Curve Securities News & Comment

Timid global markets await Greek outcome...bonds continue to slide

2012-02-09T09:15:00.000+11:00

Offshore markets remained relatively flat overnight with no headline data released in the US and although a positive result in Germany’s current account (euro 19.3bn up from 14.7 billion) most investors sat on the sidelines awaiting the Greek bail out outcome.

Domestically markets began to digest the shock of the RBA leaving rates on hold for February. As the Aussie dollar rallied, bonds continued to slide with the 10 year implied bond yields around 4% and the 3 years around 3.5%.

If the US continues to post positive data and Europe moves forward in its debt recovery plans perhaps the RBA has done enough in this cycle to remain balanced in its economic position. Worth noting is the Board remains vigilant to react to offshore conditions.

RBA Board in holding pattern - cash rate unchanged 4.25%

2012-02-08T09:15:00.000+11:00

The Reserve Bank of Australia has deemed its monetary policy settings adequate in dealing with the economic environment domestically and the current global financial situation.

Although aware of the “…acute financial pressures on banks in Europe…” recent data out of the US and China has proven positive suggesting the slowdown mid 2011 maybe in correction mode. Coupled with the recent easing in CPI pressures domestically and the previous two rate cuts “…the Board noted that interest rates for borrowers have declined to be close to their medium-term average...”

On this basis the RBA is content with the prospect of reacting to events as opposed to pre-empting them both on shore and offshore. They have left the door open however for further easings “…Should demand conditions weaken materially…”

RBA Board meeting today at 2.30pm

2012-02-07T09:09:00.000+11:00

The Reserve Bank Of Australia meets this morning for the first time this year yo deliberate the state of the economy and determine the cash rate for the Australian household and business sector for the coming month.

The markets have priced in about a 75-80%% chance of a 25 basis points cut this morning based on the following factors;

* Australia's dual-speed economy illustrates a strong mining sector on the one hand offset by weak manufacturing and retail sectors (the worst figures recorded for Dec in 28 years yesterday).
* With unemployment flat over the last six months the economy's growth potential has been revised down and CPI is now trending towards the lower end of the RBA's 2-3% target band.
* Although the US is showing early signs of recovery Europe remains in a protracted state of disharmony.

We feel the easing is necessary and the question of either a 25 or 50 basis point reduction in the cash rate will be based on the spread of data available to the Board.

In news overseas the Greek debt solution remains ongoing causing concern amongst the collective EU Region, in particular Germany and France. Both political leaders of the two nations have called for a swift resolution to the discussions taking place.
In data this evening German industrial Production will be a significant release ahead of the key US testimony to Congress.

Global markets react strongly to US job growth

2012-02-06T09:32:00.000+11:00

A better than expected outcome in US Non-Farm Payrolls data on Friday has spurred markets across the board into rally mode. Unemployment fell to the lowest level recorded in three years to 8.3% and provided a strong signal the US economy was fighting its way out of contraction. Coupled with signs of progress out of Greece investors pushed risk assets higher and postulated doubt over the possibility long term bond yields would remain low for an extended period of time.

Locally the Australian dollar performed well however with all eyes on the RBA board meeting tomorrow we may see some profit taking late in the afternoon session. Consensus dictates a 25 basis point cut is imminent however the cautions the FOMC and ECB have publically announced in their recent board meetings might mean a decisive 50 point cut helps to ease any future tensions which Australia might be in for as result of further global contraction.

Markets bide their time…

2012-02-03T10:24:00.000+11:00

Still no deal in Greece as creditors await the joint verdicts from the EU, IMF and ECB as the countries long term debt sustainability outcomes before any firm pact is made.
Investors downplayed the ongoing stalemate preferring to sit on the sidelines ahead of tonight’s all important US Non-farm Payrolls release. The recent positive data in the manufacturing sector was slightly offset by the production sector hence this figure provides a key piece of economic growth puzzle.

Manufacturing boosts market confidence

2012-02-02T10:22:00.000+11:00

Key manufacturing data in the US, Europe and China lifted markets across the board overnight. Stocks commodities and risk currencies all proved beneficiaries of the growth in the US Institute for Supply Management numbers posted on Wednesday. A rise to 54.1 indicated the strength in the US manufacturing sector lead by construction.

German growth also proved positive territory for the first time since September and UK manufacturing data grew for the first time in 3 months.

