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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Currency markets have one focus today and that is the speech by FOMC chair Yellen at 2am Saturday. Markets should continue to reduce risk into this event, but should also watch ECB and BoE speeches.

RATES: Local yields are expected to open slightly lower this morning, in line with global moves.

REVIEW

CURRENCY: Currency markets took USD risk off the table yesterday squaring up ahead of the Jackson Hole event risk. This was despite universally positive US data. GBP and JPY remained weak against this trend.

GLOBAL MARKETS: Overnight US data continued its good run, but the PMI's in Europe continued to muddle through, and without structural reforms to many economies this looks to be as good as it gets. Headlines of upcoming peace negotiations between Ukraine and Russia saw the ruble bid and added to positive market sentiment. Euro area equities enjoyed a solid session, but gains in UK and US stocks were more modest. Euro area sovereign bond yields finished largely unchanged, but there were small declines in UK and UST's yields. Markets are awaiting Fed Chair Yellen's speech at the Jackson Hole Symposium. The price action suggest expectations of Yellen sticking to the "lower for longer" script and reiterating there remains considerable slack in the labour market. Gold prices slipped to their lowest levels in two months, while crude oil prices rallied on the better US data flow.

KEY THEMES AND VIEWS

UP, UP AND AWAY. That has been the message from the US dataflow this week, with another reasonable batch overnight. A stronger than expected Philly Fed survey was in contrast to falls earlier reported in the Empire (NY Fed) survey earlier in the week, but it was consistent with the Markit manufacturing PMI result. Details of the Philly Fed were mixed, with weaker new orders, shipments, and employment, but the outlook series was stronger and consistent with the headline result. The wider national Markit manufacturing PMI rose to a four-year high with output, new orders and employment sub-indices all rising. On past form, these surveys suggest that the ISM manufacturing index will stay close to its current three-year high, consistent with healthy GDP growth in Q3. Elsewhere there was another encouraging weekly jobless claims result indicative of a strengthening labour market and the likelihood of continued 200k+ monthly NFP prints. Existing home sales were stronger than expected, hitting 10 month highs on an annualised basis, with median prices up 4.9% y/y.

IN A MUDDLE. August's fall in the euro-zone composite PMI was the fourth in six months, but the French and German surprised prints surprised to the upside. The result points to a slow recovery still being in place, although momentum has slowed. The lift in France was entirely driven by the services series, with the manufacturing PMI declining to 46.5 vs 47.8. In Germany, the smaller than expected decline in the flash PMIs for August supported a small bounce in the euro. While down, this was views as a good result given building concerns regarding the negative impact of the Ukraine/Russia situation on trade flows and sentiment, and overall still supportive of a recovery in growth following the Q2 slowdown.

NZD/USD: Squaring ahead of Jackson Hole...

US data universally improved overnight with jobless claims, Markit PMI, Philadelphia Fed, existing home sales, and the leading index all above expectations, yet USD declined as markets took risk off the table ahead of the Jackson Hole central bank symposium tonight. The key note speech by Fed Chair Yellen on the Labor markets (2am Saturday) will be key.

Expected range: 0.8300- 0.8480

NZD/AUD: Grinding through support...

So far support is holding in this cross, but price action (specifically the inability to bounce off support) still suggests a grind lower.

Expected range: 0.8980 - 0.9060

NZD/EUR: Disappointing PMIs and policy potential...

German PMIs rebounded, joined by French services. However, French manufacturing and the EU wide services and manufacturing both missed expectations. Markets should note Draghi gives a keynote speech at Jackson Hole (06:30am Saturday). Given recent EUR events there is plenty of scope for a surprise from Draghi.

Expected range: 0.6250 - 0.6350

NZD/JPY: The global carry barometer...

USD/JPY did not join the USD sell-off last night indicating upside potential for NZD/JPY via the weak JPY channel. This cross will be driven by events at Jackson Hole given its status as the G10 cross with the most carry.

Expected range: 86.00 - 88.00

NZD/GBP: Disappointment from Retail sales...

UK retail sales disappointed keeping GBP/USD as one of the few stable USD crosses, against a weak USD trend. BoE Deputy Governor for Monetary Policy Ben Broadbent will be speaking at Jackson Hole on Saturday evening.

Expected range: 0.5000 - 0.5130

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