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ANZ Morning Briefing

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Contributor:
Fuseworks Media
Fuseworks Media

OUTLOOK

CURRENCY: The US Independence Day holiday should see markets limited in liquidity and activity today, with recent post-float highs a difficult target to achieve. Greek optimism should be balanced with implementation reality.

RATES: A quiet night in London. Local rates are expected to open unchanged.

REVIEW

CURRENCY: Weaker Chinese data meant a difficult road for the NZD to close out the week. Overnight optimism returned as the US June ISM data helped to lift the Australasian currencies and lower risk concerns.

GLOBAL MARKETS: Risk on again. Please try to keep up. The stronger than expected US manufacturing data gave markets a fillip on Friday. US equities saw their largest weekly rally in two years, Treasuries fell, and gold weakened on reduced safe-haven demand. Crude oil fell after rising the previous three days, which was generally put down to weaker data out of China.

KEY THEMES AND VIEWS

GREECE GETS ANOTHER REPRIEVE. Over the weekend the euro area approved its part of a 12 billion euro bailout agreed under the first rescue package, Greece's reward for passing stiff austerity measures through parliament on Friday. This was expected, and the focus quickly turned back to the next rescue package. This will be more complicated to negotiate, not only because EU taxpayers are getting rapidly fed up, but also because of an insistence that bondholders should be involved. This is not quite the same thing as "sharing the pain", as any pain inflicted on bondholders will immediately rebound on holders of credit default swaps. So how to encourage bondholders to lend more money to a clearly insolvent country without any degree of coercion that might cause the ratings agencies to cry foul? There are precedents, with rumoured proposals involving rolling over 70 percent of debt at terms of up to 30 years, with the principal guaranteed via Greece investing in zero-coupon bonds of similar maturity. It's likely this smoke and mirrors cleverness will see a deal struck, but this still won't solve Greece's long-term insolvency problem. But by the time they finally are permitted to default, the market will have already moved onto the even more interesting question of which country is next.

MIXED MANUFACTURING. In what's been a relatively unusual pattern, US manufacturing data surprised on the upside while Chinese data disappointed. A bumper Chicago PMI on Friday had hinted that surveyed market expectations for a fall in the key US ISM index might be beaten, and in the event the index strengthened to 55.3. This is the first increase in four months. In contrast, the Chinese June PMI softened further to 50.9, 0.6ppt lower than market expectations. The moderation was broad based, but the index remains above the neutral level of 50, indicating that China's manufacturing sector continues to expand, albeit at a more moderate pace. This is the lowest level of the index in 2� years, but looking on the bright side, some kind of slowdown is required to assist the fight against building inflation pressures. European PMIs are also generally weakening, so the US sector is swimming against the global tide.

OTHER EVENTS AND QUOTES

� "Mini-deal" in the pipeline? It's not just the Europeans who are good at kicking cans down the road. US Republicans have indicated they would accept a "mini-deal", a short-term solution to the looming crisis if a deal is not reached on raising the US debt ceiling before 2 August. Then the politicians get to start all over again before too long.

NZDUSD: Supply as scarce as snow?

The lack of NZD supply into the market might be comparable to the lack of snow in the South Island. Skiers know that the snow will come just as exporters understand that corrective moves in the NZD will also come. But a corrective move of two cents from 0.83USD may prove little comfort in the scheme of things.

Expected range: 0.8240 - 0.8320

NZDAUD: Rare air?

Resistance at the 0.7750 level last week should be continued throughout this week's trading. Locally the delayed NZ Q1 GDP release should help to provide some support should this cross venture into the 0.7550-0.7650 zone.

Expected range: 0.7650 - 0.7700

NZDEUR: Heating up?

As discussed with many it is one thing to pass austerity measures and it is another thing to implement them. Dire warnings on Greek sovereignty and employment levels will help the EUR continue the rocky road. This cross should struggle on the topside with a test of support most likely early on.

Expected range: 0.5650 - 0.5710

NZDJPY: Low base?

A lacklustre week expected for this cross with the possibility of higher moves once the ECB delivers the much promised interest rate hike. Expect 67.40 to provide some technical resistance while 65.90 provides a base.

Expected range: 66.26 - 67.40

NZDGBP: Little change?

Signs that the UK economy remains vulnerable to backward steps should ensure no change by policymakers at the MPC this week. It will ensure this cross is supported also, with the real possibility of an attempt on 0.52GBP.

Expected range: 0.5135 - 0.5175

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