Softer US economic data sways investor confidence

2012-02-01T10:21:00.000+11:00

US consumer confidence suffered an unexpected fall as households bore the brunt of higher gas prices and weaker job opportunities over the winter. A glitch in the positive data flow out of the US enabled investors to take profit as stocks and commodities edged lower overnight.

In Europe no news on the Greek debt resolution caused further investor angst as the March deadline approaches to refinance bonds. A protracted delay could see more ammunition for financial market swings over coming days.

Greece dampens investor enthusiasm

2012-01-31T09:28:00.000+11:00

A delay overnight in announcing a solution between Greek creditors and the Government was a disappointment for investors as the market anticipated a resolution to be fast approaching. The stalemate was touched on by German Chancellor Angela Merkel in talks last night revealing the banks had not committed to any deal. Plans to appoint a commissioner to expedite a swift resolution were quashed by Greek finance minister Venizelos.

Locally we have business data released for December detailing confidence and condition expectations. Also private sector credit data will provide a little insight into how the “cautious consumer “ is coping with the current evolving conditions.

Hiccup in US Econony growth

2012-01-30T09:24:00.001+11:00

Economists were expecting the US economy to report annualised growth in Q4 around 3.0% however 2.8%, up from 1.8% was still slightly disappointing news. Consumer spending looked better growing 2.0% hence markets were marginally moved.
In Europe sources revealed a solution was closer to finalisation on the impending debt resolution for Greece's refinancing issues.

US FOMC commits to low interest rates until 2014

2012-01-27T09:22:00.000+11:00

Global risk markets were the beneficiary on Thursday as the Fed committed to bolstering economic growth by extending their initial horizon of low interest rates by 18 months. Their pledge ensures rates will remain low until late 2014 indicating a protracted 3 year recovery is now expected.

Stocks, commodities, risk currencies all rose on the news with our Australian dollar hitting a 3 month high of 106.86 and the Euro showing strength. Data out of Europe was not all bad either as Italy was able to issue bonds at lower borrowing levels than last year’s auction. Greece is also committed to an agreement with its private creditors to ensure they receive the IMF bailout package ahead of the March maturity of 14.5 billion euros in debt.

A Greek tragedy…the breakdown in debt negotiations continue. Aussie Q4 CPI today

2012-01-25T09:20:00.000+11:00

Greek creditors are unwavering on their demand for a 4 per cent coupon on the refinancing of 14.5 billion euros in bond redemptions falling due in March, meanwhile the government of Greece is not willing to pay more than 3.5 per cent potentially to the detriment of its private creditors. The stalemate weighed on international markets over night as both stocks and commodities lost traction. The IMF forecast grim warning of economic contraction of up to 2 per cent if the European debt crisis was not curtailed soon.

Consensus among market forecasters this morning in relation to the Q4 CPI released is +0.5% QoQ and 2.4% YoY. In our view a 25 basis point rate cut in two weeks is imminent however a deviation from the consensus Q4 CPI figures could mean that a 50 basis point cut is required for flow through effects to impact the economy in the required areas.

Flat markets reflect short-term uncertainty - day two

2012-01-24T09:17:00.000+11:00

Amidst a back drop of IMF warnings and continued Greek debt negotiations markets remained cautious and posted unassuming relatively flat closes. The Aussie dollar notched a little higher at 1.0541 this morning opportunistically as other markets merely hovered.

Calling for a “comprehensive solution” to tackle the Euro debt crisis, IMF chief Christine Lagarde called for a larger firewall to prevent global contagion effects immersing the entire Euro Region. Proactively Euro zone finance ministers have sent back a proposal initiated by private financers of Greek bonds and the Greek government demanding a lower refinance rate by achieved before further financial assistance is provided. The official debt to GDP ratio of 120 per cent is hoped for by 2020.

Flat markets reflect short-term uncertainty

2012-01-23T09:15:00.000+11:00

The US and European markets posted a small rise and a small decline respectively on Friday evening indicating the mixed sentiment underlying investor confidence at the moment without any headline data releases to provide a conduit to market moves.

The week ahead will certainly offer some direction as debt talks continue between private creditors and Greek officials on how best to restructure the 360 billion euro liabilities weighing heavily on the struggling Euro Region. Without an internal solution to the write down of loans or re issue of bonds Greece will not be able to secure 130 billion euro in the promised IMF aid package.

