Westpac Global Markets Strategy Group
Thursday 13th October 2011
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European rhetoric extends rallies.
European Commission president Barroso presented a roadmap to solve the European debt crisis including bank recapitalisation, Greek payments, and a European rescue fund, and markets took this as a sign of growing resolve from officials.
Additional market support came from Slovakia, which agreed to approve the EZ bailout fund (21 July version) in a 14 October vote, and EZ industrial production which improved and beat estimates.
The Eurostoxx 50 closed 2.4% higher, and the S&P500 is currently up 1.7% (it has risen 1.3% post Barroso).
Commodities followed suit, the CRB index +0.4%, oil +0.2%, copper +3.1%, and silver +2.1%.
US 10yr treasury yields are 9bp higher at 2.24%, the 2-10yr curve 10bp steeper. A 10yr auction was weak, 3bp above market yield and the 2.9 bid-cover ratio below the 3.1 year average.
The FOMC minutes contained no surprises, policymakers monitoring the recovery but ready to act further if necessary (QE3 was promoted as an option by some members).
The US dollar index fell almost 1% as safe havens were shunned. Ultimate safe-haven yen underperformed all, USD/JPY bouncing from 76.31 to 77.49 and forming a technically bullish key day reversal.
EUR rose from 1.3650 to 1.3834 – a one-month high. AUD outperformed (along with NZD), surging from 0.9940 to 1.0207. NZD similarly rallied from 0.7840 to 0.7996. AUD/NZD firmed with risk sentiment from 1.2710 to 1.2780.
AUD/USD and NZD/USD outlook next 24 hours: The upward corrections remain intact, although the recent moves have stretched the currencies such that small intraday pullbacks are possible. AUD has broken successive upside targets and now looks to the 62% retracement level of 1.0240 above. If NZD can hold above the key 0.7960, 0.8120 beckons. Australia’s employment report today is important, and China’s trade balance will be watched.
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