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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: The EUR will likely remain under pressure after the far right make solid gains in the European elections. The US is out for Memorial Day and the UK out for May Day, so trading should be light.

RATES: Receiving interest was evident in NZ swaps in London at the end of last week. Local yields are expected to open slightly lower.

REVIEW

CURRENCY: The USD was broadly strong on Friday after positive revisions to New Home sales led to the series increasing more than expected.

However, notably, USD was not as strong as CAD or AUD.

GLOBAL MARKETS: Friday saw a quiet session in European and US markets ahead of EU parliamentary elections over the weekend, and a public holiday today in the UK and US. Disappointing German IFO data saw the EUR/USD decline and German bunds also underperform US and other core European bond markets. Equities had a modestly positive day on the whole

(with UK stocks the exception). Gold prices were down slightly, with oil futures up.

KEY THEMES AND VIEWS

EUROPEAN PARLIAMENTARY ELECTIONS SHOW AN ANGRY MOOD. The most dramatic result was in France, where Marine Le Pen's anti-Euro, anti-immigration National Front party placed first with at least 25% of the vote, according to exit polls. Nicolas Sarkozy's party was second, and the ruling Socialist Party a distant third (~15%). A change of government in France at the next elections (three years from now) seems likely, with socialist PM Hollande deeply unpopular. Protest parties made gains in other nations as well. In Greece, the main (left) opposition party Syriza won with 26-30%, while the nationalist Golden Dawn party was third with 8-10%. In Germany, the anti-euro Alternative for Germany party received 6.5%. However, Angela Merkel's CD bloc remained firmly in control with 25%, and her main coalition partner, the Social Democrats, receiving 27%. In the UK, Nigel Farage's UK Independence Party, which wants Britain to leave the EU and has campaigned against immigration, is also expected to have done well. All up, the fringe party element of the parliament has increased by about 10% to 30%, give or take, which should ensure some fiery parliamentary sessions, but not upset lawmaking in a number of areas, including banking union. The more important implication is these results represent a shot across the bows of governments across Europe, who will be forced to take note and appease dissatisfied voters if they want to stand a chance of re-election down the track.

Immigration is clearly an ignition point, as are European integration and bailouts. Our view is that Europe's debt and structural problems have been papered over, not resolved, and that a further bout of financial volatility is probably just a question of when. If today's results are any indication, the politics in place when problems resurface will be even more beggar-thy-neighbour than last time.

OTHER EVENTS AND QUOTES

- US new home sales were slightly better than expected at 433k in April.

- "Our first step will focus on ending the war, chaos and disorder": New Ukrainian PM Poroshenko's promises for his term take a

"back to basics" approach. Exit polls suggest the billionaire comfortably exceeded 50% of the vote, with Ex-PM Yulia Tymoshenko running well behind.

NZD/USD: Memorial Day...

With the US out for Memorial Day ranges are likely to be tight. The NZ trade balance should remain in surplus, supporting NZD. The key focus will be the 0.8480-0.8520 support level - should it break it would leave the downside open to 0.83. New home sales in the US on Friday were USD supportive.

Expected range: 0.8500 - 0.8580

NZD/AUD: Gravitating...

This cross looks stuck near the 0.92 level. There is little in the way of data to change valuations this week, but price action suggests it will gravitate lower.

Expected range: 0.9200 - 0.9280

NZD/EUR: France and the far right...

The National Front looks likely to have won the greatest representation of a single party in the French European Parliament elections. The anti-Euro party is said to have won 25% of the vote, vs 21% for UMP, and 15% for the ruling socialist party. Don't expect a large immediate currency reaction, but this showing will be enough for the more moderate parties to harden their stance, keeping the euro under pressure in the medium term.

Expected range: 0.6240 - 0.6320

NZD/JPY: USD/JPY in familiar ranges...

USD/JPY recovery has left it in familiar ranges and NZD is in the driving seat for this cross.

Expected range: 86.60 - 87.50

NZD/GBP: An earlier start?

Retiring BoE Deputy Governor Bean has given the short end of GBP some support. He stated that while the progress toward rates normalisation would be cautious, it would perhaps be prudent to start earlier to avoid being behind the curve.

Expected range: 0.5060 - 0.5120

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