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ANZ NZ Morning Brief

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Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: The RBA is not expected to change policy, but there are risks for language changes that support AUD. USD should find demand with consensus forecasts that the ISM survey will maintain elevated levels.

RATES: Local yields are expected to open with a bias to the upside following moves in London trading overnight.

REVIEW

CURRENCY: EUR was under pressure from PMIs and Ukraine developments. NZD, GBP, and AUD gained against the USD, despite weaker Chinese PMIs yesterday. JPY weaken across the board as Q2 data disappointed.

GLOBAL MARKETS: With US markets mostly shut for Labour Day holidays, trading was relatively quiet with minimal moves despite continuing Ukrainian headlines. Equities declined 0.1-0.3% on the major European bourses. Moves in euro area sovereign bond markets were mixed, with German 10 year bunds down 1bp to 0.89%, and falls for Italian yields (2.42%). Spanish yields increased by 2bps (2.25%). Despite weaker data, yields on UK gilts sold off 1-2 basis points across the curve. Gold prices traded within a tight USD5/oz range while crude oil prices were also range-bound.

KEY THEMES AND VIEWS

PMIS TELL A STORY. Given the lags between the published data and events (something that followers of NZ data know only so well), forward looking sentiment indicators provide timelier clues. The message has been onwards and upwards for the US economy versus softer signs elsewhere, highlighting growing divergences. Tonight’s August US manufacturing ISM is expected to be a ripper highlighting the US continues to shine. For our part of the woods, slowing signs from the Chinese economy are not great news given its clout as our largest merchandise export market and a major buyer of NZ commodities. In Europe, the final August PMI’s made sorry reading. The Eurozone aggregate manufacturing PMI slipped 0.1pt to 50.7, its lowest level since July 2013. Germany’s final August read was revised down by 0.6pts to 51.4, the Italian series fell to 49.8 vs 51.9 in July, and Spain’s PMI declined to 52.8 vs 53.9. While the final reading for France was revised up by 0.4pts to 46.9, it was down on July’s 47.8 and suggests the Eurozone’s 2nd largest economy is likely to continue to flatline at best. Across the channel, the UK manufacturing PMI fell more sharply than expected (52.5), to its lowest level since June 2013, and while geopolitical tensions are likely to have played a role it does not bode well. While the ECB are unlikely to add more fuel to the policy fire this week they are likely to be very worried.

RBA DECISION TODAY. The general expectation is for no change in the cash rate, and while market pricing is biased towards rate cuts, there is not a lot in it. We expect today’s post meeting statement, as well as RBA Governor Stevens’ speech on Wednesday to provide few surprises, given that we have heard from the RBA a number of times in recent weeks. The handover of growth from mining to other areas of the economy looks on track, which should help take more pressure off the NZD.

OTHER EVENTS AND QUOTES

- UK housing market cooling? July mortgage approvals eased to 66.6k vs 67.1k, a continuation of the easing seen since the start of the year. Data on the pricing side continues to tell a different story.

NZD/USD: ISM...

NZD/USD found some support given the better than expected NZ terms of trade. However, the volume data splits suggest a weaker Q2 NZ GDP, which should keep NZD under pressure. August ANZ Commodity Prices will have a bearing on NZD today, but after Labour Day the focus will be on the US with the ISM expected to hold at elevated levels supporting USD.

Expected range: 0.8320- 0.8420

NZD/AUD: RBA…

Markets have little expectation for the RBA today, but there is a risk that the RBA could shift some of its language to reflect recent improvements in the Australian economy, although yesterday’s negative RBA commodity price revisions should be considered.

Expected range: 0.8920 - 0.9000

NZD/EUR: Ukraine deteriorates and weak PMIs...

The situation in Ukraine appears to be steadily deteriorating with Europe threatening new sanctions. European activity is also declining with Spanish, Dutch, Italian, and German PMIs all missing expectations.

Expected range: 0.6350 - 0.6420

NZD/JPY: Q2 was weak…

Q2 data from Japan yesterday showed declines in company spending, profits, and sales, all of which argue that more structural reform is required in Japan.

Expected range: 87.00 - 87.80

NZD/GBP: Weaker manufacturing activity…

GBP found support despite weaker Markit manufacturing PMI. The PMI showed that the UK is not immune to European woes, although net consumer credit, lending on dwellings and mortgage approvals all outperformed.

Expected range: 0.5020 - 0.5070

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