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Economic views and news - Wednesday, 12 October

ANZ Research

Wednesday 12th October 2011

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CURRENCY: The consolidation button has been switched on and it is likely to remain that way in our trading day – ceteris paribus. No local data and little to excite from our pacific partner should see the range trading.

RATES: Expect markets to open broadly unchanged.  Global interest rates are a tad higher, so chances of any rally (today at least!) look slim.


CURRENCY: European Jaw boning and increased capital requirements on EU banks had little effect on NZD, which held up through the offshore session. Asian markets helped the cause with positive sentiment and equity markets.

GLOBAL MARKETS: Glancing at the two headlines below – of delays to the Greek bailout and Slovak vote – you could be forgiven for assuming that markets had turned to custard again overnight. However, the mood seems reasonably positive.

We have seen some slippage in equities, particularly in Europe, but US equities have turned, and as we write are in positive territory, and US Treasury bond yields are at 5 week highs. The 64 million dollar question is – where to from here? Have we run out of good news? It looks like we may have in Europe.

Even if the EFSF expansion does get approved by Slovakia, it is quickly becoming clear that the EFSF in its proposed expanded state won’t have the firepower to do the job. That leaves us waiting for the Franco-German plan, which is 3+ weeks away.

The picture across the pond looks a little brighter – the data is starting to show signs of flattening out correcting the downward momentum, and US Treasury secretary Geithner is apparently only days (or perhaps a couple of weeks at most) away from announcing a plan to “unlock” the mortgage refi gridlock. That would be tremendously positive news, especially with mortgage rates at new lows in the US.

But we still have the 3rd quarter bank earnings season to contend with - Bloomberg news is leading with the story that Goldman Sachs may report its lowest earnings since 2008. With European banks in the news, and concern set to deepen if Greek haircuts are increased, this could be very de-stabilising. We will see – we have certainly been surprised by the robustness of the swing back in sentiment over the last few days .


GREEK BAILOUT TRANCHE DELAYED. The already delayed 6th instalment of the €8bn Greek bailout by the EU/IMF/ECB troika has been delayed again, this time till “early November” according to Bloomberg news. The troika say they have made “important progress”, but are urging more spending cuts, and talk on the streets is that bigger haircuts will be part of the deal.

SLOVAKIA VOTE DELAYED. Slovakia remains the only Eurozone country that has yet to ratify the 21st July expansion of the EFSF. Among other things this expansion increases the size of the facility from €440bn to €780bn. However, local Slovakian political posturing is getting in the way, with media reports stating that the junior ruling coalition Freedom and Solidarity party has refused to participate in the vote, removing any possibility of an absolute majority. This is disappointing news for Europe, but it doesn’t seem to have had much of an impact on markets, which are just cresting the wave of a multi day “upturn” in sentiment. We will see how this progresses – the road to November 3rd (by which time the Markel/Sarkozy grand plan has been promised) could be a long row to hoe.

NZDUSD: Buoyant
Despite the Record NZ Deficit reported yesterday, the NZD managed to stay firm vis a vis the USD dollar over night. Supported by out performing Asian Stock markets the NZD managed to shrug off European jitters, and stuck to an 80 range. Little data from NZL today should see range trading persist.
Expected range: 0.7770 – 0.7840

NZDAUD: Easy does it.
Slowly but surely the NZDAUD is creating lower highs and lower lows as a hourly downward channel continues to mature. Resistance at 0.7865 should hold in our session, however keep and eye on Australian Consumer Sentiment and Home loans data due today.
Expected range: 0.7800 – 0.7865

NZDEUR: In a nut shell
Consolidation for this Pair as the market bought little new flavour to the headlines over night. Support stood strong at 0.5710 with upside moves capped around just north of 0.5780. Tight ranges should persist today.
Expected range: 0.5700 – 0.5750

NZDJPY: On the fence
NZDJPY flirted with both sides of the 60.00 level over night as the pair gave back only a portion of its recent gains against the ‘safe haven’. Expect the levels to hover around the 60.00 mark today
Expected range: 59.60 – 60.20

NZDGBP: All sorted…
A tough night for the Queens currency overnight, taking the performance wooden spoon. Mixed data did not help with economic fundamentals still considered ‘poor’ in the UK. The cross pushed its way back above 0.50 after a short stint lower. Expect support at 0.50p today and ranges to take shape.
Expected range: 0.5000 – 0.5040


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