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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: ANZ expects NZ Q4 CPI to show a headline decline (-0.1%), but an increasing trend in annual core inflation, signalling OCR increases. German ZEW confidence, UK CBI trends round out an otherwise quiet session.

RATES: Little activity was reported overnight, with most happy to sit on the sidelines after yesterday’s earthquake and ahead of today’s Q4 CPI.

REVIEW

CURRENCY: A quiet night with little price action to report. Only a slightly slower pace of growth in the Chinese economy in Q4 and surging Taiwanese export orders are a good sign for Asian economic health.

GLOBAL MARKETS: Our London colleagues reported an extremely quiet trading session overnight in Europe with the US closed and an absence of key data releases. Markets traded tight ranges everywhere. In general, European equity markets were a touch softer with the DAX dropping 0.3% and the CAC 40 and IBEX 35 both off 0.1%. Sovereign bond markets saw yields dip slightly lower, but if anything were broadly unchanged.

KEY THEMES AND VIEWS

overnight dATA WRAP. The only data releases in Europe overnight were of secondary importance. German PPI inflation for December rose a negligible 0.1% m/m, marking only the third positive reading in 2013. The annual rate rose to -0.5%, compared with November's -0.8% decline. In Italy, industrial sales perked up, rising 0.9% m/m in November to leave the annual rise at 0.4% y/y versus October's 1.3% y/y drop. Industrial orders were 2.3% stronger in the month (expectations was for a flat outturn), reversing the previous month's drop, whilst the annual rate of increase rose to 3.0% y/y vs 1.2% in October. The only speaker of any note was European Commission President Barroso who said the euro area is now at a turning point in the crisis and that growth is slowly returning.

CPI preview. We expect a 0.1 percent fall in the December CPI, which is slightly above the median market expectation and the December MPS pick

(-0.2 percent). It’s normal to get a seasonally driven weak print in the December quarter. Risks around our pick are broadly balanced. Annual inflation is expected to rise to 1.5 percent nudging closer to the 2 percent midpoint of the policy band the RBNZ is targeting. The CPI outturn will mask offsetting moves in tradable and non-tradable prices, reflective of the current interest rate/exchange rate mix. We expect annual inflation from the core measures will continue to trend up - coming in just under 2 percent. The Q4 CPI report will be the final arbiter as to whether the Bank lifts the OCR in January or March. We attach at least a 30 percent probability of a January OCR move. While the timing of the first hike in Q1 remains reasonably fluid, we expect a total of 75bps of tightening over the first half of 2014, but a more moderate OCR endpoint this cycle relative to historical standards.

OTHER EVENTS

- Yesterday there was a 6.2-magnitude earthquake in the lower North Island on the East Coast. There have been reports of damage to houses, roads and power was cut to thousands. Normality to all services (rail, power etc) is expected to return today, but aftershocks are forecast to continue.

NZD/USD: Shaky isles...

The NZD remained on firm footing overnight even if the ground wasn’t! Q4 CPI today will be the market focus with ANZ expecting a -0.1% headline results, but for an increasing trend in annual core inflation to signal OCR hikes are around the corner.

Expected range: 0.8180 - 0.8320

NZD/AUD: CPI focus…

This cross will take direction from CPI today. However we do not expect a moderately weak CPI to change the dynamic of NZD strength. Australia’s CPI tomorrow is likely to show higher inflation than present in NZ.

Expected range: 0.9330 - 0.9430

NZD/EUR: Under pressure…

EUR remains under pressure, unable to move away from the EUR/USD 1.35 pivot which will be key for direction in this cross.

Expected range: 0.6060 - 0.6120

NZD/JPY: NZD factors…

NZ CPI could provide direction for this cross too, but there is little data to move Yen until the BOJ tomorrow. Yesterday yen had a strengthening basis.

Expected range: 85.50 - 86.50

NZD/GBP: Surging sales…

NZD/GBP briefly touched 0.50 again overnight on GBP strength. There is talk building that the BOE may lower its employment target at the next meeting, countering expectations for a better employment report on Wednesday.

Expected range: 0.4980 - 0.5080

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