The week ahead in Australia may also shed some light into our two-pronged economy with Q4 CPI released on Wednesday. A low number may give the RBA the impetus to react strongly with a fifty point cash rate reduction however our base case remains a quarter per cent Tuesday week. No key data today.

Investor confidence flows with continued positive data

2012-01-20T09:11:00.001+11:00

US weekly jobless claims fell overnight and once again provides further pieces of evidence the US economy is in an upward trend towards growth and activity. Supported by stronger housing and manufacturing data investors moved confidently into stocks pushing global markets higher. Europe also provided the incentive for a positive close to the week for us with both Spanish and French bond auctions performing well since the S&P downgrade.

The Aussie labour force data yesterday headlined a lower overall unemployment rate of 5.2% but on closer inspection the fall in overall employment by 29,300 signals more poor jobless data to come next month and supports our view that a 4% cash rate is imminent irrespective of yesterdays outcome.

IMF seeks an extra 500 billion euro in lending capacity…Australian labour force release today

2012-01-19T09:09:00.000+11:00

The World Bank yesterday announced another gloomy forecast for the year ahead dropping global growth forecasts down to 2.5% with Europe expected to contract another 0.3%. Their commentary also included predictions of a slump far outweighing the 2008/09 GFC. IMF managing director Christine Largarde signalled the intentions of the board to seek an extra 500 billion euro in lending capacity to “…help defuse the current global economic weaknesses and regional challenges…."

Today we receive December labour force data consensus forecasts implying a stable unemployment rate and a slight increase in the overall employment number. Any negative move in this figure will most likely give rise to the RBA acting on February 7 to reduce the cash rate further. Given the spate of job cuts announced in the banking sector of the last few it is out view that a 4% cash rate is imminent irrespective of todays outcome.

Better than expected data across Asia, US and Europe spark optimism in the short end

2012-01-19T01:00:00.000+11:00

The Chinese GDP release surprised on the up side and sparked a sell off in interest rates yesterday afternoon as median forecasts of 8.7% were brushed aside in a Q4 increase of 2.0%, 8.9% YoY. A positive boost to global markets and further enhanced by the US Empire manufacturing Survey for January (up 13.5, median 11.0). Continuing the trend in Europe the German ZEW Survey showed a dramatic improvement in January couple with a positive Spanish and EFSF bills auction investors weighed into currencies, commodities and equities.

S&P downgrades the sovereign risk of nine Eurozone countries…Aussie market prices in further rate cuts

2012-01-17T01:00:00.000+11:00

France and Austria both lost their AAA ratings as S&P announced their December review findings on Friday night. Germany held on to their AAA status however Portugal, Italy, Spain, Cyprus were all relegated to junk with a two notch downgrade and Malta, Slovenia and Slovakia suffered a one notch hit.

An S&P statement release cited that "…Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the Eurozone…"

A significant roll on effect to the global financial situation will be how the Economic Financial Stability Facility (EFSF) will continue to function to support the efforts of struggling European Governments. The 440 billion euro fund essentially only has 250 billion euro remaining after it came to the aid of Portugal and Ireland recently. The EFSF does not have the resources to assist Spain or Italy should they also need aid in concurrence.

As a local take on the current situation, of significant concern to the RBA in Decembers Board Meeting was the recapitalisation of European Banks in the next six months. With Eurozone sovereign risk now deemed of lower credit worth among their global lending partners it seems the situation may still get considerably worse. This is both a concern to the Australian markets and hence the RBA with market makers implying two or more rate cuts over the next six months.

Roles reverse as positive European news offsets weaker than expected US data

2012-01-14T01:00:00.000+11:00

Italy and Spain successfully reduced borrowing costs overnight via a 12billion euro bills auction and a 10 billion euro 1 year offering respectively by both countries. The successful issue well below their December auction outcomes and provided much needed optimism for the region to close out the week.

The ECB also signalled they were pleased with their long term refinancing operations (LTRO) currently in place which provide Euro Zone banks with discount loans. These provisions along with substantial liquidity measures have improved the level of confidence to the region at the start of the New Year and it is up to the regions Governments to leverage from these measures to resolve the burgeoning debt crisis. The ECB kept interest rates unchanged last night after two consecutive cuts.

