News and views
Investors retreated further from risk during a holiday-thinned New York trading session. The last few days have seen a clear split between sentiment in local time, where China’s fiscal stimulus package has boosted confidence in the Asia region, and in the overnight session where the focus has been on the bad news in the economy and particularly in the corporate world. Concerns about the solvency of US car makers were exacerbated by the news that Volkswagen had gone to the ECB for liquidity. The ongoing slide in oil prices, reaching their lowest levels since March 2007, also favoured the USD over the other majors.
NZD initially held steady within the 0.58-0.59 range, but weakness in European equity markets eventually translated into a lower open for the US market, and the currency slide began. NZD quickly slipped below 0.57, before a late pickup in equities saw the currency recover back to 0.5750 at the time of writing.
AUD followed a similar path, hitting a two-week low under 0.65 before pulling back to 0.6590. The NZD/AUD cross moved in NZD’s favour after yesterday’s weak Australian business confidence survey, and generally held on to those gains overnight.
EUR fell to a two-week low around 1.25 as it continued to follow equity markets and risk appetite direction. JPY benefited again from the increased risk aversion, but only made slight gains this time.
US IBD-TIPP consumer comfort index jumps from 41.1 to 50.8 in Nov. Plunging gasoline prices, some stabilisation in equity markets and optimism that Presidentelect Obama may be able to effect change for the better saw this first confidence measure for November soar to its highest since March last year. We are forecasting decent bounces for the other major sentiment indicators for November too, including UoM later this week.
Japanese current account surplus tops ¥1trn in September. The ¥1005bn result was above August’s ¥903bn and expectations of a ¥970bn surplus in Sep. The trade surplus continues to shrink however, to ¥247bn in Sep, down a whopping 86% on a year ago. That said, rising oil prices were still a factor through the month, with a 2.1% rise in exports swamped by a 32.7% rise in imports (crude oil up 61.7% alone).
Japanese bank lending up 2.2%yr in October. What credit crunch? This was the strongest surge in credit in just over 2yrs. The acceleration in bank lending is seen as somewhat counter-cyclical though as households and businesses seek credit to smooth reduced income flows. Either way, supply is clearly not an issue.
German ZEW index recovers from –63.0 to –53.5 in Nov. The 300 or so German analysts and investors who respond to this survey were a little less pessimistic this month, probably reflecting the recent ECB rate cuts and government moves to bolster the banking sector. Talk of fiscal stimulus may have eased concerns about the severity of the coming recession.
UK housing news remains bleak. The RICS (chartered surveyors) reported continuing house price declines and the slowest sales pace since at least 1978 in October. Also in that month, the British Retail Consortium reported falling retail sales, and back in September, house prices fell 5.1% yr according to a government report. In other news, the trade deficit narrowed from €8.0bn to £7.4bn in Sep, largely due to volatility in the traded oil component.
Outlook
We are neutral on NZD in the short term. Early signs of an improving risk environment point to some unwinding of recent selling against USD, but it is also likely to lose ground against AUD. Longer term, NZD will need to remain below average for an extended period to soften the blow of a weaker world economy
