Euro sentiment sags despite ECB's bank stress test results; minor international data draws minor market disappointments; NZD gains against most

By Raiko Shareef

NZ Dollar

The NZD sits at 0.7900 this morning, having gained 0.5% against the USD to sit atop of the G10 leader-board.

With local markets closed yesterday for the Labour Day holiday, the NZD took its cues from global themes.

It was an able participant in the broader USD sell-off.

Not the same could be said for AUD, which saw NZD/AUD lift from the base it had made just above 0.8900.

The cross is 0.3% stronger at 0.8970.

There are no local releases due today, but investors will likely be fairly subdued ahead the RBNZ OCR Review on Thursday morning.

Today we mark initial resistance at 0.7950, and support at 0.7800.

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Majors

New Zealand comes back from the long Labour Day weekend, and has not missed much as far as global markets are concerned. The USD weakened modestly into the week’s end, and continued to do so on Monday. The Bloomberg Dollar Spot Index is 0.3% weaker since Friday morning, with the decline evenly split across the two days.

Over the weekend, the ECB announced results of the stress test it applied to banks that are due to come under its direct supervision. Out of the 25 banks that failed the tests taken place over 2013/14 (of 130 in total), 12 had already covered their capital shortfall in 2014. With these results having been leaked to media over Thursday and Friday, the reaction was relatively muted on Monday morning. European equities initially benefitted, but that was short-lived. The Euro Stoxx 50 closed 1.0% lower overnight.

The dip in European investor sentiment was likely aided by a further slide in Germany’s Ifo business confidence survey. Each of the main components fell by more than expected, with the headline Business Climate Indicator at its lowest level since 2012.

While EUR weakened on this news, it more-than-recovered lost ground as the USD sold off, following disappointing US housing data. Pending home sales rose by just 0.3% m/m, against expectations of a 1.0% rise. Both the Markit US Services PMI and the Dallas Fed manufacturing index disappointed slightly.

We suspect that investors are playing it conservatively ahead of significant events later this week. The Fed’s October meeting (Wed), US Q3 GDP (Thu), and euro-zone CPI (Fri) are the ones to watch.

Tonight, a swathe of US data are due, including durable goods orders, consumer confidence, and the Case-Shiller house price index.

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