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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Markets are likely to continue in a quiet range ahead of the payrolls release tonight. Expectations are for a strong release with any disappointment allowing NZD to test range highs.

RATES: Expect NZ interest rates to open unchanged to lower following US moves.

REVIEW

CURRENCY: NZD/AUD found continued support overnight breaking up through the 55 and 100 day moving averages. Markets were relatively stable ahead of payrolls, but the stronger ISM was supportive of USD.

GLOBAL MARKETS: Europe was closed for the Labour Day holiday, leaving the focus on the UK and US. UK economic indicators continued to impress overnight, with strength in credit growth and the PMI. US data was a little more mixed, and US Treasury 10-year yields (2.61%) fell to a two-week low overnight, as safe haven/positioning demand continued before the key monthly Non-farm Payrolls report tonight. Equities fluctuated, but the tech-heavy Nasdaq 100 Index had a positive day. The CRB index fell 0.8%, with falls for gold, grains and oil futures.

KEY THEMES AND VIEWS

US DATA PROVIDES A MIXED RUN INTO PAYROLLS: The final US payrolls indicator - weekly initial jobless claims - unexpectedly rose to a 9-week high. To be fair, the outturn may reflect the difficulty of seasonally adjusting weekly data around a moveable holiday (Easter). On the other side of the equation, the April ISM manufacturing index rose to 54.9 vs. 53.7, its highest reading since December. The data show the economy picking up speed into Q2, and are on the whole consistent with the Fed’s message this week that the economy is re-accelerating. The still-soft PCE deflator (+1.1 percent y/y; core +1.2 percent y/y) was also consistent with the Fed’s view. Five years into economic recovery, inflation is low, suggesting interest rates will be staying low for a considerable period once tapering concludes. The March lift in spending was not too much of a surprise given the strong Q1 lift in consumption previously reported in an otherwise weak Q1 GDP print, with the news component of the overnight data relating mostly to the inflation side. ANZ is expecting a total payrolls number of +212k and an unemployment rate of 6.6 percent, very similar to the median economist expectation, but we suspect the market is expecting something a bit higher. The immediate impact on NZ of any data surprise would be via the currency, with a lower than anticipated result likely to weaken the USD, and vice versa. In the medium term, labour data is a key input into the Federal Reserve’s QE tapering trajectory. Eyeball econometrics suggests New Zealand’s commodity prices - along with just about every other asset in the world that’s measured substantially in USD - received a boost with each round of Fed quantitative easing. A withdrawal of that stimulus must be expected to cause at best an equivalent downdraft. In that regard, good news may not prove to be unequivocally "good". But we would certainly stop well short of saying that bad news is good news. The piper has to be paid sometime.

OTHER EVENTS AND QUOTES

- The UK PMI rose to its strongest level in 5 months. Credit aggregates also suggested a pick-up in consumer demand. The drop in new mortgage commitments is likely to be more reflective of tightening credit standards than any slowdown in the housing market.

NZD/USD: Payrolls…

Market focus will be on the payrolls report tonight, with ANZ expecting a 212k outturn. We feel this would disappoint markets, supporting NZD over USD. The ISM was a little more optimistic last night, lifting above expectation, but the perception is the US requires significant growth to achieve escape velocity at this time.

Expected range: 0.8530 - 0.8720

NZD/AUD: Relative commodity prices…

New Zealand ANZ Commodity Price Index will be watched today. Yesterday the Australian RBA Commodity AUD Index fell 3.9 percent in April. The relative dynamic is important for cross direction.

Expected range: 0.9280 - 0.9340

NZD/EUR: PMI…

The final manufacturing PMIs are expected to continue fundamental support for the EUR. However, currency markets are focused on the prospect of further policy action from the ECB next Thursday, so strength is likely to only lead to stability.

Expected range: 0.6180 - 0.6260

NZD/JPY: At risk…

After non-farm payrolls tonight this cross will be free to react to local events. While there seems little danger of a NZD-led decline, yen shorts look to be in dangerous territory.

Expected range: 87.40 - 88.60

NZD/GBP: Fortitude…

British tenacity is well known, and the acceleration of the PMI should ensure the stalwartness of the sterling. Consumer credit growth was almost double expectations, although the key question for the UK, like the US, is housing. Prices increased 10.9%, but mortgage approvals contracted and broad M4 money supply shrank. The GBP remains the key contender to NZD growth.

Expected range: 0.5080 - 0.5120

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