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ANZ Morning Brief - Thursday 16 September 2010

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Fuseworks Media
Fuseworks Media
ANZ Morning Brief - Thursday 16 September 2010

OUTLOOK

CURRENCY: Markets await the RBNZ Monetary Policy Statement and OCR review at 9am today. Expect an underperforming NZD as a result of no change to the cash rate and a subdued statement accompanying this.

RATES: Expect the rates market top open on the back foot ahead of this morning's MPS, with a little nervousness creeping in before the announcement, not helped by higher US 10 year Treasury bond yields..

REVIEW

CURRENCY: Market focus was clearly on the Bank of Japan yesterday and overnight as they delivered the much anticipated intervention. Australasian currencies remained together on the sidelines.

GLOBAL MARKETS: European equities were down, not helped by weaker than expected UK jobs data. However US equities are back in positive territory. Bond yields are higher, and commodities retreated, with the CRB index down slightly, led by falls in softs and energy.

KEY THEMES AND VIEWS

A Mixed round of us data. While the drop in the NY Empire Fed Manufacturing Index looks bad, with the headline index inching back to a new low for the cycle, the reality is it has been popping around these levels for 3 months now, and the sub-indices have actually improved. Indeed, New Orders jumped from -2.7 to +4.3, shipments rose from -11.5 to -0.3 and employment rose from 14.3 to 14.9. Manufacturing data was on expectations, and Capacity Utilisation inched higher, and is now recovered exactly half of the peak to trough drop. Slow, but steady.

Ell eyes on the MPS today. While we expect the RBNZ to leave the OCR on hold, and for them to adopt a more cautious tone relative to June,, as noted yesterday, we struggle to see them making the sorts of noises that might endorse current market pricing. We expect a cautious attitude with regard to the immediate future, but with the economy still slowly recovering and the OCR at only 3%, it's inconceivable to think the Bank won't have interest rates rising in their projections. Roll on 9 O'clock.

Overnight Comments/Events

Dairy prices rise in Fonterra's global online auction. The weighted average auction price for all contracts and all periods rose by 1.9% from the previous event, led by a 10.2% gain in Anhydrous Milk Fat. Whole Milk Powder prices rose, but only by 1.4%. While it is pleasing to see a gain, many had expected a gain of around 5%.

Japan says it will continue to intervene in FX markets to stabilise the yen. Comments about intervention were on the newswires several times in the London session, with the MOF apparently saying that they would intervene again if necessary, even if that's during the London or New York session. It's early days yet, but with USD/JPY hanging on to gains (at around 85.6 vs below 83 prior to intervention), so far it has been successful.

Gold is in a bubble, and nothing is safe. Billionaire investor and market Guru George Soros says gold is the "ultimate bubble", and that "is a period of great uncertainty so nothing is very safe". While gold prices may go higher, he quipped that "after asset classes set new highs there are almost always immediate reversals that disappoint investors".

NZD: RBNZ tone important

A difficult balancing act today for the RBNZ. They will need to acknowledge recent events while taking on board the forward looking scenario. The NZD should under perform as a result of their accompanying statement although yields will still remain attractive relative to many.

Expected Range: 0.7305 - 0.7395

NZDAUD: Neutrality remains

Nothing of note for this cross today although Australian consumer inflation expectations and the RBA bulletin may deliver some underlying AUD demand. Australian yields and economic performance still have the edge and will keep this cross aimed towards support for today.

Expected range: 0.7792 - 0.7846

NZDEUR: Taking a breather

Having been unable to break higher the EUR now looks to consolidate for its next move. The NZD however may lose some ground against the EUR today after the RBNZ announcement.

Expected range: 0.5623 - 0.5666

NZDJPY: Japanese exporter subsidy

The BoJ intervened yesterday and has mentioned that it may well intervene in other time zones. Given it appears unsupported by other countries, hardly surprising when it is effectively a subsidiary for Japanese exporters, the longevity of the move may be in question. For now do not expect the market to swim against the tide.

Expected range: 62.10 - 63.20

NZDGBP: Reversed nicely

Mild support for the GBP combined with a weaker NZD ensured that the key 0.4762 level was not breached. For today lower levels are likely towards the interim support at 0.4660.

Expected range: 0.4660 - 0.4710

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