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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: EM currencies and Syria will continue to drive markets in classic illiquid August markets, which would imply further pressure on NZD. GBP may weaken today as BOE governor Carney re-emphasises forward guidance.

RATES: Overnight trading in London of kiwi rates was fairly quiet. Local yields are expected to open slightly lower, in line with overseas moves.

REVIEW

CURRENCY: Strong US data overnight saw the USD in demand, although German confidence continued to support the EUR. Markets remain wary of EM contagion and Syrian intervention which is also supportive of USD.

GLOBAL MARKETS: Overnight markets seemed to focus on growing international concern on the situation in Syria and speculation of some form of possible western intervention in the near future. While it was largely a range-bound session on FX markets, the situation in Syria initially gave the USD support; however this was not maintained through the day despite a run of better US macro data. Supply disruption concerns from Middle East tensions saw crude oil spike around 2.7% higher, while gold gained 1.6%. Equity markets were much weaker, with European bourses down over 2.5%, UK stocks off 0.7% and the main US bourses down 1-2%. There were big moves in UK sovereign bonds, with yields on 10-year gilts falling by 11bps ahead of tonight’s highly anticipated speech from Bank of England Governor Mark Carney. Other European core sovereign bond markets also rallied, although peripheral euro area markets sold off. US treasury yields fell across the curve with 10-year yields moving below 2.71% for the first time since mid August.

KEY THEMES AND VIEWS

overnight data wrap. US consumer confidence (the Conference Board’s measure) was better than expected at 81.5 in August (exp: 79.0), just shy of the 82.1 recovery high seen in June. Positive house price increases, a robust stock market for the year-to-date, a gradually improving labour market and lower petrol prices seem to be supporting household sentiment. However, the current conditions index did fall to 70.7 from 73.6. While it was the first decline in five months and this index generally reflects labour market sentiment, it perhaps suggests the recent rises in interest rates and the softening in the stock market is starting to impact. Overall, it was an encouraging result though and implies a modest recovery remains intact. The regional Richmond Fed survey also showed a better than expected result overnight and the Case Shiller house prices index rose 0.9% m/m in June to leave the annual gain for the 20-city index at 12.1%. This continued to support household wealth effects. But as the new home sales data for July showed, rising mortgage rates are starting to slow activity. US data has thrown up something for everyone over the past few trading sessions suggesting range bound activity should continue for now as the summer holiday period draws to a close and market participants return to work and try to assess the likelihood of Fed tightening in September. In Europe, the August German IFO survey of business sentiment came in at 107.5, beating expectations and providing further evidence of the recovery gaining momentum into Q3. The index has now risen for the past four months with the current conditions index rising to 112 in August - its highest level in 14 months. The expectations index also rose to 103.3, its highest level in 25 months since July 2011 and indicative of further output gains ahead.

NZD/USD: EM pressure...

After a brief rebound NZD was again under pressure last night. EM concerns combined with potential western intervention in Syria are driving weakness in "risk" currencies, a definition we haven’t had to use for a while. This also saw more demand for safe havens such as CHF, JPY and USD.

Expected range: 0.7750 - 0.7830

NZD/AUD: Reverting…

NZD underperformed AUD last night as the rebound off technical support faltered. Another test of support seems inevitable.

Expected range: 0.8630 - 0.8730

NZD/EUR: Confident…

The Germans remain confident with the IFO survey supporting EUR in a night of USD ascendancy. However, failure to hold gains indicates the run of positive data is having a waning influence on price.

Expected range: 0.5830 - 0.5920

NZD/JPY: A classic response…

With all the yen changes it has been a while since we have seen the yen treated as a safe haven, however a flight from "risk" to "safety" best describes price action last night with this cross the biggest G10 mover overnight. It is a classic illiquid August reaction.

Expected range: 75.00 - 77.80

NZD/GBP: We are listening, honest Guvnor…

The first on the record speech from BOE Governor Carney will be interesting tonight, especially as the market is testing the BOE resolve by driving interest rates and the pound higher against forward guidance.

Expected range: 0.4990 - 0.5120

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