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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Today’s focus is on US non-farm payrolls with ANZ expecting an above consensus number. Should this occur, NZD/USD could remain under downside pressure. The Chinese trade balance today could also impact NZD.

RATES: Kiwi swap rates are expected to open little changed, with only the 5yr trading in the London session overnight.

REVIEW

CURRENCY: The ECB was dovish as expected, strengthening forward guidance and pressuring the EUR. US data remained positive, supporting USD.

GLOBAL MARKETS: It was all about the ECB overnight, and while there were no additional policy measures unveiled, President Draghi did use the opportunity to strengthen language around forward guidance (see below) which triggered a sell-off in the euro. The BOE also left policy settings unchanged at its monthly meeting. European data was largely ignored, with EZ economic confidence rising to 2½-year highs and Germany’s industrial production stronger than expected - rising 1.9% in November. Peripheral bond yields outperformed, with Spanish 2yr and 5yr yields pushing to record lows. In the US, price action was relatively muted ahead of tonight’s payrolls report, with equities slightly weaker and US 10yr bond yields little changed at 2.99%. US weekly jobless claims printed in line with forecasts at 330k. In commodity markets, crude oil prices were down 0.5% to fresh six-month lows below US$92/bbl.

KEY THEMES AND VIEWS

Ecb strengthens forward guidance. The ECB’s monthly press conference was very dovish in light of the current weakness in euro area inflation. ECB President Draghi also used the opportunity to strengthen language around the ECB’s forward guidance, leaving the market in no doubt that the ECB will act again if necessary: "the Governing Council will maintain an accommodative stance of monetary policy for as long as necessary... accordingly, we firmly reiterate our forward guidance that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time." EUR fell by about half a cent against the US dollar and German 10yr yields rallied 3bps. In reality, there was little new information aside from a firming in the rhetoric, and market moves were later pared somewhat. When asked if the ECB might use QE, Draghi answered that the ECB’s mandate is to ensure price stability and stands ready to use all instruments allowed within the treaty. The ECB still sees downside risks to the economic outlook, although its baseline is for a gradual recovery in economic growth through 2014 and 2015. In the near term, disinflationary pressures and weak credit growth may have been exaggerated as banks deleverage ahead of the Asset Quality Review - Draghi suggested tighter spreads on financials indicated improving confidence in the banking sector.

OTHER EVENTS

- ANZ is expecting a solid December non-farm payrolls print of 205k tonight (mkt 197k), with the unemployment rate expected to tick up to 7.1% (mkt 7.0%) due to a modest lift in the participation rate. Yesterday’s December ADP report (238k) and the employment component of the non-mfg ISM survey (55.8 from) certainly portend of a robust payrolls figure tonight.

NZD/USD: US data vs dairy ahead of payrolls...

The NZD came under pressure yesterday with the announcement of legal action against Fonterra a catalyst. However, the stronger US data over the past week and the Kiwi’s relative immunity from it played a larger part in NZD weakness. US jobless claims printed largely in line with expectations and revisions to the Philadelphia Fed resulted in an increase in reported General Business Activity. Payrolls tonight will decide direction for this cross.

Expected range: 0.8210 - 0.8280

NZD/AUD: Australian retail sales…

Australian retail sales were stronger than forecasts and housing consents lifted 5.7%. Contrast this to NZ ex-apartment consents which dropped 0.5%, and the data supports the move lower. However ANZ NZ Commodity Prices at their second highest level ever suggest downside will be limited.

Expected range: 0.9230 - 0.9290

NZD/EUR: ECB strengthens forward guidance…

The ECB strengthened forward guidance overnight which initially sent EUR lower. However, this was mostly reversed as markets concluded this was in the price of EUR. German industrial production (IP) was stronger last night and tonight we watch French and Dutch IP.

Expected range: 0.6050 - 0.6090

NZD/JPY: NZD driven…

This cross was driven lower by NZD weakness as USD/JPY remains stable.

Expected range: 86.00 - 86.80

NZD/GBP: No change…

There was no change from the BOE last night, which contrasted to the stronger forward guidance from the ECB. This led to selling in EUR/GBP and saw GBP strengthen overnight.

Expected range: 0.4980 - 0.5030

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