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Westpac Institutional Bank Morning Report

Fuseworks Media
Fuseworks Media

Risk sentiment was weaker during the US session, hurting US equities, risk currencies and depressing US treasury bond yields.

The S&P500 closed down 1.7% to form a bearish key week reversal. Better US data and continued earnings improvements were overshadowed by the potential elevation of the probe into Goldman Sachs to criminal status, its stock falling 9% and financials down 3.5%.

S&P downgraded Goldman stock to "sell" from "hold", the early NY news marking the start of the declines. Meanwhile, the EU and IMF spent the weekend crafting a three year rescue package worth EUR110bn in exchange for austerity measures, a deal at the high end of market expectations and EUR-supportive today.

Commodities were influenced more by the positive US data, the CRB index rising 0.9%. Equities influenced US 10yr treasuries which shed 7bp in yield, the 2-10yr curve flattening by 4bp.

The US dollar index turned upwards during the European afternoon to close little changed from the Sydney session. EUR fluctuated between 1.3250 and 1.3350, and is trading at the upper end this morning. The yen firmed against the dollar, from 94.60 to 93.80, and is lower (93.60) at this morning's open.

AUD left Sydney at around 0.9320 and declined to 0.9250, the US equities fall and concerns around the tax reforms affecting mining companies weighing on the commodity currency through to the NZ open, where it has traded down to 0.9215.

NZD followed suit after initially gaining to 0.7326, and is currently at 0.7251. AUD/NZD moved steadily down to 1.2700, where it opens in NZ today.

US GDP grows 3.2% annualised in Q1 2010. The economy expanded broadly in line with market expectations, reflecting accelerating consumer spending growth (3.6%), slightly slower business investment spending (4.1%), a renewed decline in housing (-10.9%), a further decline in government spending (-1.8%), a smaller but still decent contribution from stock-building (1.6 ppts), and a 0.6 ppts drag from net exports.

The price indicators were subdued, especially the 0.6% annualised core PCE deflator.

US employment cost index up 0.6% in Q1. This follows five consecutive 0.4% quarterly outcomes, and reflects higher benefit costs in Q1 (most likely medical benefits). Wage and salaries growth slowed.

US consumer sentiment revised higher. The final April reading of the Uni of Michigan sentiment index was revised up from 69.5 to 72.2, still a little lower than March's 73.6 reading, but still an unusually steep revision - most of it in the outlook component.

US Chicago PMI up from 58.8 to 63.8 in April. That's the highest reading for this regional factory index since April 2005. Production, orders and jobs were all stronger. Also the Milwaukee PMI rose from 62 to 66 in April.

The BoJ decided to leave uncollateralized overnight call rate at 0.10%. No further policy measures were announced. The BoJ also released its six-monthly report. In the report, the BoJ revised its growth forecast for fiscal 2010 up to 1.8%yr, from 1.3%yr, but left its forecast for fiscal 2011 broadly unchanged at 2.0%yr.

Japanese data: Industrial production rose by modest 0.3% in Mar, but remained over 30% higher over the year. The Nomura PMI edged slightly higher in Apr to 53.5. Mar unemployment rate rose 0.1ppts to 5.0%. March national CPI measure was unchanged at -1.1%yr; the Apr outcome for the Tokyo CPI rose to -1.5%yr, from -1.8%yr in Mar. Finally the pace of decline in housing starts moderated to -2.4%yr in Mar, from -9.3%yr in Feb; and year-ended growth in construction orders surged to 42.3% in Mar, from -20.3% in Feb..

Euroland inflation edged up to 1.5% yr in Apr, according to the flash estimate. Meanwhile the unemployment rate was steady at 10.0% in Mar, despite a lower German jobless rate.

UK consumer confidence slipped a notch to -16 in Apr, according to the latest GfK survey.

Canadian GDP grew 0.3% in Feb, the sixth straight month of growth. Meanwhile, industrial product prices fell 0.4% in Mar, the first fall since Oct-09, mainly due to the appreciating C$.


AUD/USD and NZD/USD outlook next 24 hours: AUD may suffer today from the weekend's tax news, but should find support in the 0.9130-50 area. NZD has sustained its clearance of 0.7200, and between there and 0.7250 offers good support for an eventual move to 0.7400.

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