Westpac Global Markets Strategy Group
Monday 21st November 2011
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Markets stabilised on Friday, risk sentiment firmer until the MY morning but then sagging for little net change.
The S&P500 closed unchanged, although the VIX barometer of risk aversion declined 2.5 ppts. There were many competing influences, all Europe-related.
On the positive side of the ledger, Greece’s 2012 Budget was approved by its cabinet, Italy’s new leader Monti won a confidence vote, and rumours of ECB unlimited bond purchases (supported by a think-tank report) were rife, as was talk of the ECB channelling support via the IMF.
On the negative side, ECB chief Draghi pushed back against suggestions it could do more, citing the need for price stability and that its credibility was of paramount importance, and Germany’s Foreign Ministry confirmed the country was considering the possibility of orderly defaults beyond Greece.
Commodities were less inspired than equities, the CRB index shedding 0.7% (oil -1.3%, copper +0.6%, gold +0.1%). US 10yr treasury yields closed 5bp higher at 2.01%, while Italy’s equivalent rallied by 20bp, Spain rallying 11bp and Greece rallying 71bp. The ECB reportedly bought Italian and Spanish bonds.
The US dollar index is little changed after falling into the NY morning and then recovering. The US Conference Board’s leading index beat expectations but had little impact. EUR rose to 1.3614 and then slumped in NY to close at 1.3526 for little net change. USD/JPY fell to 76.58 and recovered to 77.01. AUD rose from the 0.9990 Sydney close to 1.0107 during the NY morning, but then fell back to 0.9997. NZD similarly spiked from 0.7560 to 0.7650 to 0.7553. AUD/NZD made a fresh six-month high at 1.3270, closing at 1.3230.
AUD/USD and NZD/USD outlook next 24 hours: The initial mood may be weighed by reports the US Super Committee’s talks on reducing the fiscal deficit may have broken down. The AUD should test minor support at 0.9997, and possibly 0.9966. NZD’s 0.7553 minor support level is vulnerable.
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