Friday 9 July 2010

Morning Report
Foreign Exchange Market
Previous Range Asia NZD AUD JPY EUR GBP Overnight Today’s Open Expected 8.00am NZD cross Range Today 0.7091 0.8769 88.40 1.2708 1.5167 0.7040-0.7120 0.8086 0.8700-0.8800 62.68 88.00-89.00

News and views
Optimism continued to build overnight following positive earlier leads from Australian jobs (+46k in June) and global growth upgrades from the IMF. European bourses posted another solid day of gains with the FTSE 100 up 1.8% and Eurostoxx 50 up 1.2%. US indices were buoyed early by a good sized fall in initial jobless claims and promising chainstore sales from some retailers, easing worries about a potential double dip recession. The Dow posted a quick 95pt gain out of the gate but rumours that some European financial institutions have not passed the EU stress tests put the brakes on risk appetite. Famed US bank analyst Meredith Whitney tried to pour cold water on the new found bullish sentiment too, aggressively cutting Q2 earnings estimates for Goldman Sachs and Morgan Stanley amid tough Q2 conditions that saw equity and capital market business dry up. US stocks shed a good part of their gains by midday NY but roared back into the close. The Dow closed up 105pts (1.1%). The CRB index of commodities rose 0.36% on the day while US Treasury yields were up 4bp. The AUD was the early outperformer following earlier stronger-than-expected labour market data. From 0.8750 the AUD made a run at 0.8800 in the immediate wake of the stronger US jobless claims and chainstore sales data but quickly stalled. The AUD eased back towards 0.8700 in midday NY and finds itself at 0.8750 currently. NZD/USD spent most of offshore trading in a 0.7040-0.7100 range and starts local trading at 0.7081 with a bid tone. EUR ran up from 1.2640 to just shy of 1.2700 overnight. US initial jobless claims fall 21k to 454k last week. That’s the lowest reading since early may but doesn’t resume the downtrend that stalled at the start of this year. Coming week’s data might be noisy due to annual temporary auto plant shutdowns for the summer. The prior week’s continuing claims count fell a steep 224k to 4413k, its lowest since 2008, though that may reflect claims expiring rather than jobs being found. The Japanese adjusted current account balance for May came in at ¥904.8bn versus market expectations for a surplus of ¥1199.8bn. The May outcome was also lower than the April outcome of ¥1379.6. Weaker exports (–0.5%m/m) and stronger imports (+7.9%) led to a smaller trade surplus in May. Investment income also declined in the month. Japanese bank lending unchanged at –2.0%yr in June. The decline in lending by city banks accelerated a touch in June to –4.1%yr, from –3.9%yr in May. Regional bank lending was unchanged over the year to June. Japanese core machinery orders were much weaker than expected at –9.1% in May against expectations for a 3% decline; this follows a 4% rise in April. This leaves core machinery orders 4.3% higher over the year. European Central Bank on hold at 1.00%. The statement and press conference delivered no significant new information. ECB chief Trichet suggested there were too many pessimists out there with respect to the outlook for Europe; he declined to comment on the bank stress tests which will be published on July 23. German industrial production up 2.6% in May, reflecting recent strong orders growth. Euro weakness would be a factor supporting the factory sector. Bank of England on hold at 0.50% and £200bn asset purchases. There was no explanatory statement; the minutes on July 21 will reveal whether there was another vote for a rate hike, as there was in June. On the UK data front, industrial production posted a 0.7% May gain which reversed April’s revised fall of 0.7%. There was a boost from mining and oil. The factory component however rose just 0.3% after falling 0.8% in the prior month. Separately, the Halifax reported that UK house prices fell 0.6% in June, their third straight decline. Canadian new house prices up 0.3% in May, their eleventh consecutive rise.

0.7023-0.7100 0.7036-0.7103 0.8623-0.8748 0.8692-0.8792 87.40-88.47 88.00-88.64

1.2620-1.2688 1.2634-1.2702 1.5170-1.5230 1.5102-1.5241

0.5580 1.2650-1.2780 0.4675 1.5100-1.5250

NZ Domestic Market (Previous day’s closing rates)
Cash Curve Cash 30 Days 60 Days 90 Days 180 Days 1 Year 2.75% 2.93% 3.01% 3.20% 3.41% 3.72% Govt Stock Nov-11 Apr-13 Apr-15 Dec-17 May-21 3.73% 4.22% 4.70% 5.17% 5.42% Swap Rates (Qtrly) 1 Year 2 Years 3 Years 4 Years 5 Years 7 Years 10 Years 3.77% 4.20% 4.50% 4.71% 4.88% 5.13% 5.39%

World Bourses and Indices
AUD Cash 90 Day 3 Year Bond 10 Year Bond NZX 50 S&P/ASX200 Nikkei FT100 S&P500 4.50% 4.92% 4.66% 5.14% 0.00 +0.06 +0.14 +0.10 USD Fed Funds 3 Mth Libor 10 Year Notes 30 Year Bonds CRB Gold Copper Fut. Oil (WTI) NZ TWI 0.00-0.25% 0.53% 0.00 3.02% +0.03 4.01% +0.05 259.5 1198.0 300.70 75.44 67.19 +1.3 -5.7 -0.15 +1.41 +0.27

2983.9 +22.2 4356.7 +102.1 9535.7 +256.0 5105.5 +90.7 1068.2 +7.9

Upcoming Events
Date Country Release 9 Jul NZ Jun Electronic Card Transactions US May Wholesale Inventories UK May Visible Trade Balance £bn Jun Producer Prices Can Jun Employment Chg Jun Housing Starts 12 Jul Aus May Home Loans US Fedspeak: Lacker Jpn Jun Domestic CGPI UK Q1 GDP (F) Q1 Current Account £bn 13 Jul NZ Jun Food Price Index Aus Jun NAB Business Survey US May Trade Balance $bn Jul IBD/TIPP Econ Optimism Jun Federal Budget $bn Jpn Jun Consumer Confidence Ger Jul ZEW Survey UK Jun CPI %yr Jun BRC Retail Sales Monitor Last Forecast 0.2% – 0.4% 0.4% –7.3 –7.0 0.1% 0.1% 25k 15k 189k 191k –1.8% – 0.1% 0.3% –1.7 –0.7% 6 –40.3 46.2 –136 42.7 28.7 3.4% 0.8% – 0.3% –4.5 0.7% – –39.0 44.0 – – 20.0 3.2% –

Outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD and NZD have returned to favour and should find good support into 0.8700 and 0.7040 respectively. The global calendar is thin over the next 24 hours. June electronic credit card transactions are due this morning in NZ. The Bank of Korea holds its Monetary Policy meeting we expect no change in policy though it wouldn’t be a complete surprise given recent policy tightenings around the region (India and Malaysia).
With contributions from Westpac Economics

Westpac Banking Corporation ABN 33 007 457 141 incorporated in Australia (NZ division). Information current as at 9 July 2010. All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac’s financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. © 2010 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.