Weaker than expected retail sales in the last month of 2011 and a slight rise in jobless claims left investors feeling slightly cautious about the extent to the recovery taking place in the US. It is obvious their will be obstacles to the progression in the economy and most markets closed slightly higher on the prospect of such improvement.

Q4 2011 German GDP lower, evidence Europe is likely to have fallen into recession

2012-01-13T01:00:00.000+11:00

The European production engine of Germany suffered a quarter per cent contraction in Q4 last year pointing towards a strong likelihood the Euro Region had also fallen into recession in 2011. Germany is seen as the mechanism for growth in the region and poor data released last night has confirmed investor perception. Despite this news the 5 year bund auction was well received with an almost 3 times bid to cover ratio producing a 0.9% yield, 0.21% lower than last month.

The Fed’s Beige Book estimates on growth were summarised as “modest to moderate” for Nov/Dec as household expenditure was dampened by poor new labour hiring stats and weaker housing data.

With three weeks to go for the Reserve Bank of Australia’s board meeting, 15 out of 20 economists surveyed by Bloomberg are indicating a further cash rate reduction 0.25% will be instigated. The interbank funding market has been fairly flat across the curve at the start of the year but trader expectations of 3.38% priced into the June bill futures is likely to change things quite soon in the short term.

Strong commodities imports for China boost global optimism…Fitch not concerned with France

2012-01-12T01:00:00.000+11:00

Trade data released yesterday for China indicated a boost in demand for commodities including copper and iron ore (up by 48% and 11% respectively) and provided a welcome relief to the global doom and gloom which had started to weigh on markets so early in the year. Once again positive momentum in the US through stronger business expectations for December led stocks to close higher. Europe also rose as Fitch announced they were unlikely to downgrade France’s sovereign credit rating.

In Australia building approvals were higher than forecast led by apartment approvals up 16%. Today the W-MI Consumer sentiment is released.

Germany heralded as a safe port amidst European debt storm

2012-01-11T01:00:00.000+11:00

Investors flocked to lend Germany their short term surplus cash overnight as the 3.9 billion euro 6 month treasury billion auction returned an interest rate of -0.0122%. This means that investors were willing to receive a negative interest rate in order to ensure their money was held “safely” in Europe. European banks are also hesitant to lend to each other of late and are preferring to run up larger Exchange Settlement Balances with the ECB.

French President Nicholas Sarkozy acknowledged “…the situation is tense, very tense…” Last nights talks between Germany and France have not made a huge impression on markets without specific details being publically released. Markets closed mixed as a result – US slightly higher and Europe slightly lower.

US unemployment rate lowest in 3 years…Australian retail sales released today

2012-01-10T01:00:00.000+11:00

The market appears to be waning despite the continuation of supportive US economic data again on Friday. Lack lustre indices closes highlight investor caution stemming from poor European news despite US non-farm payrolls topping forecasters expectations rising 200k. The unemployment rate fell to 8.5% (from 8.7%) and is the lowest since February 2009.

Today in Australia we expect November retail sales – consensus +0.3%.
The RBA meets for the first time in 2012 next month and will need to once again assess the domestic situation on one hand and the global momentum on the other. A growing caucus of support is rising for another 25 basis point cut to ensure the Australian economy is not put under strain in the future.

US Financials rally as European Banks face rising balance sheet pressure

2012-01-07T01:00:00.000+11:00

Positive data continued out of the US last night reporting a much higher expansion of company payrolls in December last year and providing further evidence that the US economy is improving. Investors have favoured US bank stocks citing improved balance sheet positions and a distancing from European ventures has triggered a re-look at value potential.

On the flip side European financials experienced another down day as the balance sheet adjustments continue to take shape. UniCredit faced the unrelenting fall out from its deep discount share offer lowering the share price by 30 per cent in the aftermath. Pressure on Spain and France remain very real as capital holds the key for survival amid the back drop of this latest debt crisis.

Yesterdays Australian trade data revealed lower export volumes to China for iron ore and coal coming down from their highs however overall exports and imports were nominally flat.

Europe’s debt markets still simmer with uncertainty while the US economy gains momentum

2012-01-06T01:00:00.000+11:00

Italy’s largest bank, UniCredit, suffered a blow overnight with its share price falling close to 10 per cent as it increased its share offerings by 7.5 billion euros at a deep discount in move to stabilise its balance sheet. A weaker than expected German bund auction and continued fears credit markets remain tight within the Euro Region seemed to disconcert investors and markets closed mixed overnight.

