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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: EUR is unlikely to find support from German confidence data, with it forecast to decline further. USD holdings will be looking for improvements to the hiring and quit rates in the JOLTs report.

RATES: The NZ market was reported to be quiet overnight, with little interest in kiwi trades. Local rates are expected to open unchanged.

REVIEW

CURRENCY: Currency markets consolidated, with the notable exception of CAD which strengthened, reversing losses suffered after a weaker employment report on Friday.

GLOBAL MARKETS: Our London colleagues reported a quiet start to their week with no significant data releases. The general risk environment modestly improved following an easing in tensions in the Ukraine, Israel and Iraq. UK and Eurozone equities were up 1% to 1.4%, with US equities up 0.3% in early trading. US 10yr Treasury yields were unchanged, with modest rises in UK (2.49%) and German yields (1.06%) and a small widening in peripheral Eurozone yields. Moves in G10 currencies were limited, with the biggest swings seen in the Norwegian krone. The much awaited speech by US Federal Reserve Vice Chair Stanley Fischer, titled

"The Great Recession - Moving Ahead", provided few immediate clues on policy direction and had limited market impact. Gold prices traded in narrow ranges overnight, whilst Brent crude traded near nine month lows.

KEY THEMES AND VIEWS

STILL AWAITING THE FED. Those looking for clues on the Fed's exit strategy from last night's Fischer speech would have been disappointed, as he stuck to the Fed script, with the speech focusing on less immediate market relevant issues such as the cyclical versus structural and permanent versus temporary influences on the economy from the Great Recession. In terms of the current US outlook, there were the usual comments on the weakness of the housing market; sluggish labour supply growth being a "source of concern"; with still "significant underutilization of labor resources" and "considerable uncertainty" over how much low labour force participation is due to a sluggish economy.

Fischer noted that the global recovery since the GFC had been

"disappointing" and "broad based". QE had been "largely successful" and Fischer noted that the Fed had additional policy measures to set a floor under money market rates despite the considerable amount of liquidity sloshing around the system. Off to Jackson Hole then. A strengthening US economy does not appear consistent with 10 year Treasury yields below 2.5%, and the Fed is in danger of falling behind the curve, if it has not done so already. Given the significant market clout of the Fed, what they do affects us all. These are indeed unusual times.

OTHER EVENTS AND QUOTES

- Monetary Authority of Singapore MD Ravi Menon: "The spill-over effects of unconventional monetary policies are not insignificant -

volatility in capital flows, pressures in asset markets, a general increase in financial stability risks and a flattening of the yield curve that distorts investment decisions - these are not trivial consequences." "The next big test will be the timeline for the raising of interest rates. The sooner we see a normalization of monetary conditions globally, the better for us here in Asia and in emerging economies."

NZD/USD: Consolidation...

The US JOLTS jobs report is released tonight. Markets will focus on the hiring and quit rates as Fed Chair Yellen has singled these out as a sign of a depressed labour market. However, from a technical perspective NZD/USD looks relatively comfortable consolidating around its 200 day moving average, currently at 0.8462. Near topside resistance remains at 0.8520-40, while support is evident at 0.8410-30.

Expected range: 0.8440- 0.8520

NZD/AUD: Business confidence...

Australian business confidence and conditions for July are released today. The confidence to conditions gap remains large and we would expect this gap to close in favour of confidence, providing some support for AUD.

Expected range: 0.9100 - 0.9160

NZD/EUR: ZEW...

German and European ZEW confidence is released tonight. Confidence has been waning of late and the consensus is for a large fall in the German read from 61.8 to 54 for the current condition, and from 27.1 to 17 for the expectations series. This will keep EUR under pressure.

Expected range: 0.6300 - 0.6340

NZD/JPY: Industrial production...

Japanese June industrial production is expected to confirm a monthly fall of 3.3%. This continues the theme of declining Japanese activity as we await Q2 GDP tomorrow, which is forecast to show a contracting Japanese economy.

Expected range: 86.00 - 86.80

NZD/GBP: Awaiting tomorrow...

GBP could suffer from some position lightening as we await tomorrow's important releases, the BoE quarterly inflation report and July employment.

Expected range: 0.5010 - 0.5080

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