Tuesday 11th October 2011
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CURRENCY: The risk on switch should continue today with the return of the Japanese and US markets. Strong equity moves globally should ensure current momentum is maintained, with the market looking towards key resistance levels.
RATES: More payside interest was evident in the overnight London session. Local interest rates are expected to open a touch higher in yield this morning.
CURRENCY: USD weakness and strong equity performance will have all attributed to assisting the Australasian currency basket higher during the initial part of this week.
GLOBAL MARKETS: With the US and Japan on holiday, the market traded on lighter volumes. Hopes of the German and French plan to support banks saw major US and European equity indices gain 2-3%. Government bond yields climbed, with Greek 10-year bond yields just under 22% and US 10-year yields at 2.08% at the time of writing. Commodity prices rose 2% on the CRB measure, with crude oil up 3% and gold approaching the US $1,700/oz level.
KEY THEMES AND VIEWS
WAITING FOR THE ‘PLAN’. German Chancellor Angela Merkel and French President Nicolas Sarkozy have promised they will deliver a plan to recapitalise European banks and address the Greek debt crisis by the November 3 G20 summit. Those waiting for a “lasting solution” will have to wait a bit longer for the details, with European leaders postponing a debt crisis summit to October 23 (previously October 18), with EU President Van Rompuy claiming “further elements are needed to address the situation in Greece, the bank recapitalisation and the enhanced efficiency of stabilisation tools”. The list seems to be growing and will get larger still if concrete steps are not taken. There are some differences in view, with the ECB advocating that the firepower of the European Financial Stability Facility should be magnified through the use of government guarantees rather than via ECB money market operations. Whatever they decide to do, the July 21 agreement, that foresaw a 21% “voluntary” write-off of Greek bond values, is now looking very light and changes will have to be made.
OTHER EVENTS AND QUOTES
• S&P confirms France’s rating at ‘AAA’, with a stable outlook. Belgium’s rating, ‘AA+’ with a negative outlook, was also confirmed. Last week Moody’s placed Belgium’s Aa1 rating on review for a possible downgrade.
• The Belgian Government will pay €4bn for the consumer lending unit of Dexia, and will guarantee 60% of the “bad bank” to be set up for Dexia’s troubled assets, according to a statement made by Belgian Finance Minister Reynders.
• Borrowed shares, an indication of short selling, climbed to 11.6% of world equities last month, the largest increase for at least 5 years. Indexes in 37 of 45 major countries are now in bear territory having fallen at least 20% from their peak. Bulls believe the rout has gone too far, with the US S&P index now more than 8% from its October 3rd low, and the first time since July they have been above their 50-day average.
NZDUSD: Shifting out…
The break higher of the NZD overnight in unison with a weaker USD may have opened up a revisit of the 200 day moving average (0.7958). Markets are likely to focus on the upcoming EU meeting (expected 17th October but likely to be delayed) and remain positive in the lead up to this. Today however interim resistance at 0.7890 should prove difficult to break.
Expected range: 0.7805 – 0.7885
NZDAUD: Packing up…
This cross remains contained by recent levels and unable to test lower levels as the reaffirmation of NZ’s AAA Moody’s credit rating helps it to remain in touch with the moves of the AUD. Further tests of support may take place today.
Expected range: 0.7830 – 0.7890
NZDEUR: Boxed in…
The NZD is happy to keep pace with the moves of the EUR in the current risk on environment. The upcoming EU summit may not solve all the immediate problems but the hope of a solution should keep the EUR supported for now.
Expected range: 0.5720 – 0.5786
NZDJPY: Doing the heavy lifting…
It has been up to the NZD to make the moves on this cross as the Japanese holiday has left the JPY unchanged from opening levels. Expect more difficulty getting through resistance at 60.48 but it is in for a test today.
Expected range: 59.85 – 60.48
NZDGBP: All sorted…
Another reversal of fortunes for this cross as resistance levels were taken out last night. A revisit of the 0.50GBP+ levels could spell a slightly higher move in the coming day.
Expected range: 0.4990 – 0.5030
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