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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Only minor data is due out of from Asia today, with NZ food prices the final piece of the puzzle for CPI next week. At present, inflation looks contained, but QSBO and QVNZ data suggest RBNZ action is imminent.

RATES: Kiwi rates are likely to open 1-2bps higher in line with global moves, the 5yr swap rate trading 1bp higher at 4.62% in the overnight session.

REVIEW

CURRENCY: US retail sales saw some USD strength return with the notable exceptions of NZD and GBP. GBP recovered after position liquidation despite inflation returning to target, while NZD proves Kiwis can fly.

GLOBAL MARKETS: A fairly quiet session was reported overnight with US equities up around 0.8% and sovereign bond yields mixed. US 10yr yields retraced a portion of their payrolls-inspired rally, rising 4bps to 2.87% on better than expected US retail sales data and resilience in the NFIB small business optimism index. A JPM investor survey also showed the market is no longer short duration, which could limit the recent rally from a positioning perspective. In currency markets, AUD was the key underperformer overnight, sliding steadily below US 90 cents through the session, while AUD/NZD broke below the psychologically-important 1.07 level as demand for NZD lifted following yesterday’s solid NZ data prints (QSBO, QVNZ, card spending). In local terms, this saw NZD/AUD break higher to fresh 8-yr highs approaching 0.9370. GBP was initially weighed down by weaker than expected UK inflation figures, but rallied back to end the session higher. CAD remains unwanted, with USD/CAD pushing to fresh 3-yr highs at around 1.0940.

KEY THEMES AND VIEWS

US retail sales higher again in december. US retail sales rose 0.2% m/m in December, a ninth consecutive monthly gain, and further evidence that the US consumer is responding to improving employment conditions and low interest rates. As an offset, November figures were revised a touch lower. Ex-autos, sales were up 0.7% m/m in Dec (vs a revised 0.1% in Nov), with the control group (used for calculating GDP) also up 0.7% m/m. Taking account of the revisions, annual US retail sales lifted 4.1% sa in 2013, highlighting that the recovery in US consumer spending remains intact, and reinforcing expectations that Friday’s poor December payrolls number was an outlier. Indeed, we could see another month of confused US activity data in light of the polar vortex that hit the country for several days in early January.

OTHER EVENTS

- UK inflation slowed to 2.0% y/y in December, back in line with the Bank of England’s target for the first time since late 2009 and providing the BOE with scope to keep monetary policy accommodative for a longer period to further support the economy. Headline CPI lifted 0.4% m/m in December (0.5% exp.). Annual core inflation also fell slightly short of expectations, easing one tenth to 1.7% y/y, while upstream prices (as measured by PPI) also remain relatively subdued.

- In 2013, the Barclays US Aggregate Bond Index recorded its first annual loss since 1999 as the multi-decade bull market in bonds came to an end. Of note, PIMCO’s Total Return fund (reportedly the largest in the world) registered withdrawals of US$41bn in 2013 to end the year with assets of US$237bn. In NZ, the return on the ANZ Government Bond Index fell 2 percent in 2013, the first negative return in more than twenty years.

NZD/USD: Better US data...

US retail sales and small business optimism were above expectations last night, but did little to damage the Kiwi flight. The main resistance levels are close at 0.8420-40 and should that give way, NZD is fairly open to the mid 0.85’s.

Expected range: 0.8330 - 0.8440

NZD/AUD: NZ data provides performance…

Strength in the QSBO, ECT and QVNZ house prices was enough to see this cross move substantially higher overnight. There are only minor releases today, but momentum remains strongly in favour of NZD.

Expected range: 0.9300 - 0.9380

NZD/EUR: European Industrial Production…

NZD was on a tear last night as strength in European industrial production was offset by weaker French inflation.

Expected range: 0.6100 - 0.6180

NZD/JPY: Working together…

NZD continued to strengthen as yen weakness resumed. The Japanese Watchers Survey was optimistic, showing solid increases in the current conditions and stability in the outlook.

Expected range: 86.70 - 88.00

NZD/GBP: Sterling rebound…

GBP rebounded from yesterday’s position liquidation, outpacing the NZD on aggregate. UK inflation however returned to the targeted 2% level for the first time since November 2009. This should see GBP underperform as it gives the BOE more room to let the recovery take hold.

Expected range: 0.5060 - 0.5150

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