News and views
Tuesday’s bounce in risk appetite stalled last night, equities and currencies mildly sold, but commodities higher. The S&P500 is down 2% early NZT, banks 5%, despite the Fed’s Bernanke reiterating his aversion to bank nationalisation (because shareholders lose everything). Negatives for risk were the surprisingly large -5.3% mom fall in US existing home sales in Jan, and President Obama hinting of tighter market regulation in an optimistic but lightweight address to Congress. The US dollar index rose from Europe’s opening, and is up around 1%. Oil’s rally was driven by a surprise fall in inventories, and copper liked the Bernanke/Obama comments, holding its 2% gain. US 10 year treasury yields worryingly rose 9bp against the supportive data and equities.
NZD almost reached 0.52, painting an ascending triangle, before US equities pushed it down to the base at 0.5090. Yesterday’s RBNZ inflation expectation survey supports our call for a 100bp cut on 12 March.
AUD rose to 0.6555 on a spill-over from the previous day’s sentiment, but then fell a cent. AUD/NZD’s 1.26 to 1.27 range is now in its fifth day, still looking like an eventual upside break.
EUR almost reached 1.29, stymied by option level protection, and dribbled off to the 1.27 area. GBP was harder hit, falling from 1.46 to below 1.42. Rumours of UK bank bailouts swirled, and BOE’s Sentence said rates may be cut further, but probably to little effect. JPY weakened only marginally to 97.50, the favoured story driving recent weakness Citgroup’s possible sales of its Japanese investment banking and brokerage businesses.
US existing home sales fell 5.3% in January, reversing the unexpected bounce in December (+4.4%, revised from 6.5%). The median sale price was down 14.8% on a year ago, and the stock of unsold homes rose to 9.6 months’ worth of sales. Existing home sales have taken another lurch lower since last November, and even the rising tide of distressed sales – estimated at over 40% of total sales – has failed to provide support.
MBA mortgage applications fell 15.1% in the week ended 20 Feb. Applications to refinance faded as mortgage rates rose off their lows, while applications for new purchases remained mired around 10-year lows.
The second estimate of UK GDP for Q4 was left unchanged at -1.5%. The market had expected a small downward revision after the release of weak industrial production figures for December, but government spending provided an offsetting bounce. Downward revisions to previous quarters saw the annual rate of decline marked down to -1.9%.
The final estimate of German Q4 GDP was also unchanged, at -2.1%. The slump in global trade has hit Germany particularly hard, with exports down 7.3% and imports down 3.6%, both more than forecast. This weakness is expected to persist through at least the first half of this year.
Outlook
The range of recent days (0.50-0.52) is narrowing, hence the ascending triangle pattern. This means we are approaching a breakout, either today or tomorrow, and textbook technicals say that should be upwards. Such an upward break would target around 0.5350, after which out longer term trend down should resume. Two releases today are potentially market moving: the trade balance at 10:45 could be better than expected (NZD up), while the NBNZ business confidence survey (15:00) is likely to be negative.
