CURRENCY: Yesterday's failure sets the outlook, the 0.80 - 0.8060 resistance zone is too strong until global sentiment changes. A constructive medium term outlook gives us hope but we don't expect topside today.

RATES: Expect local interest rates to open much lower this morning following across-the-board rallies in global bonds. Given strong GDP data yesterday (a timely reminder that there is growth in NZ), the curve should continue flattening, putting paid to what was a short-lived steepening.

REVIEW

CURRENCY: NZD tried to go higher on the back of great GDP data, but failed overnight on general growth concerns. It reinforces the need for external sentiment to change to break back above 0.80.

GLOBAL MARKETS: Given the sea of red ink across equity pages and green ink across bond pages this morning, you'd have to conclude that last night was a "risk-off" session in the Northern hemisphere. European equities were off a tad, but US equities are tanking in late trade, with the S&P 500 off close to 2%. Commodities have taken a bath, led by cotton, silver, crude and gold.

KEY THEMES AND VIEWS

GLOBAL PMIs SLUMP, US DATA DISAPPOINTS. Although German PMIs fell, to be honest we were pleasantly surprised that the figure for the whole Eurozone held steady given all the worry that it might tank. Sadly, the same can't be said about corresponding US data, with the Philly Fed down substantially. By contrast, the new US Markit PMI number fell by much less, which was pleasing to see. But it was probably the US jobs and housing data that did most of the damage, with existing home sales down in May and initial jobless claims stuck close to 390k, defying expectations of a fall, and highlighting the Fed's concern that there's not enough jobs growth. Indeed, Fed chair Bernanke seemed very comfortable with the inflation outlook at yesterday's press conference, implying that it's jobs that will be the focus for monetary policy in the immediate future.

MEASURE IT AGAIN! European peripheral bond yields also fell, in some cases quite substantially. We're not experts on the nuances of Mediterranean bond markets, but we suspect the combination of solid bid cover at last night's Spanish bond auction and rumours that the ECB is set to significantly loosen collateral rules for repos played a role. In fact, there has even been talk that the ECB is conjuring up a plan to abandon credit rating agencies, and will rate member sovereign bonds itself. Call us cynical, but one of the founding pillars of a credit rating is that it's independent, and while the ECB is independent, it is hard to imagine there not being political pressure on the central bank to keep credit ratings up. After all, it is a buyer, collateral holder, and some people think it should also be a backstop for profligate sovereigns. Sounds like just another sugar pill for an already fat patient.

OTHER EVENTS AND QUOTES

� Spain's troubled banks may need between ?51bn and ?62bn euros of capital according to the two private consultancies hired by the government to conduct independent stress tests. This is well less than the ?100bn of funds available.

NZD/USD: Needs a global sentiment boost, not just local?

Global markets have refocused on the global growth story as weak China, Europe and US manufacturing sectors weigh on sentiment. This sentiment needs to change for NZD to make any further gains.

Expected range: 0.7820- 0.7900

NZD/AUD: Mid range waiting for a break?

Despite rates differentials there is technical resistance at 0.7850-0.7875. Strong GDP should keep NZD sought.

Expected range: 0.7800 - 0.7860

NZD/EUR: Watch next weeks Euro summit?

Next week's European summit is key. We are still somewhat circumspect given that only time will heal the debt problem. Positioning is the caveat with Europe's issues lacking immediacy to force an "accident" keeping euro counter-intuitively range bound.

Expected range: 0.6230 - 0.6300

NZD/JPY: Reverting to old ways?

The FOMC weakness in JPY has reverted and global sentiment will drive this cross. Medium term view is for NZD gradually outperform JPY.

Expected range: 62.60 - 63.50

NZD/GBP: "Funding for lending" a global experiment?

Still believe July asset purchasing by the BOE will keep NZD outperforming GBP. However the market is interested, as is FOMC Bernanke, in the "funding for lending program" and the Olympic boost will probably keep GBP strong.

Expected range: 0.5025 - 0.5075