New Zealand and NZD benefit from what is viewed as a controlled budget


MAJOR HEADLINES – PREVIOUS SESSION

  • US MBA Mortgage Applications out at -14.2% vs. +2.3% prior

  • US Apr. Existing Home Sales out at 4.68m vs. 4.66m expected and revised 4.55m prior

  • US Apr. Existing Home Sales out at +2.9% m/m vs. +2.0% expected and revised -3.4% prior

  • US Mar. House Price Index out at -1.1% m/m vs. +0.2% expected and revised +0.2% prior

  • GE May CPI out at -0.1% m/m, flat y/y vs. +0.1%, +0.2% expected and flat/+0.7% prior resp.

  • JP Apr. Retail Trade out at -2.9% y/y vs. -3.3% expected and revised -3.8% prior

  • AU Mar. Conference Board Leading Index out at +0.4% vs. +0.2% prior

  • AU Q1 Private Capex out at -8.9% q/q vs. -6.0% expected and revised +7.3% prior

  • NZ Moody’s affirms, S&P upgrades NZ ratings outlook at stable after budget


THEMES TO WATCH – UPCOMING SESSION

  • Sweden PPI (0730)

  • Sweden Retail Sales (0730)

  • GE Unemployment (0755)

  • Norway Unemployment (0800)

  • GE Bloomberg Retail PMI (0800)

  • EU Bloomberg Retail PMI (0800)

  • EU Euro-zone Confidence Surveys (0900)

  • UK CBI Distributive Trades Survey (1000)

  • EU ECB’s Liikanen speaks (1200)

  • CA Employment Earnings (1230)

  • US Durable Goods Orders (1230)

  • US Initial Jobless Claims (1230)

  • US New Home Sales (1400)

  • US Mortgage Delinquencies (1400)

  • EU ECB’s Weber speaks (1415)

Market Comment:

The market correlations of old, which had appeared to have broken down of late, reappeared last night as the USD adopted a bid tone as general risk-aversion themes played out. Various factors were at play in giving the dollar a boost including a surge in longer-dated US yields, which rose 18bp to 3.73%, their highest level since October 2008. Market chatter suggested there was some heavy selling pressure from hedging by mortgage investors resulting in lower prices, despite some strong demand for the 5-year note auction last night. Like the 2-year auction the day before, the bid/cover ratio came in solid at 2.3 times and indirect participation was as high as 44%, the most since February.

The headline US data also appeared to favour the greenback as existing home sales in April came in marginally above forecast (at 4.68 mln vs. 4.66 mln expected). However, it should be noted that distressed sales (foreclosures) accounted for almost 45% of the turnover in the month and the inventory of existing homes on the market jumped to 10.2 months of current sales compared with 9.6 times in March. We are still yet to be convinced that we have seen a bottom in the housing market. Note also that FHFA house price index was also below forecast at -1.1% m/m in March and February’s data was also revised lower.

In Europe, Sweden’s Riksbank announced that it would borrow SEK100 bln from the Swedish national Debt office to replenish its reserves to be prepared should the financial crisis prove to be both “severe and prolonged”. The market’s knee-jerk reaction was to bash the SEK lower from its 2009 highs against the EUR, making it the worst-performing currency overnight. The same bias was maintained in Asia this morning, though the longer-term FX implications for the move are being questioned, given that the loans could be in EUR and USD, not SEK-denominated.

New Zealand’s annual budget saw the finance minister announce that the budget would be in deficit for a decade. The 2009/10 budget deficit was slightly worse than the market was expected at NZ$11.87 bln (versus NZ$10 bln) and was expected to peak at NZ$12.52 bln in 2010/11. Gross debt was expected to peak at 43% of GDP by 2016/17. The government’s bond program is raised to NZ$50 bln over the next 4 years to fund the deficit, with the 2009/10 issuance set at NZ$8.5 bln. Tax cuts were deferred for 2 years and pension fund payments were scrapped. This could have been a key influence in prompting ratings agency Moody’s to affirm New Zealand’s outlook at stable. Later, S&P revised New Zealand’s outlook to stable , a positive development given their earlier comments that the NZ government would need to get its books out of the red in 5 years (not 10). NZD jumped after the news having help a mildly bearish tone after the budget details were announced.

On the data slate today, US durable goods orders for April will attract the spotlight. Since the beginning of the year, durable goods orders have been stabilizing at low levels after the dramatic slump in the second half of 2008. Median forecasts are for a rebound from March’s 0.8% decline to the tune of 0.5%. Also on tap are the weekly jobless claims which are expected to remain stubbornly above the 600k mark with layoffs at the nation’s carmakers and dealerships impacting. We also see new home sales data which, like the existing home sales last night, may show some positive headline numbers. Median forecasts are for a barely changed number at 360k. Finally we have the last of the US Treasury auctions of the week with $26 bln worth of 7-year notes on offer.