News and views
Dubai World’s credit default news rippled further on Friday, scaring most Asian equity indices lower (HK’s Hang Seng down 4.7%), although European equities were more resilient and closed in positive territory. US equities were further battered in a thin (post-holiday) session, dropping at the open, but recovering partially to see the S&P500 close -1.7%. The VIX index rose by 21%. During the weekend, an Abu Dhabi official reportedly said selective assistance for its neighbour was possible, and other reports suggested rescue package details may be announced at today’s Middle East open. Further, the UAE central bank said it would support banks which are exposed. Expectations of assistance should stabilise markets on Monday, and see some reversal of Friday’s panic selling. Most commodities were weaker on the Dubai news, oil -2.5%, copper -2.2%, and gold -1.3%. US treasuries benefited from the move to risk aversion, 10yr notes dipping as low as 3.15, and 2yr notes dipping to the December 2008 support level, before the partial risk recovery kicked in.
Risk currencies closed only slightly weaker, masking deep intraday lows. EUR fell to 1.4838 at the session open, but recovered thereafter to almost 1.5000. After spiking higher during Friday afternoon, JPY weakened to 87.00 after the Sydney close.
AUD made its 0.8950 low an hour after the Sydney close, recovering thereafter to 0.9050-0.9100, and opening this morning just above 0.9100. Financial journalist Alan Mitchell said the probability of a December RBA hike had fallen slightly, but the decision will be a close call.
NZD broke below its month-long range intraday, at 0.7027, but recovered to just above 0.7100. AUD/NZD stabilised around 1.2780, and has opened this morning around 1.2740.
No US data.
Eurozone ESI sentiment surveys were stronger across the board for November, with every sector either matching or beating forecasts. The broad sentiment index rose from 86.1 to 88.8, the highest since last September – though by point of comparison, it has only just reached the low point seen in the 2001 slowdown.
German import prices rose 0.5% in October, mainly reflecting higher oil prices. Prices are down 8% on a year ago, largely due to the sharp drop in oil from late last year, but the stronger EUR is likely to have depressed prices as well.
Canada’s current account deficit widened to $13.1bn in Q3. The recovery in the auto sector added to both sides of the ledger (Canada and the US trade cars and parts amongst each other), but imports received the biggest boost.
Outlook
AUD/USD and NZD/USD outlook today: A relief rally in both currencies is expected today, although the medium outlooks have been shaken. AUD is supported at 0.8950, while NZD is supported at 0.7080. NZD looks the more vulnerable, and we will watch for a sustained break below 0.7080 as an indication of a larger correction.
