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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: The focus for currency markets today will be global growth and US jobless claims. China, Europe and the US are forecast to post improving PMI’s and jobless claims a consolidation from last week’s 5 year low.

RATES: NZ rates are likely to open with some pressure to the upside, in line with moves in US and Australian rates markets overnight.

REVIEW

CURRENCY: NZD and AUD have come under sustained pressure over the past 24 hours. Fears over EM contagion, Japanese nuclear leaks and USD buying ahead of the minutes were all cited but without clear causality.

GLOBAL MARKETS: This morning’s FOMC minutes helped firm up market expectations for a September start to tapering, with Committee members providing broad support for Bernanke’s tapering timetable and appearing comfortable with current tapering expectations. US 10yr yields were 5bps higher in response to 2.86%, and the USD strengthened a touch. US equities initially weakened, but later pared losses to be little changed on the day. Earlier, US 10yr yields had traded at a high of 2.88% as stops were triggered, with strong US housing data contributing to the offer tone in bonds. European 10yr bond yields ended 3bps higher, while peripheral yields were up 6-8bps. Commodity markets were slightly softer on the session, with crude prices off 1%, and gold largely unchanged.

KEY THEMES AND VIEWS

little new in fomc minutes to alter september tapering view. Minutes from the July 30-31 FOMC meeting reflected broad support for Bernanke’s tapering timetable: if economic conditions improved broadly as expected the Fed would begin moderating asset purchases later this year, thereafter reducing the pace of purchases in measured steps before concluding QE around the middle of 2014. The Committee had considered adding new information on the contingent outlook for asset purchases, but "judged that doing so might prompt an unwarranted shift in market expectations regarding asset purchases" - effectively condoning expectations for a September start to tapering. The potential for clarifying or strengthening forward guidance for the federal funds rate was also discussed, and while there was general support for current thresholds (6.5% unemployment rate threshold), several members had been willing to contemplate lowering the threshold, while a few expressed concerns regarding changes. Markets will now look to Jackson Hole this weekend and August payrolls data in early September to help cement a start to tapering at the Fed’s next meeting on September 17-18. Our global strategists currently assign a 70% probability for a September start to tapering (by $10-20bn), noting that the unemployment rate has fallen from 8.1% to 7.4% since QE3 began (and monthly jobs growth has averaged almost 200k); the 7% threshold is fast approaching; and that the FOMC has not pushed back against the growing consensus for a September start to tapering.

OTHER EVENTS AND QUOTES

- US existing home sales rose 6.5% in July (5.39m), the fastest pace in nearly four years, and indicating that housing market momentum remains in place despite the recent lift in mortgage rates. US 30 year mortgage rates have increase 115bps to 4.55% since early May

NZD/USD: FOMC minutes...

Tapering was discussed at the July FOMC meeting, the conclusion begin that July was too early although the broad outline of beginning "later in the year, complete by mid-2014" was endorsed. This gave markets little new information regarding the timing of tapering, but USD strength prior to the minutes was endorsed.

Expected range: 0.7820 - 0.7950

NZD/AUD: China PMI…

AUD has been consistently stronger than NZD this week. Today we watch for further moderation of the China slowdown. This would endorse a resilient AUD should it occur.

Expected range: 0.8680 - 0.8780

NZD/EUR: European PMIs…

European PMIs tonight are expected to continue the trend of EUR supportive data. The French services PMI is the only one not forecast to be above the 50 expansionary line.

Expected range: 0.5860 - 0.5960

NZD/JPY: Nuclear woes…

Yen weakened alongside the NZD in the last 24 hours as the nuclear incident at Fukushima was reported to be upgraded to a level 3 incident (on a 0 to 7 scale with 7 being the worst).

Expected range: 77.00 - 78.50

NZD/GBP: Strength

Cable held up well as public finances showed a much healthier balance sheet than forecast. Tax revenues were up and borrowing down. CBI industrial trends were also optimistic and GBP looks strong against NZD.

Expected range: 0.4980 - 0.5080

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