News and views
The market’s reassessment of individual currencies continued, the USD clearly in the dog-box for now, falling 2% (DXY index). Sentiment towards risk improved, the VIX (US equity volatility index) at a 6-week low. Major global equity indices were approximately unchanged. NYMEX oil fell to $42 despite OPEC agreeing to cut production. Norway topped the “largest rate cut” list, with 175bp.
After yesterday’s exceptional intraday rally to 0.58, the NZD corrected only marginally to 0.5770 during Europe, and followed EUR higher to around 0.5950 during the US session. Today’s half-year fiscal statement will tell us about the size of future deficits, and therefore, funding requirements.
The AUD found it difficult to establish higher ground, sticky around 0.70. As a consequence, the AUD/NZD cross continued to give back the month’s gains, and touched 1.18.
EUR rested between 1.40 and 1.42 until late Europe, when it jumped to almost 1.45 on no particular news. GBP was unloved after BoE’s pessimistic comments and record-weak jobless and sales data, falling from 1.57 area to 1.5250, partially recovering to 1.55. JPY marches on, flirting with 87 (vs USD) overnight, but, ever cautious of the BoJ, back at 88.
No US data to report.
Euroland CPI confirmed at 2.1% yr in Nov, in line with the flash estimate. The core CPI was steady at 1.9% yr.
UK jobs and retail data very weak. The number of unemployment benefit recipients jumped 76k in Nov, the biggest one month gain since the early 1990s recession. In the three months to Oct, employment fell 115k, its second consecutive quarter of decline. The household labour force survey jobless rate jumped from 5.8% to 6.0%, its highest yet this decade. In Dec, the Confederation of British Industry reported its weakest ever sales, with a net balance of –55%, down from –46% in Nov.
Bank of England considered bigger rate cut on Dec 4. The 100bp rate cut to 2.0% was unanimous, but there was discussion about possibly cutting by an even larger amount – which suggests that rates will be cut further at the January meeting.
Norway cuts rates 175bp to 3.0%. Yet another central bank surprising us with aggressive rate cuts. Norges signalled more cuts to come next year.
Outlook
NZD strength should continue until early January. The latest rally from 0.54 (10 December) looks stretched here, and we would expect a correction today, taking it towards the bottom of a 0.58 – 0.5970 daily range.
