Economic views and news - Friday, 23 December

ANZ Research

Friday 23rd December 2011

This is our last Morning Brief for 2011. Our first Morning Brief for 2012 will be on Monday 9 January.

OUTLOOK

CURRENCY: Christmas cheer is in the air and most is well in the markets. Positives are likely to be the theme of the day today, but with no local data we should see thin trade.

RATES: Very quiet overnight with no kiwi trades. Local rates are expected to open a touch higher in yield this morning.

REVIEW

CURRENCY: A string of US data namely US jobless claims at a 3½ year low released overnight saw positive sentiment reign. The ECB's 1% for three year deal is currently getting the benefit of the doubt.

GLOBAL MARKETS: A very quiet session overnight, with the market in definite holiday mode. Risk opened on the back foot, headed higher, and then held onto gains for the remainder of the session, supported by reasonably solid data.

US and European equities rose, with the Euro Stoxx50 up 1.3% and the S&P500 up 0.8% at the time of writing. Government bond yields eased in the US (1.96% for the 10-year maturity) and UK, edged higher in Germany, Spain (to 5.28%) and Italy (6.82%), but eased in France (3.05%). Commodity prices edged up, supported by a 1.3% gain in crude oil prices. Gold prices eased.

KEY THEMES AND VIEWS

UK jobless claims fall to 3½ year low. The number people continuing to receive jobless benefits also fell, to its lowest since September 2008. It was probably no coincidence that consumer confidence has been picking up, with the University of Michigan final index of consumer sentiment reaching a six-month high in December. Helping sentiment have been lower petrol pries, which fell to their lowest since February.

The data is far from bullish, but the grim jobs situation finally appears to be improving. One wonders, however, how immune the US economy would be from a European recession.

King sounds a warning for 2012. While timely intervention by the ECB, which loaned a record €489bn to banks on day one, has helped to temporarily avert a credit crunch, the warning by Mervyn King (BOE governor and vice chair of the European Systemic Risk Board) was worth noting.

Growth prospects "have deteriorated" as the European debt crisis spills over into the real economy. This is creating a negative feedback loop, and the outlook for financial stability has "worsened" since the last ESRB meeting in September.

Conscious that there is "extreme risk aversion in private financial markets", King appealed to banks not to shut up shop and "reduce lending to the real economy". With bank share prices having been pummelled since the end of June (down 28%) and with the need to boost capital buffers, this will be easier said than done. And you thought 2011 was a tough year.

OTHER EVENTS AND QUOTES:

· US 30-year mortgage interest rates drop to 3.91%, the lowest since at least 1971, according to figured compiled by Freddie Mac.

· Bigger tests ahead for US politicians in 2012. Unless congress acts by the end of 2012, the $4tr in income tax cuts will expire, and automatic $1.2tr reductions in defence and domestic spending will start. Given recent evidence, prospects of an agreement being found are bleak.

NZDUSD: On the road again.
Holiday mode is likely to dominate trade today with moves towards resistance at 0.7770 looking possible. However, thin markets as the holiday season arrives are likely to see subdued trade and ranges.
Expected range: 0.7700 - 0.7770

NZDAUD: Tug of war.
More Tug of war on the antipodean cross is on the cards today with subdued moves as both ‘risk' assets rallied in tandem. Recent ranges will keep the cross bound today.
Expected range: 0.7595 - 0.7660

NZDEUR: Kid at Christmas.
The possible negatives surrounding the ECB's offer for banks to borrow at 1% for 3 years shifted to positives over night and Kiwi was the beneficiary with a risk on rally spreading though out markets. Upside moves remain in vogue today however thin markets are likely.
Expected range: 0.5910 - 0.5960

NZDJPY: Hungry anyone?
The risk on rally extended its hand to the NZDJPY over night as the cross took wind from the positive tone of the market. Hard to see this turning today with Carry expected to remain on the menu.
Expected range: 60.10 - 60.70

NZDGBP: Enjoy the view.
Attempted breaks at familiar resistance levels are currently looking like they may pay off. Moves are not likely to be large today however momentum shows a bias to the topside.
Expected range: 0.4880 - 0.4915

Comments from our readers

No comments yet