was preparing plans to shore up their exposed banking system against a Greek default. Jürgen Stark, ECB Chief Economist and Executive Board Member, resigned, explicitly due to disagreement regarding the Bank’s unilateral bond-buying program. Reports circulated that Moody’s was about to downgrade France’s largest three banks because of their exposure to Greece.

The G7 finance chiefs met and failed to come out with any resolutions likely to placate the market, just a general promise to “take all necessary actions”. European bank credit risk surged to an all-time high; while safe-haven German two-year yields fell to record lows. CDS swap contracts imply a 92 percent chance of Greek default.

All up, Phase II, the European Banking Crisis, seems to be barrelling ever closer, with game-changing interventions needed quickly before things escalate further. Policies so far have bought some time, but so far that time hasn’t produced any enduring solutions.

OTHER EVENTS AND QUOTES

• Greek Finance Minister Evangelos Venizelos gets feisty, dismissing rumours of imminent default: “This isn’t the first time... This is a game that’s in bad taste, organised speculation that is directed against the euro region and the euro as a whole.” And in any case, he added, “Greece is too small to be a catalyst for the future of the euro area. It accounts for 2 percent of the GDP of the euro area and less than 3 percent of the area’s debt. We can’t let our country become a pretext for divisions that aren’t about us.”

• US Treasury Secretary Timothy Geithner berated European officials, saying “they have to demonstrate they have enough political will… This is not a question of financial or economic capacity.”

• China trade data for August was better than expected. Exports rose 24.5% y/y, and imports a surprisingly large 30.2%, suggesting robust demand.

NZDUSD: Too close for comfort…
The NZD fell too close to the support line at 0.8183 for comfort during the close of trading last week. Expect this level to come under pressure early this week as the USD looks to build on recent gains.
Expected range: 0.8180 – 0.8250

NZDAUD: Tough comparison…
This cross should not lift above 0.79AUD in the short term. The RBNZ decision this week should not surprise many given the global landscape. Relative interest rates will still win over the fans and mean this cross fails to get above 0.7902 for now.
Expected range: 0.7825 – 0.7895

NZDEUR: Hangover…
The after-effects of last week’s ECB monthly meeting and a stronger USD have let this cross roam back into the 0.60EUR territory. It should find some difficulty around 0.6038 today.
Expected range: 0.5988 – 0.6038

NZDJPY: Sacré bleu …
Little trouble with this cross back off as it failed to investigate the 65JPY plus levels off the back of NZD weakness. It will be difficult to get back to the 62JPY area given yield differentials remain.
Expected range: 63.25 – 64.25

NZDGBP: Scratchy performance…
A familiar story here as the going was hard for this cross above 0.52GBP. It should find itself struggling today on any attempt to break back above the resistance at 0.5202.
Expected range: 0.5162 – 0.5202

Comments from our readers

No comments yet