Westpac Global Markets Strategy Group
Monday 12th December 2011
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A step in the right direction for now. The EU Summit made some progress towards a new fiscal compact, including the introduction of automatic sanctions for fiscal violations, and added a further EUR200bn to it crisis fighting capability via the IMF, although many crisis issues remain unresolved.
The market was initially underwhelmed, and the failure to secure the backing of some of the 27 EU countries (notably the UK) caused a few jitters, but a reassessment of the progress made seemed to cause a reversal in risk appetite during the London morning.
A strong US consumer confidence reading later helped extend the rally and the S&P500 closed up 1.7%. The CRB commodities index closed down 0.5% but key market indicators firmed – oil +1.1% and copper +1.7%. Safe havens were sold, the US 10yr treasury yield up 9bp to 2.06%.
Peripheral Europeans were mixed, Belgium, Spain and Italy improving (the ECB supposedly intervened in the latter), but the Greek 10yr rose 35bp to a fresh record of 35.06% and the 2yr rose 633bp to 150.77%.
The US dollar index is slightly weaker. EUR initially slipped to 1.3282 as the EUR Summit headlines started rolling but started recovering early London and by midday peaked at 1.3434, closing in NY at 1.3386.
The yen underperformed, USD/JPY falling from a London peak of 77.78 to 77.50 and closing at 77.65. AUD followed the oscillation in risk sentiment, making a multi-day low of 1.0048 early London and recovering to 1.0225 near the NY close.
NZD similarly rose from a London low of 0.7637 to 0.7760. AUD/NZD remained inside a multi-week consolidation, slightly firmer between 1.3150 and 1.3200.
AUD/USD and NZD/USD outlook next 24 hours: The temporary calm generated by Friday's EU Summit should support AUD and NZD today. AUD’s downside break of 1.0150 on Friday was not sustained, suggesting further strength today but not higher than 1.0325. NZD has similarly shrugged off its break and has bounced back inside its 0.7740-0.7840 range. Australia’s trade balance and home loans will be watched today, as will NZ’s consumer confidence survey (Westpac version).
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