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Westpac Institutional Bank Morning Report 13.9.10

Fuseworks Media
Fuseworks Media
Westpac Institutional Bank Morning Report 13.9.10

News and views

US equities firmed from the Asian session onwards, although there was little news to guide the market. The overall impression was US double-dip concerns had receded, although a strong US wholesale inventory report may have added fuel to the rally at the NY open. The S&P500 closed up 0.5%. Commodities closed firmer, the CRB index up 0.7%, with oil surging 3.0% after a Canada-US pipeline was closed due to a leak, but slowing copper demand pushing it 1.1% lower. US 10yr treasury yields rose 3bp to 2.79%, the session high 2.82%. Treasuries were sold amid continuing positive risk sentiment, as well as reports Norway's sovereign wealth fund bought Greek debt, corporate rate lock hedging, and rumours China may hike rates. The raft of good China data released after the markets closed was balanced enough to dispel such a notion, but is likely to be supportive for some risk markets today.

The US dollar closed modestly firmer after gyrating within the range established during the past few days. EUR peaked at 1.2747 during the European morning, but fell near the NY close to 1.2676 after a report a large German bank already under government control, Hypo Real Estate, needs another EUR40bn to remain solvent. USD/JPY firmed from 83.80 to 84.40 on the better risk backdrop and firmer US yields.

AUD ground slightly higher after Sydney closed, from 0.9230 to 0.9270, and opened in NZ as high as 0.9299 on the good China data.

NZD peaked at 0.7301, and opened at 0.7310 this morning. AUD/NZD ranged between 1.2690 and 1.2750.

US wholesale inventories up 1.3% in July. The fastest pace of gain in two years was driven by a 1% jump in durables (led by autos and furniture) and a 1.7% pick-up in non-durables (mainly energy and apparel, the latter up 4.1%, the biggest gain in nearly six years). The report also showed wholesale sales up 0.6%, reversing June's decline. With a previous report showing factory stocks up 1% in July, we may need to revise up our forecasts for the likely contribution to Q3 GDP growth from stock-building, even though it is not clear whether this inventory accumulation was intentional or involuntary. But as the data stand (total business inventories including the retail picture will be published 14/9), here is another reason not to expect Q3 GDP to slip back into contraction.

UK producer prices soft in Aug. Input prices fell 0.5% and output prices were flat (core up 0.1%.). All annual rates of PPI inflation softened. This series has been a niggling inflation concern for some Bank of England policy-makers but this report may ameliorate those worries somewhat. Canadian jobs jump 36k in Aug, more than reversing July's 9k fall, though not as impressive as the occasional 100k monthly gains of earlier this year. The August detail showed full-time, services and self-employment posting gains, while part-time and manufacturing jobs softened. The unemployment rate ticked up to 8.1%. Some evidence of a slowing but not contracting economy here then.


AUD/USD and NZD/USD outlook next 24 hours: AUD momentum remains strong, and any pullbacks should find support in the 0.9200-0.9240 area. The next major upside target is the 0.9400 area, which provided an insurmountable obstacle between October 2009 and April. NZD has major support at 0.7260 for an advance to 0.7350 today.

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