US factory goods new orders rose in November pointing to further US growth momentum and provided the back drop for investors to support the New Year optimism.

An encouraging beginning to 2012 as US data impresses

2012-01-05T10:15:00.000+11:00

A promising beginning to 2012 for global bourses overnight was triggered by an upbeat assessment of the recovery progress in the US as data revealed manufacturing activity and construction spending improved over December.
Europe supported the US lead preferring to focus on the positives of German manufacturing as opposed to suspicions France may soon be downgraded by S&P.

Our local markets are expected to also follow the upbeat trend as no key data is expected today.

Focus For The New Year

2012-01-02T10:14:00.000+11:00

Obviously Europe will feature prominently on the financial market radar, particularly with significant European debt to be refinanced. Italy has managed to muddle through a debt issuance program over the last week but with 10-year debt being issued at what many see as unsustainable levels urgency for a solution remains. It may get to the point that to save the Euro, Greece must be set free as a 'sacrificial lamb'.

Focus has been momentarily diverted however by Iran who provocatively launched two test missiles as part of a military exercise. Concern mounts over what they might do with the Strait of Hormuz, through which 40% of the world's oil is shipped.

On a rosier note production figures coming out of China last Friday were reasonably positive. The HSBC Manufacturing PMI index for December was revised up to 48.7 from the prior 47.7 estimate and the official Manufacturing PMI index came out at a better than expected 50.3. India's Manufacturing PMI for December was also much stronger, up from 51.0 to 54.2. Obviously if Europe is to falter it’s crucial for these two emerging powerhouses to keep pumping away.

Markets rally around US positive data on the eve of the last trading day before Christmas

2011-12-24T01:00:00.000+11:00

Investor sentiment was bolstered overnight by the release upbeat consumer confidence figures and 3year low US jobless claims. The US dollar and Treasury bonds rose on the news that US GDP expanded slightly slower than the 2% consensus growth projection at 1.8% however global equities maintained the optimistic sentiment to close.

With Australia’s last trading day before Christmas upon us markets are expected to be then and centred around the positive rally.

European Central Bank provides 490million Euro Christmas present

2011-12-23T01:00:00.000+11:00

European banks were the beneficiaries of a boost to their liquidity overnight as the ECB offered reduced rate 3 year loans to ease funding pressures. It was reported that 523 banks took up the offer topping analyst forecasts of around 310 billion euros. A welcome relief in the short term however a long way from the end to this current debt crisis.

Moodys reaffirmed Australia’s AAA credit rating commenting, "…Economic resiliency is demonstrated by the country's very high per capita income, large size, and economic diversity…”

US economy boosted by positive data…RBA concerns over Asian impact from Europe’s woes

2011-12-22T01:00:00.000+11:00

A welcome amnesty to risk assets overnight as US housing starts revealed an improvement in the labouring GDP for the struggling nation. Stocks and commodities rebounded and the Aussie dollar peered over parity. News out of Europe also
contributed as the short dated Spanish bond auctions performed well and German Business Confidence improved.

The RBA minutes revealed the cautious stand being taken by the Board in relation to global events. It seems although the domestic economy is well positioned in it inflationary and growth targets however the quandary that is Europe at the moment has forced the RBA to ease its Monetary Policy. A key factor discussed in the statement related to the potential impact to Australia’s trading partners as “global uncertainty persists” and therefore any future impact to our nation down the track. What is certain is that RBA is poised to act if signs of Asian distress risk the balance of Australia’s current good fortune.

Report acknowledges default risk has increased since 2007

2011-12-21T01:00:00.000+11:00

The Financial Stability Report released by the ECB over night acknowledges that the risk of default occurring by two Eurozone banks simultaneously has increased to a 1 in 4 chance. This figure was closer to zero early 2007 and highlights the contagion risk amplified within the 17 nation strong Euro currency block. It should be noted that the calculation, which determines such a probability factors in credit default, swaps and share prices on the banks, both of which have been privy to drastic momentum shifts over the last 4 years.

Closer to home the RBA December minutes are due to for release today.
The Board made a back to back rate cut decision over the last two months, its first since moving 1.25 per cent from December 2008 to February 2009. Investors keenly await any signs of further easing early in 2012.

