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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: GBP should gain some support today from comments from BoE Governor Carney, while geopolitics will likely drive global sentiment and the USD.

RATES: Local rates are likely to open under downward pressure given global moves on Friday night.

REVIEW

CURRENCY: JPY saw demand as geopolitics drove a flight to safety, while USD was offered after mixed data. CAD was bid after the second release of Canadian unemployment showed strength rather than the original weakness.

GLOBAL MARKETS: Friday afternoon London time saw a step-up in market volatility and risk aversion on headlines that Ukrainian troops had destroyed part of a Russian armed convoy. Most equity markets gave back previous gains and slipped quickly into negative territory. Sovereign bond markets rallied, with US Treasuries receiving an additional boost from some dovish comments by Minneapolis Fed President Kocherlackota.

Ten-year US bond yields ended the day down 6 bps, and touched their lowest level in more than a year. In the commodities space grains had a good day, metals didn't (including gold, despite a late lift on the Ukraine news), and oil rose.

KEY THEMES AND VIEWS

US DATA WRAP. US data on Friday had something for everyone, hawk or dove. July industrial production was strong, driven by manufacturing, and June's result was also revised up (upward revisions have been a bit of a pattern in US data of late, boding well for the second release of Q2 GDP due on 28 August). July headline and core PPI were on expectations, and suggested upstream price pressures moderated a little.

The August Empire (NY Fed) Manufacturing Survey was well below par at 14.7 vs. 20 expected, after July's spike. The preliminary August University of Michigan consumer confidence was striking for the marked divergence between current and future conditions. Current conditions rose to 99.6, its highest level since July 2007, but confidence about future conditions fell to 66.2 from 71.8, to be at its lowest level since October last year, when the focus was the federal government shutdown. The headline series is now at its lowest level since November last year. On the plus side, inflation expectations remained well contained, with the five year outlook rising just a tick to 2.8%. The data may be mixed, but it hardly justifies US 10-year yields at 14-month lows. It appears a general reassessment of risk is going on amidst geopolitical risks, with a dovish Fed not standing in the way. Jackson Hole (Thurs/Fri) is the next key Fed event.

OTHER EVENTS AND QUOTES

- "The FOMC is still a long way from meeting its targeted goal of price stability. ... I see labour markets as remaining some way from meeting the FOMC's goal of full employment." Minneapolis Fed President

(and 2014 FOMC voter) Narayana Kocherlakota.

- BoE Governor Mark Carney kept the punters guessing with comments over the weekend that the BoE would not necessarily wait for real wages to rise before raising rates, but rather just needed to be confident they were heading in that direction. His comments last week that wages were key led to a pushing back of expectations for the first UK rate rise.

NZD/USD: Mixed messages...

There were mixed messages from the US data on Friday. US bears will focus on the August Empire survey declining more than expected from July's positive surprise, and weakness in the preliminary August Michigan Confidence survey. US bulls will note the increase in the July Industrial production, and positive revisions to June. Manufacturing production posted a notable increase. Meanwhile geopolitics caused a USD bid after reports of clashes between Russian and Ukrainian units

(although the Russians deny this), and increased action against ISIS in Iraq.

Expected range: 0.8440- 0.8520

NZD/AUD: RBA minutes vs PREFU...

Today should be relatively quiet, but tomorrow the RBA minutes and the NZ pre-election fiscal update (PREFU) have the potential to drive this cross.

Expected range: 0.9070 - 0.9140

NZD/EUR: Assumption...

EUR strengthened on Friday despite Europe being out for Assumption Day.

The move was assumed to have been driven by US data releases.

Expected range: 0.6310 - 0.6360

NZD/JPY: Geopolitical safety...

Geopolitical events saw a flight to Japanese "safety". Further escalation in action against ISIS in Iraqi could increase this flight.

Expected range: 86.20 - 87.20

NZD/GBP: Governor Carney...

British Q2 GDP was a tenth stronger at 3.2% y/y on the second release, but the currency markets will focus on weekend comments by Governor Carney that the BoE will potentially increase rates before real wages increase. This should help GBP to reverse a lot of last week's weakness.

Expected range: 0.5030 - 0.5110

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