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ANZ NZ Morning Brief

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: With the Australian market out on holiday and little data to be released in the domestic and major offshore markets, action may be thin today beyond the opening reaction to the weekend's Chinese trade figures.

RATES: Global rates were little changed on Friday, suggesting a fairly uneventful open today. However, short-end rates may well drift higher into Thursday's Monetary Policy Statement.

REVIEW

CURRENCY: Typical volatility ensued following Friday's US non-farm payrolls report. After an initial broad-based USD sell-off, the major currencies quickly retraced lower, leaving emerging market currencies as the big winners against the USD on the day.

GLOBAL MARKETS: Payrolls caused the usual flurry of market activity, with the market settling on a risk-on theme. Equities up, USD down, Treasuries ended little changed after an initial rally was unwound.

Rises in livestock, grains and crude oil futures pushed up the CRB index. Gold prices eased.

KEY THEMES AND VIEWS

US PAYROLLS ON EXPECTATIONS SO LET'S PARTY. US non-farm payrolls printed very close to expectations at 217,000 in May. Despite the lack of surprise, markets nonetheless used the data as an excuse to push risk assets up - including yet another high in US equities and yet another fall in volatility or "fear" indexes - on the "omnipotent Fed" argument.

The market concluded the data was just right: weak enough to support the Fed's plan to keep monetary conditions highly stimulatory, but strong enough to suggest the economic recovery remains on track. Nothing can go wrong, the argument goes, as long as the Fed is on our side. Some might point to P/E ratios and say it is time to run for the hills. But they've probably said that so many times over the last few years it is unlikely they have many blog subscribers left.

CHINA'S TRADE BALANCE BEATS EXPECTATIONS, BUT IS IT GOOD NEWS? China's trade statistics for May had something for both optimists and pessimists. Exports beat expectations, rising 7% y/y, suggesting an improving external demand picture. But imports slumped 1.6% y/y, far weaker than expected, suggesting at face value that the domestic economy is decidedly sluggish. However, it is likely that the import data has been affected by the clamp-down on commodity financing, where is appears some dodgy dealing has been going on. The fall is still "real" and will hurt commodity-exporting nations such as Australia, but it may overstate the rapidity of the fall in commodity demand. Yes, you're right, say the pessimists, determined to have the last word: real demand actually fell some time ago but the demand for collateral for financing deals by desperate companies disguised it. Whatever the data does or does not signal about the state of China's economy and financial sector, a widening trade surplus implies RMB appreciation pressure will remain over the foreseeable future.

OTHER EVENTS AND QUOTES

- US credit card use surged by the most since November 2007 in April, pushing US consumer borrowing higher than expected. Strong car sales in May suggest non-revolving credit growth will also be sustained.

The demand for loans is increasing as consumers have more faith in the labour market, while the supply of loans is also freeing up.

NZD/USD: Kiwi caught in the payrolls whirlwind ...

NZD/USD followed moves in the other major currencies, initially rallying after the US non-farm payrolls release before giving back all the day's gains. No domestic macro events are on the calendar for either NZ or the US, so a quiet day is on the cards.

Expected range: 0.8450 - 0.8550

NZD/AUD: Australian market holiday to keep action quiet ...

The cross has continued to recover in the post-ECB fall out. Tensions in NZD/AUD will likely build this week ahead of Thursday's RBNZ decision and Australian labour force release.

Expected range: 0.9060 - 0.9160

NZD/EUR: Kiwi outperforms following ECB easing ...

NZD/EUR has continued to recover off Wednesday's lows, rallying as much as a big figure in the process.

Expected range: 0.6180 - 0.6270

NZD/JPY: New weekly high achieved ...

Kiwi's outperformance has also extended to the yen, with the lack of action in Japanese stocks seeing the USD/JPY remain little changed into the end of the week.

Expected range: 86.60- 87.90

NZD/GBP: UK trade figures ignored due to data errors ...

The kiwi's recovery continued against the pound sterling into the end of the week. While the UK trade deficit was worse than market expectations, distortions cause by the under-reporting of oil exports meant that in reality there was no deterioration in the trade accounts.

As such, the cross was more heavily influenced by the US payrolls data on Friday.

Expected range: 0.5030 - 0.5110

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