Market Wrap

Market wrap Global market sentiment: There were mixed performances across major asset classes last night. European equities and bonds did well as prospects for a functioning Italian coalition appeared to have improved and ECB’s Draghi earlier affirmed policy would remain stimulatory. The Eurostoxx 50 closed up 0.8%, the Shanghai Composite earlier closing up 2.3%. The S&P500, currently up 0.3%, was restrained by a mixed bag of economic data, Q4 GDP disappointingly revised from -0.1% to only +0.1% but Chicago PMI exceeding expectations. Interest rates: US 10yr treasury yields were directionless, fluctuating between 1.87% and 1.90%. Eurozone peripheral bond yields fell, Italy’s 10yr -8bp, Spain -14bp and Portugal -14bp. Australian 3yr bond yields ground slightly higher from 2.74% to 2.77%. Currencies: The US dollar index (DXY) is around 0.5% higher. EUR fell from 1.3157 to 1.3058, influenced by an advisory report saying the ECB will probably discuss interest rates at next week’s meeting. USD/JPY ranged around the day’s high between 92.00 and 92.60. AUD followed EUR’s lead, falling from 1.0290 to 1.0228. NZD similarly fell from 0.8323 to 0.8266. AUD/NZD bounced off 1.2325 to 1.2380. Economic wrap US Q4 GDP growth revised from –0.1% to 0.1% annualised, from a marginal contraction to a marginal rise. The most significant drivers of the revision were net exports, a turnaround of 0.5 ppts, partially offset by a further 0.3 ppts drag from inventories. US regional business surveys: two up, one down in Feb. The Chicago PMI rose from 55.6 to 56.8 in Feb, its highest in almost a year, with production and orders both slightly above 60 but jobs easing from 58.0 to 55.7. The neighbouring Milwaukee-NAPM rose from 51.3 to 56.5, its highest since June. However the Kansas City Fed factory index slumped from –2 to –10 in Feb, its fifth straight sub-zero reading and its weakest in four years. US initial jobless claims fell 22k to 344k in the week ended 23/2 but that result may have been distorted by the Presidents’ Day holiday. Canadian current account deficit narrowed slightly from C$18bn to C$17.3bn in Q4. Meanwhile industrial product prices were flat again in Jan indeed they have been flat or falling since May last year, apart from posting just one monthly gain of 0.5% in Sep. Eurozone core CPI falls from 1.5% yr to 1.3% yr in Jan, its lowest since mid 2011. Meanwhile the headline CPI was unrevised from the flash estimate of 2.0% yr in Jan. In Germany, inflation eased from 1.7% yr to 1.5% yr in the preliminary Feb report. German unemployment fell 3k in Feb for a steady 6.9% jobless rate, revised up from 6.8% to 6.9% in Jan. With the German rate no longer falling the Euroland jobless rate is sure to rise further towards 12% (Jan figures due March 1). UK consumer confidence steady at –26 in Feb according to GfK. Outlooks Event risk today: NZ has Q4 terms of trade, Westpac expecting a sub-consensus flat result reflecting lower commodity prices last year. Australian data is minor – PMI, house prices and a commodity index. Eurozone unemployment and US inflation (core PCE deflator is the Fed’s preferred measure) plus US consumer sentiment will be watched tonight. NZD/USD 1 day: Likely to be restrained between 0.8225 and 0.8325 today. NZD/USD 1-3 month: The positive trend since May has been broken and we now targets around 0.8100 during the month ahead. Our view of a fresh high later in 2013 remains intact though. NZ 2yr swap yield 1 day: Opening today up 1bp at 2.98%. NZ 2yr swap yield 1-3 month: Following this correction, which could yet extend to the 2.80%-2.90% area, a rise above 3.20% should ensue. AUD/USD 1 day: A corrective bounce towards 1.0290 is expected today. AUD/USD 1-3 month: Remains inside an 18-month consolidation triangle, which should see it reach 1.0150 before an eventual break above 1.0600.