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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Focus tonight will be US payrolls. Consensus forecast are for 185k and with ADP and jobless strength markets will likely be disappointed by any miss, sending NZD/USD higher.

RATES: Expect NZ interest rates to open higher in line with offshore moves.

REVIEW

CURRENCY: EUR strengthened last night as the ECB moved to a more neutral stance after last month’s cut. A strong US jobless number and Q3 GDP revisions were not enough to strengthen USD.

GLOBAL MARKETS: Our London team reported a busy overnight session with US data and the ECB rate decision the focal points. There was little new information from the ECB following its ‘on hold’ stance at its December policy meeting, although its inflation outlook was lowered. However, without any new additional liquidity/policy measures and a relatively neutral tone from Draghi at the press conference the euro rallied, and there was a sell-off in German bunds and other European sovereign bond markets. Other events in Europe included a no change policy decision from the BoE. There was also the UK Chancellor of the Exchequer’s Autumn Statement, to which there was little market reaction, but it included an upgraded fiscal outlook largely in line with the improvement in the macro outlook seen since March. US data was strong again with upward revisions to Q3 GDP and initial jobless claims beating expectations. This along with hawkish comments from the Fed’s Lockhart further raised expectations of a December taper by the Fed. US 10-year Treasury yields rose to 2.85%, continuing their upward drift and European and US equities fell. Non-farm payrolls tonight is shaping up to be a big one with the ‘feel’ around market expectations shifting up to approximately 200k after Wednesday’s strong ADP result.

KEY THEMES AND VIEWS

US Data wrap: In the US there were decent upward revisions to third-quarter GDP to 3.6% y/y. This was up from the initial 2.8% estimate and certaintly adds to the evidence that the recovery continues to gain momentum. The upward revisions to US GDP were largely driven by firmer inventory accumulation. However, this wasn’t due to sales being disappointing and businesses being left with inventory. The growth rate of business sales has picked up markedly as well, leaving the inventory-to-sales ratio unchanged. Furthermore, while inventories are likely to be a drag on fourth-quarter GDP growth, there were other signs for optimism such as personal income growth, a higher savings rate and better corporate profits. The initial jobless claims also printed better at 298k last week, below the 320k forecast by the market and 321k the week before. At the margin it adds to the Fed to begin tapering in December at their 17/18 meeting, with tonight’s payrolls print likely to be crucial.

OTHER EVENTS

China’s 3-month Shanghai inter-bank offered rate (SHIBOR) has risen by 14bps in the last 2 days. The sudden rise has been attributed to an expected launch of negotiable certificates of deposit (NCD) in the next few months. The details of the market are not confirmed yet but the Chinese media has reported that NCDs will be issued by commercial banks, can be traded and will be linked to Shibor.

NZD/USD: Payrolls, jobless and GDP

The NZD/USD recovered well last night after a strong US jobless number and strength in US GDP. GDP strength was due to an inventory build which markets view to be temporary. Markets are also waiting for payrolls tonight before acting on jobless numbers. However, resilience in NZD/USD tells us that if payrolls number is weak we can expect strength into 2014.

Expected range: 0.8090 - 0.8280

NZD/AUD: Top 10%…

NZD/AUD is currently trading in the top 10% of its trading range since 1989. This strength seems unlikely to change in the lead up to Christmas, but it is worth noting we are now at the edge of the long term range.

Expected range: 0.9000 - 0.9100

NZD/EUR: ECB…

The EUR found strength last night as ECB president Draghi played down prospects of another near term policy action to support last month’s cut. He also appeared to be more upbeat on economic prospects, although the decline in the Euro Stoxx 50 index (EU’s main equity index) tells us a different story.

Expected range: 0.5950 - 0.6050

NZD/JPY: Last day of 2013 Japanese parliament …

Today is the last day of the 2013 Japanese parliamentary session. Thus there should be little fiscal news from Japan into the year end on 3rd arrows.

Expected range: 82.80 - 84.00

NZD/GBP: No change from the BOE…

Sterling lost ground last night as markets closed short EUR/GBP positioning, on the back of EUR short covering.

Expected range: 0.5000 - 0.5100

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