CURRENCY: Another relatively quiet Asian session with the NZ
Business PMI not expected to affect the NZD. The focus will be US
data overnight with the Philly Fed expected to improve.
Last night’s Empire Manufacturing Survey sets us up for a
positive USD reaction should that improvement eventuate.
RATES: Kiwi rates are expected to open a touch higher across the
curve following overseas moves.
REVIEW
CURRENCY: The July CPI was flat in the US, the Empire Manufacturing
and TIC flows were weak as the market looked through strong July
industrial production, housing and capacity utilisation causing an
anaemic bounce off support for the NZD.
GLOBAL MARKETS: A mixed night overall, with interest rate markets
selling off, the USD weakening against the NZD, AUD and yen but
gaining against the euro, and equities going sideways. Overnight
data was mixed, with weaker than expected data largely ignored in
interest rate markets. Equities treaded water, with the US S&P
500 up 0.1%, the Euro Stoxx down 0.1%, with the FTSE 100 down 0.5%
despite shares in Standard Chartered Plc gaining 4.1% on a smaller
than expected fine from New York Regulators. US Treasuries sold
off, with the 10-year yield up 7pbs (1.80%) approaching a three
month high. Yields also moved higher for Germany (up 10bps to
1.56%), and the UK (up 8bps to 1.68%). Yields eased for Spain
(6.58%) and Italy (5.74%). The CRB index gained 0.4%, with stronger
gains for crude oil (+1.0%), wheat, corn and soybeans (1.1%, 1.7%
and 2.1% respectively) and falls for natural gas and live cattle.
KEY THEMES AND VIEWS
AUGUST BOE MINUTES SHOW 9-0 VOTE. This was the verdict for both
keeping the policy rate at 0.50%, and maintaining the asset
purchase target at £375bn. Reading between the lines it is
apparent MPC members are shifting away from considering further
repo rate cuts. However, there were more nuances suggesting MPC
members were becoming more convinced over the effectiveness of QE,
and this will be the route taken if the economy takes a turn for
the worse. Central bankers are a cautious lot, however, and while
the minutes suggested that the new 'funding for lending' scheme may
have had more benefit than previously assumed, the Bank will need
more time to assess the impact of the scheme on funding conditions
and lending. Something for the Fed to ponder, with benign US
inflation data and weakening manufacturing sentiment providing US
policymakers with even more flexibility to act ahead of the looming
fiscal cliff, particularly with the unemployment rate stuck in an
8%+ zone.
OTHER EVENTS AND QUOTES
- Standard Charted Plc, which was fined $340m by New York
Regulators may have to pay up to $1bn to settle all probes by
regulators into transactions for Iranian clients according to
Bloomberg reports.
- Dairy prices surge 7.8% at GlobalDairyTrade action. Anhydrous
Milk Fat (up 14%) and Milk Protein Concentrate (15.4%) led the
charge, with whole milk powder prices up 7%. There were good
volumes cleared, with 43,421 metric tonnes sold, with the average
winning price (US $3,054/tonne), the highest since April.
NZD/USD: US data tonight again…
The market focuses on the negative in the data last night despite
strong production and housing. This sets us up for a continuation
of mild USD strength should the Philly Fed improve tonight as
expected.
Expected range: 0.8040 - 0.8090
NZD/AUD: Volatility crushed…
Two positive bits of NZD specific news in milk powder auction
overnight and retail trade earlier in the week have been unable to
move this cross, a situation expected to continue today.
Expected range: 0.7670 - 0.7695
NZD/EUR: Positioning move…
A reversal in the EUR with a static NZD leads to a bounce higher in
this cross. Nothing really driving the EUR move as it occurred well
before US data and after UK data so I attribute it to small
reversal of stops.
Expected range: 0.6550 - 0.6590
NZD/JPY: JPY strength capped…
Both JPY and NZD were very static overnight. Considerations in this
cross will centre on if the BOJ is ready to act.
Expected range: 63.40 - 63.80
NZD/GBP: Nothing new…
A great unemployment report is looked through due to Olympic boosts
which are one offs. The BOE minutes deliver no surprises as the
vote was unanimous to keep everything as it stands. The debate
regarding the base rate level was not given any further
consideration with only passing mention.
Expected range: 0.5135 - 0.5160
