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Economic views and news - Tuesday, 14 February'12

ANZ Research

Tuesday 14th February 2012

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CURRENCY: NZD fortunes look mildly better today as Greece takes the first step of their marathon. Expect familiar topside resistance at 0.8380 to remain in place throughout today’s trading as markets digest the news.

RATES: Very quiet overnight with no kiwi trades in London. Local rates are expected to open a touch higher this morning, following a small sell-off in Australian rates.


CURRENCY: A lift in the fortunes of the Australasian currencies as the risk on switch was flicked by the Greek austerity package passage through parliament.  Resistance on the topside held to leave the NZD drifting.

GLOBAL MARKETS: A very quiet session overnight, with a relief rally in equities as the Greek government approves the Troika’s new austerity measures in exchange for a second bailout worth €130bn. The Euro Stoxx 50 rose 0.4%, with the S&P500 up 0.5% at the time of writing. Greek and Portuguese bond yields fell whereas German and UK yields lifted a tad. The upbeat move failed to extend into FX markets, with currencies broadly retracing yesterday’s gains versus the USD. The CRB commodity price index rose 0.5%, with crude oil prices up 1.5%. Industrial prices fell.


IT’S NOT OVER YET. Following the passage of the Greek austerity vote (199-74 in favour) there was a flurry of supportive comments from Eurozone politicians and technocrats. The focus will now return to Wednesday’s EU finance ministers’ meeting to see if the Greek deal will be ratified. Comments by various officials suggest it will, although concrete details on the €325m in budget cuts still have to be worked out. This looks to be a temporary respite, with doubts over the ability of the Greek authorities to push through unpopular budget cuts when the Greek economy is already on its knees. Social tension in Europe continues to escalate with rioters burning buildings in Greece and Spain's biggest unions calling for mass protests across the country in response to unpopular labour-market reforms.

OBAMA SENDS $3.8TR BUDGET PLAN TO CONGRESS. This is largely a repackaging of last September’s proposal that Republicans in Congress have already blocked. It includes allowing expiration of the Bush-era income tax cuts for higher income earners, imposing a minimum tax on very high income earners, coupled with across the board spending cuts of $1.2tr. According to Budget forecasts, the federal shortfall will exceed the trillion-dollar mark for the fourth straight year, with forecasts of a $1.33tr deficit this year (vs. $956bn forecast last September), before easing to $901 billion next year ($648bn deficit). Chances of this passing through the Senate are slim.

•       Debt auctions run smoothly. Italy sold €8.5bn of 1 year bills (2.23%) and €3.5bn of 127 bills (1.546%), at lower yields than previous events.
•       Rehn Comments on Greece: “I’m confident that the other conditions…. will be completed by the next meeting”.
•       Merkel comments: “It’s important for now to complete this program – and the passage in the Greek parliament yesterday was very important”.

NZDUSD: Flirting again…
The NZD had another affair with topside resistance overnight but failed to impress. The first step on the Greek European debt ladder has been climbed before so markets should not get too optimistic. Further topside attempts though are likely as many continue to trumpet a move forward.
Expected range: 0.8310 – 0.8380

NZDAUD: Courting confidence…
A lift on this cross may be escaping many as impatient NZD buyers lift their expectations. They may be running into those very happy to supply NZD at higher levels and as such this cross should continue to struggle as it approaches 0.78AUD.
Expected range: 0.7750 – 0.7800

NZDEUR: Return to grace…
This cross is reflecting the reality that markets still seek better returns and are somewhat sceptical of the real resolution to the troubles of Europe. Further topside is now likely once it moves back through the 200 hour moving average at 0.6315.
Expected range: 0.6300 – 0.6350

NZDJPY: Speaking of yield…
Demand here has reversed chances of a short-term move lower. The spike above 65JPY was unsustainable at this point but further attempts will be made in the short-term.
Expected range: 64.30 – 65.00

NZDGBP: Another look…
Here too the markets are happy to avoid marking the NZD lower when yields and prospects look positive. Attempts to break 0.5305 may be made today.
Expected range: 0.5275 – 0.5305


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