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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media


CURRENCY: NZ Q2 retail sales today should continue the data trend supporting NZD. Overnight EUR and GBP will be the focus with Europe forecast to return to expansion and GBP BOE minutes and unemployment.

RATES: NZ rates are expected to open higher following overnight moves.


CURRENCY: US dollars were generally brought overnight as core retail sales showed resilience. Yen weakened as Abe announced a study aimed at reducing corporate tax, a sign the "third arrow" may be on the way.

GLOBAL MARKETS: Overnight a quiet start turned into a savage day in fixed income with substantial increases in yields. European sovereign bond yields opened higher following moves in the US and Asia. The release of a mildly better than expected US retail sales data pushed 10yr UST solidly higher, and this saw the jump in European yields extend. The moves have been substantial (and probably exacerbated by poor liquidity during the peak of the summer holiday season) - 10yr UST yields rose 11bps to 2.72%, while 10yr government bond yields in the UK, Germany and France were up 14bps, and 11bps respectively. US equities started out softer, but the solid US retail sale print saw them recover to be 0.3-0.5% higher at the time of writing. European equities gained around 0.5-0.7% with a solid upside surprise from the German ZEW survey also helping. The solid result from the German ZEW survey also triggered a small rise in EUR/USD, although this was not to last as the US retail sales results out later in the day drove a broad-based USD rally, which then saw key technical levels hit and EUR/USD move sharply lower. Commodities were mixed. An announcement that the Reserve Bank of India’s will hike duties on gold and silver imports saw precious metals prices come off higher levels from earlier in session. Gold was back 0.9% at the time of writing but Silver was still in positive territory, up 0.6%. Grain prices finished lower. This was led by corn (-3.6%), as USDA’s first objective estimate firms-up a record US crop of 13.76 billion bushels, or 28% more than last year’s drought-affected crop.


More positivity all round: Overnight markets choose to focus on the positives, but poor liquidity no doubt had a part to play in the size of the moves. Positivity came from both sides of the Atlantic. June’s euro-zone industrial production data and August’s German ZEW survey provided further signs that the Eurozone is slowly emerging from recession. The 0.7% monthly rise in Eurozone industrial production in June was slightly below expectations, but more than reversed the previous month’s fall and was the fifth gain in seven months. In Germany the ZEW index of investor sentiment was better than expected rising from 36.3 to 42.0. The current situation index also rose to a 13-month high of 18.3. At face value, the result points to a pick-up in German growth momentum from earlier in the year. In the US while total retail sales for July were marginally below expectations, but this followed upward revisions for June. The 'control group' (components that feed directly into the GDP report) were also a stronger than expected at +0.5% m/m. This suggests US households have started to spend more in response to the recent gains in employment, equity prices, house prices and modest improvement in the availability of credit. This is a sign that bodes well for Q3 US data and commencement of tapering by the Fed next month.

NZD/USD: US retail sales...

Stronger core retail sales helped to keep US dollars in demand overnight. Today the focus will be on NZ retail sales which are expected to provide a counterpoint to US strength. However, the main driver of kiwi remains offshore not onshore data.

Expected range: 0.7910 - 0.8000

NZD/AUD: NZ retail sales…

Australian business confidence was weak as expected yesterday. Today’s Q2 retail sales from NZ are expected to conform to the data trend that justifies NZD strength, but at the present time NZD strength is priced in.

Expected range: 0.8675 - 0.8790


European data continues to be patchy with industrial production increasing but less than forecasts last night. Tonight forecasts are for European Q2 GDP to return to expansion after 6 quarters of contraction.

Expected range: 0.595 - 0.6050

NZD/JPY: Study on corporate tax…

Japanese PM Abe announced a study for lowering corporate tax in Japan. The market has taken this as new information supporting a weaker yen. This is despite perception that this was imminent and a study isn’t the same as action.

Expected range: 77.50 - 78.50

NZD/GBP: BOE minutes and unemployment…

There will be a focus on GBP tonight as we see the MPC minutes from the last meeting and the first employment report since policy was tied to it. GBP still looks to have more gains if the central bank rhetoric isn’t too dovish.

Expected range: 0.5080 - 0.5180

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