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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: It’s central bank day with the BOJ, ECB, BOE and Sweden’s Riksbank all reporting. Whilst we expect no policy changes, we respect the bank’s abilities to influence currency direction.

RATES: Kiwi rates are likely to open slightly higher in line with global moves, the 2yr rate trading 1bp higher in the overnight session.

REVIEW

CURRENCY: Trends continued overnight in data and in currencies. AUD found more strength and NZD played catch-up after NZD/AUD supply abated. EUR and GBP data was strong with GBP finally strengthening.

GLOBAL MARKETS: Markets spent much of the overnight session consolidating ahead of BOE and ECB meetings tonight, and key US jobs data later in the week. European equities recovered from early losses to end in the black, with final reads on August service sector PMIs reinforcing the recent improvement in European macro momentum. However, ECB President Draghi is expected to be relatively dovish at tonight’s press conference with inflation remaining benign (1.3% y/y) and unemployment high. Peripheral bond yields ended 5-8bps higher, with the Italian services PMI falling short of expectations. The UK services PMI provided another upside data surprise, rising to 60.5 in August and the highest level since 2006; although we aren’t expecting any policy changes from the BOE tonight with Governor Carney making it clear that accommodative policy will be pursued for quite some time. US equities continue to outperform their European counterparts, 0.9% higher ahead of the close. US Treasury yields initially sold-off on solid US trade data, before rallying back on comments from President Obama that Congress was likely to approve Syrian intervention. Treasury yields then sold-off again late in the session following a Beige book that showed 8 of 12 district Fed banks reporting moderate growth. San Francisco Fed President John William (a non-voter) added to the offer tone, commenting that the Fed is "clearly getting closer to meeting its test of substantial improvement in the labour market". US 10yr yields are now up 4bps to 2.90% heading into the close, and back within touching distance of two-year highs seen a fortnight ago. A broad-based USD sell-off saw NZD and AUD extend gains overnight, with EUR and EM currencies also stronger. Commodities were weaker across the board, with Gold and crude oil prices down around 1.5%.

OTHER EVENTS AND QUOTES

- Final Eurozone service PMIs confirmed a return to expansionary territory (50.7) for the first time since January 2012. Of note, German and French service sector PMIs were revised higher to 52.8 and 48.9 respectively; Spain’s services PMI improved to 50.4; although Italy disappointed at 48.8. Ireland’s services PMI jumped to a six-year high of 61.6 in August, further evidence of a recovery in the periphery.

- July’s US Trade deficit for was broadly in line with expectations. While exports fell 0.6%m/m, they were still the second highest on record.

- Pimco’s Total Return Fund, the world’s largest mutual fund, has shed $41bn (or 14%) of its assets in the past four months - of which $26.4bn was reported to be investor redemptions. Fund returns are said to be down 3.9 percent year to date, trailing 86 percent of peers.

NZD/USD: Back to middle of the range...

The NZD strengthened overnight following AUD’s lead over the last few days. We now sit in the middle of our medium term range and await global central banks, the US ISM non-manufacturing tonight, and payrolls tomorrow night to set direction.

Expected range: 0.7840 - 0.7980

NZD/AUD: Catch-up…

Cross rallied last night as NZD/USD played catch up to AUD/USD. In a USD selling market, NZD/USD tends to find less supply than AUD/USD, so we could see this extend a little further.

Expected range: 0.8600 - 0.8670

NZD/EUR: ECB…

The ECB are no expected to change policy settings or forward guidance tonight. We do expect them to acknowledge the improvement in European activity data, but do not expect it to lead to EUR strength.

Expected range: 0.5950 - 0.6050

NZD/JPY: BOJ…

The BOJ this afternoon shouldn’t impact this cross. There has been commentary suggesting the BOJ will increase stimulus if the forecasted consumption tax increase impacts growth. However, the decision to implement that tax increase has not yet been taken.

Expected range: 78.40 - 79.50

NZD/GBP: BOE…

The BOE is in an interesting position, they have given the market clear forward guidance, yet the market is moving both the GBP and rates markets counter to that forward guidance. We expect another attempt to talk GBP lower tonight, which could provide GBP buying opportunities.

Expected range: 0.5000 - 0.5100

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