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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: Markets may be looking for a quiet session with the US out for Labor Day. However, NZD will be driven by Q2 terms of trade, and PMIs from China, Europe and the UK will impact other currencies.

RATES: After a quiet Friday night NZ rates are expected to open unchanged.

REVIEW

CURRENCY: US data continued to support the US overall, although personal income and spending ensured the currency reaction was muted. EUR remained under pressure as German retail sales declined.

GLOBAL MARKETS: Despite the busier macro flow in Europe and US data, attention remained fixed upon headlines on the Russian presence in Ukraine. Ultimately there were few updates, but the market remained wary. Data-wise, the US numbers were mixed, but given the Labor Day holiday on Monday, market reaction was limited. Equity markets struggled to get much positive ground, generally trading weaker into the close in Europe, and were little changed in early US trading. Moves on sovereign bond markets were also muted, with a similar story also playing out in gold and crude oil.

KEY THEMES AND VIEWS

MASSIVE WEEK AHEAD. As is often the case in this game, a global data dump this week offers the enticing prospect that everything will soon become clear. It never does, of course, with new questions immediately arising, but we should still be wiser (and sadder?) by the end of the week. NZ has terms of trade today and GlobalDairyTrade on Wednesday. A heavy dump of PMIs is always closely watched - the official read for China (early this afternoon) will be of particular interest given the slowdown suggested by the ongoing falls in iron ore and steel rebar prices. For the US we have the ISMs, Beige Book, ADP employment read and finally the key non-farm payrolls on Friday. All will be trawled in detail for clues on the Fed's likely response. In Australia we have the current account, first take on Q2 GDP, and retail sales. But all this data must step to the side of the stage for a rousing chorus from the world's central bankers. Australia opens on Tuesday (no change expected). Wednesday brings Canada (of interest to see the tone on deflation) and the Bank of Japan (no one is expecting immediate action but hints of future plans will be seized upon). Thursday is Sweden

(interesting because they cut rates in the face of a housing boom last month), the Bank of England (no change expected), and the ECB (no immediate action expected but every word will be hung upon re the willingness and capacity for future QE-type action). Add in two Fed speakers on Friday to round it out and it will be quite a week.

OTHER EVENTS AND QUOTES

- July Eurozone flash CPI provided breathing room. Headline CPI printed on expectations at +0.3% y/y, and core CPI a tick higher at 0.9%

y/y. This result takes a little pressure off the ECB to introduce new policy measures this week. As such, the data were euro positive and nudged euro area sovereign bond yields a little higher. In the US, the PCE printed right on expectations, with the headline measure rising 0.1%

m/m and 1.6% y/y, and the core up 0.1% m/m and 1.5% y/y. These results indicate that inflationary pressures remain below the Fed's target.

- The Chicago PMI surged to 64.3 in August from 52.6 in July

(62.6 in June).

NZD/USD: Q2 Terms of Trade...

ANZ expects the Q2 terms of trade (10:45) to decline 3.5% reflecting falls in commodity prices. This should have minimal impact on currency markets as declining commodity prices have been a well-followed theme, but there are risks of a negative surprise. The Chinese official PMI

(decline expected) will be the other main data impacting NZD/USD - the US is out for Labor Day.

Expected range: 0.8310- 0.8400

NZD/AUD: Second-tier data...

There is only second-tier data today in Australia. Markets will likely keep AUD relatively unchanged as they await for the RBA, Q2 GDP, Q2 current account, retail sales and the trade balance later in the week.

Expected range: 0.8920 - 0.8990

NZD/EUR: Ukraine and the PMIs...

Geopolitical events are still a driver for the EUR with potential increases in EU sanctions on Russia in the offing. The Franco-Germanic split is also important, with the French stating the ECB must do more to weaken EUR while the Germans suggest it is down to governments. Finally today brings the final European PMIs, likely to confirm a slow growth environment.

Expected range: 0.6340 - 0.6400

NZD/JPY: LDP reshuffle?

Markets have been watching for an LDP cabinet reshuffle as a sign of a step up in 'Abenomics'. Media reports suggest this may be forthcoming this week.

Expected range: 86.60 - 87.40

NZD/GBP: Manufacturing activity...

The UK manufacturing PMI should ensure GBP remains supported today. The BoE is not expected to change policy this week so GBP should be side-lined.

Expected range: 0.5000 - 0.5060

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