Friday 2nd September 2011
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CURRENCY: Expect the NZD to struggle today despite the more positive US economic data release overnight. Concerns around the US employment state remain and this should ensure the NZD remains capped at 0.8555 today.
RATES: Quiet trading in kiwi rates during the overnight London session. Local swap yields are likely to open unchanged this morning.
CURRENCY: The strength of the Australian data yesterday meant the NZD was able to test support levels overnight. Demand was easily assembled once the more positive US economic data was released.
GLOBAL MARKETS: Weaker than expected European data but stronger than expected US data contributed to a choppy overnight session for equities, with the reluctance to take strong positions ahead of tomorrow’s US non-farm payrolls data. US and core European bond yields eased, with US 10 year yields at 2.14% at the time of writing. The stronger USD helped push down the CRB commodity price index, led by a 3% fall for grains. Oil and gold prices tracked sideways.
KEY THEMES AND VIEWS
RESILIENT US MANUFACTURING DATA EASES RECESSSION FEARS. The better than expected key ISM manufacturing survey was particularly encouraging considering the market turmoil in recent weeks. It was much better than had been implied by the dire Philly Fed survey, which ironically had contributed to recent market volatility. Details of the ISM were mixed. The new orders index strengthened (to 49.6 from 49.2), with production slipping (to 48.6 from 52.3), the employment index dropped to 51.8, from 53.5 and prices paid easing to 55.5 (from 59). Inventories rose (to 52.3 from 49.2), which is either positive or alarming depending on whether the build-up was voluntary or not. The ISM index remains in expansionary territory, and is consistent with annualised GDP growth of around 2 percent, which represents an improvement from the near stagnation in the first half of the year.
While this is certainly encouraging, the Achilles heel for the US economy remains the household sector, where recent consumer sentiment has been weighed down by the combined headwinds of falling equity and house prices, and a weak labour market. Markets nervously await tonight’s non-farm payrolls data.
US initial jobless claims data overnight printed in line with expectations, with the US Labor Department noting there were no special factors affecting the release, namely the 45,000 person strikes at Verizon. The latter is the major contributing factor to the market expectation for August private payrolls being dragged down to +95k (from +154k in July).
OTHER EVENTS AND QUOTES
• Weaker demand but, lower yields from Spanish debt auction. Demand for the €3.62 bn in 5-year bonds was 1.76 times the amount sold (versus 2.85 on July 7), with an average yield of 4.49% (4.87% on July 7). The ECB announcement that they would buy some Spanish debt helped.
• European manufacturing sentiment falls. The UK manufacturing PMI fell to its lowest level since June 2009. Euro zone gauges were also disappointing with final August readings revised lower from the earlier flash estimates. Falls were evident for Germany (to 50.9 from 52), France and Italy.
• French PM Fillon: France must set example for other European countries by passing constitutional amendment calling for balanced budgets.
Despite a positive release yesterday on the NZ front some caution should be exercised given the potential for a weaker US employment release tonight. Topside moves should be limited with another potential dip back below 0.8500USD likely.
Expected range: 0.8480 – 0.8555
NZDAUD: Counter rucking…
No pressure likely on the RBA next week, although markets are still pricing otherwise, after yesterday’s Australian data. This cross was taken back to the technical support level and should remain close to it today.
Expected range: 0.7902 – 0.7948
NZDEUR: Advantage line crossed…
Despite getting above the next technical resistance level of 0.7957 this cross does not look particularly comfortable above it at this stage. The European picture does however support further moves higher although they may not be today.
Expected range: 0.5933 – 0.5978
NZDJPY: Grubber kick…
Not much to report here as counter forces are at work leaving this cross little room to move outside recent ranges and more of the same is expected today.
Expected range: 64.88 – 65.68
Weaker UK August PMI was enough to deliver further marginal gains to this cross. Momentum is not there for a move through 0.53GBP at this point.
Expected range: 0.5233 – 0.5278
Source: ANZ Research
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