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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Markets will have a keen eye on the Chinese data to confirm positive sentiment, while Q2 GDP for JPY will drive JPY crosses. GBP has downside risks from the July employment report and BoE inflation report.

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

REVIEW

CURRENCY: EUR was sold after German confidence weakened more than expected. Despite a strong JOLT jobs report, the US session was notable in a broad based USD sell, although mostly just reversing earlier buying.

GLOBAL MARKETS: Our London colleagues report another very quiet session overnight, with only small volumes traded and tight ranges for most markets. The main news was the sharp fall in the August ZEW investor sentiment survey for Germany, which weighed on the euro (see detail below). But a general lack of other major data releases meant markets continued to follow headlines on geopolitical developments in the Ukraine/Russia. The main focus was a Russian Aid Convey of 280 trucks, what they are carrying and whether they'll try and cross the border, or offload their cargo to the International Red Cross. On FX markets, the AUD and GBP were the standout performers against the USD as other major and EM currencies weakened against the dollar. Equity markets gave back most of the gains from the day before. There was little movement in UST and core European sovereign bond yields. Gold prices rose, getting to as high as USD1318/oz on geopolitical concerns. Other commodity prices were generally weaker and have been since the announced Russian sanctions.

KEY THEMES AND VIEWS

GERMANS INVESTORS WARY. Overnight the German ZEW investor sentiment survey for August registered its sharpest fall since June 2012. Both the current situation series (44.3 in August vs 61.8 in July) and outlook series (8.6 in August vs 27.1 July) were weaker than expected. This is another worrying sign for the German economy (and Europe), particularly as perceptions of current conditions are now weakening along with expectations. Confidence has been hit hard by rising geopolitical tensions in the last month, particularly those in nearby Ukraine. The finger has also been pointed at the weaker growth pulse across the euro area in general. This has certainly been mirrored in the recent softness in hard data for industrial production and the declines in business surveys, such as the German PMI and Ifo. ZEW also noted softer industrial production and incoming orders pointing to considerably lower investment from German firms, and overall growth for the year to be weaker than previously expected. The August results and other data were in line with comments from the German Economy Ministry earlier in the overnight session that momentum has slowed from the first quarter due to these factors. For New Zealand, it means "hold on to your seat" as we could be in for another wild ride, especially those firms/sectors with a larger direct exposure to Europe.

OTHER EVENTS AND QUOTES

- Upcoming US data releases for July will be important to assess the degree to which the improvement in economic momentum evident in Q2 data flow has carried into Q3. Tomorrow's retail sales report will therefore be key to watch. Headline sales are forecast to rise by 0.2% m/m in July following June's 0.2% m/m growth.

NZD/USD: US Job optimism...

The NZD/USD tested support at 0.84 yesterday after NZD/AUD selling following Australian confidence and weaker REINZ house prices.

Overnight, a stronger July JOLTS job openings report will likely keep the NZD/USD under pressure today. US retail sales expectations are muted tonight, leaving room for a positive USD surprise.

Expected range: 0.8400- 0.8480

NZD/AUD: Strong AU business confidence...

Australian business confidence and conditions for July were optimistic, contributing to NZD/AUD selling. The focus switches offshore today and we expect this cross to consolidate.

Expected range: 0.9060 - 0.9120

NZD/EUR: German confidence declines...

German confidence continues to plunge, impacted by geopolitics and slowing economic activity. European industrial production could add to EUR woes.

Expected range: 0.6280 - 0.6340

NZD/JPY: Q2 contraction...

Japans Q2 GDP print today is forecast to show a contracting economy, reversing Q1's expansion and moving the economy into negative territory.

This release is a pointed signal that 'Abenomics' needs to do more.

Expected range: 85.80 - 86.60

NZD/GBP: Employment and the BoE inflation report...

GBP will get direction from the July employment report and the quarterly BoE inflation report. Markets are expecting more detailed analysis of the UK economy from the BoE, which will give markets clues as to the path for interest rates. Wage price inflation is expected to have declined 0.1%, potentially weakening GBP.

Expected range: 0.5010 - 0.5080

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