Thursday 1 July 2010

Morning Report
Foreign Exchange Market News and views
Previous Range Today’s Open Expected Sentiment remains decidedly bearish. The S&P500 opened on key support at 1040-42
and whipped around in a tight 10pt range for much of the day before a late lurch lower saw
Asia Overnight 8.00am NZD cross Range Today
it finish down 0.8%. Sentiment was given a lift in early dealings by a smaller than expected
NZD 0.6895-0.6942 0.6858-0.6955 Ð0.6858 0.6820-0.6900 uptake at the ECB’s 3mth liquidity tender. The ECB lent €132bn to European banks – much
smaller than the €442bn in 1yr funds that mature tomorrow, a sign that the region’s
AUD 0.8463-0.8527 0.8436-0.8567 Ð0.8418 Ð0.8147 0.8370-0.8460
financial sector may not be as stressed as feared. That good news was however countered
JPY 88.39-88.69 88.42-88.77 Ð88.47 Ð60.67 88.00-89.00 by weaker US data. Moody’s announcement that Spain was on a review for downgrade
EUR 1.2167-1.2224 1.2204-1.2305 Ï1.2226 Ð0.5609 1.2150-1.2280 pressured markets in afternoon trading as well. US 10yr Treasuries took a breather with
yields mostly unchanged following the past week’s huge gains. Commodities were up on
GBP 1.5028-1.5088 1.4936-1.5069 Ð1.4947 Ð0.4588 1.4900-1.5000 the day (+0.92%).
The smaller than expected uptake at the ECB’s 3mth liquidity tender helped stabilise risk
NZ Domestic Market (Previous day’s closing rates) sentiment in early offshore dealings. But as NY entered the fray, and following weaker US
jobs data, currencies shed a good amount of their earlier gains vs the USD. EUR traded back
Cash Curve Govt Stock Swap Rates (Qtrly)
from 1.2300 to 1.2240, while both AUD and NZD fell to fresh lows for their recent push
Cash 2.75% Nov-11 3.67% 1 Year 3.74% lower. The AUD shed 150pts from its highs and printed session lows near 0.8415 before
2 Years 4.11% it found some support while NZD fell about 100pts from its highs to lows near 0.6858.
30 Days 2.96% Apr-13 4.17%
3 Years 4.39% US Chicago PMI was moderately lower In June falling to 59.1 from 59.7. That said,
60 Days 3.03% a reading above 50 reflects expansion and the survey has been above this key level for
Apr-15 4.65% 4 Years 4.61%
90 Days 3.15% nine consecutive months now. Within the detail the report was mixed, with new orders
5 Years 4.79% falling to 59.1 from 62.7 and order backlogs also down. Prices paid were slightly lower and
Dec-17 5.12%
180 Days 3.39% 7 Years 5.09% encouragingly, the employment component rose back above 50 to 54.2.
1 Year 3.70% May-21 5.34% 10 Years 5.38% US ADP employment came in weaker than the market consensus posting a rise
of just 13k in June compared with 57k in May. This was the smallest rise since Feb and
World Bourses and Indices suggests an even weaker than already expected non-farm payrolls report on Friday. The
ADP report revealed a fall of 35k in construction industries but a rise in service providers
AUD USD by 30k.
Cash 4.50% 0.00 Fed Funds 0.00-0.25%
Nomura Japanese manufacturing PMI fell to 53.9 in June. That compares to 54.7 in
90 Day 4.87% -0.10 3 Mth Libor 0.53% 0.00 May. The projections encased in the METI IP report are basically consistent with this update,
3 Year Bond 4.56% -0.08 10 Year Notes 2.94% -0.01 implying moderate gains in production in the months ahead.
10 Year Bond 5.11% -0.05 30 Year Bonds 3.90% -0.03 Japanese labour income fell 0.2%yr nominal, +0.7% in real terms. Overtime earnings
remain the major source of strength in these numbers. OT is up 10.3%yr, while regular
NZX 50 2972.1 -19.0 CRB 258.5 +2.2 earnings are still slightly negative. The consolidation of the labour market has supported
S&P/ASX200 4301.5 -44.2 Gold 1242.0 +2.5 incomes to a degree, but there is nothing in this report to curb one’s anxiety about the
Nikkei 9382.6 -188.1 Copper Fut. 290.90 -0.10 post-stimulus consumer.
FT100 4916.9 +2.7 Oil (WTI) 75.57 -0.34 Japanese housing starts were 4.6% lower over the year to May, well below April’s
S&P500 1033.0 -8.3 NZ TWI 66.34 -0.55 0.6%yr outcome and market expectations for a +5%yr outcome for May.
Japanese construction orders were up 9.2%yr in May. This was a sharp turnaround
from the 25%yr decline in April, though this series is generally very volatile. In May, private
Upcoming Events construction orders were up 10.2%yr while government construction orders were down
Date Country Release Last Forecast 13.5%yr.
1 Jul NZ Jun ANZ Commodity Price Index 2.5% – Euroland inflation slowed further to 1.4% in the preliminary reading for June. The
Aus May Retail Sales 0.6% 0.3% decline in energy prices is likely to have played its part in the softer reading. Although
May Dwelling Approvals –14.8% –1.5% Euroland CPI had been drifting higher in the past quarter, it is still well below any level that
Jun AiG PMI 56.3 – the ECB should be concerned about.
US Jun ISM Manufacturing 59.7 58.0 Canadian GDP was flat in April following the 0.6% growth in March. The slowdown was
May Construction Spending 2.7% –1.8% driven by the retail and manufacturing sectors but growth in mining and wholesale provided
May Pending Home Sales 6.0% –25.0% some offset. In recent months, Canadian GDP has been robust with only one reading below
Jun Total Vehicle Sales, mn ann’lsd 11.6 11.5 0.5% in the past five months so April’s weak number is not cause for concern just yet.
Initial Jobless Claims, w/e 26/6 457k 455k
Jpn Q2 Tankan Lrg Manuf Conditions –14 –3
Outlook
Q2 Tankan Lrg Non–Manuf –14 –5
Eur Jun PMI Factory (F) 55.6 a 55.6 AUD/USD and NZD/USD outlook next 24 hours: Aust retail sales and building approvals
Ger May Retail Sales %yr –3.1% –0.6% for June will be a focus but the June China purchasing managers surveys will be the main
point of interest in Asia today. Worries over Chinese growth have been a key negative
UK Jun House Prices %yr 6.9% –
for commodities, equities and the commodity currencies in recent sessions. Weaker than
Jun Factory PMI 58.0 56.5
expected data out of China will see both AUD and NZD losses accelerate. NZD should run
2 Jul US Jun Non-Farm Payrolls chg 431k 0k into sellers above 0.6900 on the day while AUD should meet resistance into 0.8500.
Jun Private Payrolls chg 41k 180k
Jun Unemployment Rate 9.7% 9.9%
May Factory Orders 1.2% –0.8% Imre Speizer, Senior Market Strategist, NZ, Ph: (04) 470 8266
Eur May PPI %yr 2.8% 3.1% With contributions from Westpac Economics

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