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ANZ Morning Brief: Monday September 13, 2010

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Fuseworks Media
Fuseworks Media
ANZ Morning Brief: Monday September 13, 2010

OUTLOOK

CURRENCY: A tentative start likely for the NZD today as it potentially looks to assalt a key resistance level (0.7330) at some point this week. We expect the RBNZ announcement on Thursday to pour cold water on this.

RATES: Swap yields to open a point or two higher this morning following similar moves in London at the end of last week.

REVIEW

CURRENCY: The European session on Friday delivered further support for the NZD as it attempted to break higher. It was however thwarted by selling interests at 0.7300USD but did not back off much at the close of trading.

GLOBAL MARKETS: US equities post seventh gain in eight sessions, up 0.5 percent. European equities edge lower as financial stocks ease on concerns over additional capital requirements. US and European bond yields edge higher on concerns over heavy future bond supply. Commodity prices move higher on improving risk appetite, concerns over disruptions to US oil supply.

KEY THEMES AND VIEWS

REGULATORS AGREE TO TOUGHER BANK RULES. Most details of Basel III were agreed in July, but this weekend's meeting added the final two important pieces to the Jigsaw, including how much extra capital would be required and how long financial institutions have to comply. In future banks will need a tier one capital ratio of at least 7 percent as opposed to the current 4 percent ratio. Banks will have to hold a core tier 1 ratio of top quality capital (retained earnings and equity) of 4.5 percent compared with 2 percent at present. Banks will also have to hold a separate 2.5 percent capital buffer on top of their Tier 1 holdings. A separate "countercyclical buffer" of 0-2.5 percent will also be required when excessive credit conditions emerge, although details are sketchy at this stage. In practice, the new regulations will not be a problem for most banks who are already holding this much capital. While it is short of the 10 percent buffer pushed by the US and UK authorities, the new proposals are higher than wanted by countries with smaller capital buffers, notably Germany. Implementation of the new Tier 1 rules will start in January 2013 and will be fully implemented by January 2015. The capital conservation buffer will be phased in from January 2016 to 2019. Any agreement will still need to be ratified by heads of government at the G20 summit in November.

OVERNIGHT COMMENTS/EVENTS

Rising US inventories a positive sign. The rise in wholesale inventories was the strongest in two years. Stocks of durable goods rose by 1 percent, with non-durable stocks up 1.7 percent. Wholesale makes up about 30 percent of all business stockpiles, with the larger Factory inventories advancing 1 percent in July. It suggests manufacturing sector strength is likely to be sustained.

Fiscal policy paralysis. Last week the Obama administration released a flurry of proposals designed to stimulate the flagging economic recovery. However, the chances of any of these proposals being passed by Congress ahead of November's mid-term elections are slim. Even after the elections the chances might not be much better. Electoral gridlock will probably mean fiscal policy paralysis over the next two years. NZD: Waiting on the RBNZ It may well be a long week for currency traders locally as they await the RBNZ Monetary Policy Statement and Official Cash Rate review on Thursday. No change is expected to the OCR. However expect the tone of statement to be unusually subdued in light of the situation in Christchurch and this may see another reversal for the NZD from recent highs. Expected Range: 0.7245 - 0.7315

NZDAUD: Still struggling The brighter economic picture in Australia should ensure this cross remains within the 0.78AUD region today. Only a large political dustup would provide a temporary spike higher for this cross which would be limited to 0.7926. Expected range: 0.7834 - 0.7894

NZDEUR: Giving some back Late NY market news around the bailed out German bank Hypo Real Estate requiring more fund lifted this cross. Weekend news that they will receive those funds may see this cross ease lower today. Expected range: 0.5708 - 0.5758

NZDJPY: Leadership challenge The Japanese leadership challenge this week may well deliver more JPY weakness than potential official intervention. This cross however should struggle to get much above 61.60 on the day. Expected range: 60.80 - 61.60

NZDGBP: Plenty of talk BoE officials have their say this week and combine this with the upcoming UK austerity budget (October) and there is little bright news for the GBP. Expect this cross to remain supported off the back of a relatively stronger NZD. Expected range: 0.4712 - 0.4762

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