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| Email Morning Report Thursday 16 June 2011 Market wrap
Europe led a fresh wave of risk aversion. Moody's place three major French banks on review for a possible downgrade due to their exposures to Greece, an emergency meeting of European finance ministers failed agree on a rescue plan for Greece, a large anti-austerity protest in Athens resulted in violent clashes, and the Prime Minister offered to resign which destabilised the situation even further. US data added to the sombre tone with a weaker than expected NY manufacturing survey, industrial production, and housing data, although CPI was firmer. The S&P500 is currently down 1.9% to a fresh three-month low, and the VIX barometer of risk aversion broke a multi-month range. The CRB commodities index is down 2.3%, oil (-4.5%) forming a bearish key day reversal, US 10yr treasury yields fell 14bp to 2.96%. Greek (+35bp) and Irish (+17bp) 10yr yields made fresh record highs.
The US dollar outperformed all major currencies, the DXY index rising around 1.4%. EUR un-surprisingly under-performed, falling from 1.4380 to 1.4155. USD/JPY rose from 80.45 to 81.05. AUD fell from 1.0690 to 1.0536, much of that during the NY morning. NZD fell from 0.8155 to 0.8033, a 2.6% fall in dairy product prices at the Fonterra global auction unnoticed amid the risk averse setting. AUD/NZD mainly hovered between 1.3100 and 1.3150.
Economic wrap
US NY Fed index drops from 12 to -8 in June. This was the second steep fall in a row, down from 22 in April, only its second sub zero reading since the 2009 recession. Although it looks like a dramatic fall this is a volatile series - it posted a similar fall in Nov last year which was reversed the following month. Still, other business surveys were weak in may and if they fall sharply in June as well, it would suggest that the economy may have slowed more than expected in Q2. The NY detail showed orders down 21 pts and shipments off 34 pts in June, whereas their May losses were nowhere near as significant. NY jobs dropped 15 pts to 10 in June, that component's first decline in four months.
US industrial production up 0.1% in May. This reflected a 0.4% rise in manufacturing, reversing much of April's 0.5% contraction, despite a further fall in auto output (down 1.5% after a fall of 6.5% in April). Overall IP posted the softer 0.1% rise because utility output fell 2.8% in May.
US CPI up 0.2% in May. This reflected a 1.0% fall in energy prices (including a 2% drop in gasoline prices) which offset a 0.4% rise in food and a surprise 0.3% core rate. Clothing up 1.2% and autos up 1.0% helped push the core CPI to 0.287%, rounding up to 0.3%, its highest outcome since May 2006.
US NAHB housing market index dropped 3 pts to 13 in June, its lowest since September last year, further evidence that the US housing market might be entering a new phase of weakness.
Other US data: Net long term TIC flows were $30.6bn in April, up from $24.0bn in March.
Canadian manufacturing sales fell 1.3% in April, reversing their March gain, as the auto sector (sales down 8.6%) began to feel the impact of parts shortages following the Japanese disaster.
Euroland industrial production rose 0.2% in April. Falls of 0.3% in Germany and France were offset by gains elsewhere in Europe, including a 1.0% jump in Italian IP, the third solid monthly rise there in a row.
Greek PM offers to stand down in an attempt to allow the creation of a unity coalition government that might deliver austerity reform commitments in time to meet deadlines to secure further bailout funds. This on the day the ECB said the threat of the Greek debt crisis spilling over into the banking sector was the biggest risk to financial stability in the region in its semi-annual Financial Stability Review.
UK unemployment jumps 20k in May, on benefit claimant count measure. The separate household survey found unemployment down 88k in the three months to April, however: different survey, different time frame, different message! Meanwhile, the Nationwide consumer confidence index jumped from 44 to 55 in May, possibly a “feelgood” impact from the extra long string of public holidays at the start of the month (the competitor GfK confidence index posted a similar May jump).
Market outlookAUD/USD and NZD/USD outlook next 24 hours: AUD has reversed lower again and should test a major support area between 1.0450 and 1.0520. NZD should test major support at 0.8000, Economic data today from both countries is minor..Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 16 June 2011. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac’sfinancial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change withoutnotice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. © 2010 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.Daily Forex Market News
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