By Mike Burrrowes
The NZD fell steady throughout the evening as investors remain nervous about the European debt crisis. Overnight, investors focused on rising Italian and Spanish bond yields while concerns surfaced that the Greek coalition government may face issues in passing further austerity measures. NZD/USD has fallen from 0.7880 to around 0.7780 currently.
Yesterday’s NZ retail sales for Q3 expanded a stunning 2.2% (vs. 0.6%q/q expected). The Q3 figure will no doubt reflect some of the early stimulus from NZ hosting the Rugby World Cup. And even though this has obviously kicked on into October’s transactions, the more general economic undercurrents look to have slowed in Q4. Indeed, witness yesterday’s Performance of Services Index for October, which almost stalled at 50.6. All the while, the global clouds are darkening. Still, we‘ll take the bonus of retail’s Q3 splurge. How many other countries around the world could match that? Even close. The fact is that many are struggling to simply go sideways.
The NZD/AUD spent the evening hovering around 0.7640 and has not made any significant gains following yesterday’s stellar retail sales number. The big event for the cross today will be the RBA Minutes for November, due 1.30pm NZT. We do not expect the RBA commentary to be sufficiently hawkish to see the market reverse expectation for at least a 25bp cut from the RBA in December.
Looking to the day ahead, there is no local data due for release. Tomorrow morning we expect dairy prices at Fonterra’s auction to hold-up. Looking to the day ahead, support on NZD/USD is eyed at 0.7730 and resistance at 0.7840.
The ‘stabilisation’ in markets at the end of last week came to an abrupt halt last night. Renewed concerns about the European debt crisis saw the European currencies underperform over the past 24 hours. The USD and JPY benefited from strong “safe haven” demand.
The pullback in risk appetite saw the S&P500 index and Euro Stoxx 50 index lose 0.9% and 1.6% respectively. Our risk appetite index (scale 0 – 100%) fell back to 32.7% from 34.3%.
EUR/USD steadily declined throughout the evening from 1.3760 to around 1.3630 currently. The focus was again on rising bond yields in Italy and Spain. While Italy managed to successfully auction €3b of 5-year government bonds, the yield was still a worrying 6.29%. Prior to the auction, it was announced that Mario Monti will be the leader of an Italian technocrat government.
In Greece, new Prime Minister Papademos should easily pass a confidence vote in his cabinet. However, following this, Papademos is scheduled to meet Eurozone Finance Ministers, no doubt to discuss further austerity measures Greece needs to implement to receive its next aid payment. However, the new coalition may not enjoy as much cross-party support as hoped. The leader of the New Democracy party Samaras stated he would not support any new austerity measures.
German Finance Minister Schaeuble noted that there would be no financing of troubled countries by the ECB. If the ECB cannot be used, it remains unclear how the EFSF’s firepower will be increased to €1t. He also noted that Portugal and Ireland are on the road to recovery while Greece is an exception, and still has to make difficult decisions.
The downbeat mood saw decent “safe haven” demand for the USD across the board. As a result, the USD index rose around 1% to 77.60. The JPY gained 0.2% against the USD to 77.00.
GBP/USD largely tracked the moves in the EUR overnight, falling from 1.6060 to below 1.5900 currently. Tonight we have the release of UK CPI and the Bank of England inflation report tomorrow. The BoE is expected to cut its growth and inflation forecast, which is likely to keep the GBP on the backfoot.
Looking to the night ahead, expect the focus to remain on the European debt crisis. On the data front, we have French and German GDP for Q3, UK CPI and US retail sales.
Mike Burrowes is part of the BNZ research team.