Threat of Sovereign Issuer downgrades persist in Europe

2011-12-20T09:02:00.000+11:00

EU members will conference again today to ratify and expand on the discussions held earlier this month all in the shadow of ratings agencies warnings that action must be swift and conclusive. Fitch voiced concerns late last week that a pact among the Euro Region pertaining to budget disciplinary action may not be enough in itself to prevent possible downgrades. Fitch put France on a “negative” ratings outlook while Moody’s downgraded Belgium by two notches.

Markets buoyed by US Jobless figures ….a sombre message from IMF and ECB

2011-12-17T01:00:00.000+11:00

US jobless claims surprised the market on the positive side dipping once again to their lowest level since Q2 2008. Consensus forecasts pitched 390k with the result a significant 19k better at 366k. Equity markets clawed up higher however the Australian dollar dipped below parity as the US dollar was favoured.

Grim warnings out of Europe were seemingly overlooked in favour of the positive Spanish 5 and 10year bond auctions raising almost twice the initial issue. IMF head Christine Lagarde and ECB President Mario Draghi both cautioned of the uncertainty that lies ahead for the Euro Region with neither pledging the much sort after long term government bond support being demanded by investors.

In breaking news this morning Bendigo and Adelaide bank (A-/A2) has announced plans to buy the Bank of Cypress (unrated) for approximately $AUD130 million.

Risk assets pummelled with no reprieve in sight

2011-12-16T12:18:00.000+11:00

Equity stocks and global commodities took a battering overnight as investors fail to buy into the European rescue proposals delivered last weekend. Gold dived 5.6% to close $1567 an ounce as investors took profits, which this year has been few and far between. The 5 year Italian bond auction pushed the borrowing costs of the debt ridden nation up to a 14 year high of 6.47%.

Australian consumer confidence fell 8.3% yesterday as expected and Consumer Inflation expectations released today fro December are expected to be benign.

US moves QE3 a little further away…a pessimistic end to 2011 a strong possibility

2011-12-15T09:15:00.000+11:00

The FOMC last night opted to leave the Fed Funds rates unchanged at 0-0.25% as widely expected but investors reacted adversely to the Fed downplaying US growth forecasts and pushing the suggestion of quantitative easing into 2012. Risk assets beared the brunt of the onslaught and the Aussie dollar struggled to maintain parity.

In local data yesterday business conditions proved to be slightly more buoyant than expected as the market awaits todays Consumer Confidence figures.

The smoke screen is lifted – Moodys and Fitch weigh in on the EU Summit outcome

2011-12-14T01:00:00.000+11:00

The relief rally in markets post the gathering of EU Leaders over the weekend was somewhat short-lived as investors judged the outcomes to the European Debt Crisis to be a protracted process. Moodys announced plans to review sovereign risk ratings for the region early next year and commented that little in the way of “decisive policy measures” came out the Key Leaders assembly. Similarly Fitch offered that a “significant economic downturn” would occur before Europe was able to structurally adapt the fiscal measures that are intended to be implemented next year.

In local data the headline housing market data revealed a continued weakness in loans approved for the month. Today we also expect business confidence to be lower post the RBA’s recent rate cut decision.

The solution hinges on future fiscal constraint and reprisals – investors buy in big time

2011-12-13T01:00:00.000+11:00

Global markets were pacified over the weekend as EU leaders banded together to agree to tougher budgetary measurers by participating Euro Zone countries and also implied penalties for those countries that breach their budget deficits by more than 3% of their GDP. These structural solutions will have consequences some time in the future however investors sought to capitalise on a bounce and buy in and at good levels.

This positive sentiment may face tougher times this week with a raft of data both locally and offshore.

Key this week in Australia includes housing finance and consumer sentiment. In the US November retail sales, Industrial Production and CPI will provide valuable insights for the coming new year.
In Europe PMI and CPI will close out a busy week.

ECB provides 25bps relief and extends support to Banks…not Euro Zone Governments

2011-12-10T08:59:00.000+11:00

The European Central Bank eased the benchmark borrowing rate for Euro Zone banks to 1.00% last night and added some key long-term refinancing options (LTRO) in an effort to improve liquidity and funding pressures. The ECB however declined to assist Governments within the region by buying bonds citing the boundaries of their mandate did not extend to specifically financing such activity should remain the focus of the European Financial Stability Facility.

Investors were unimpressed by these statements of policy by the ECB and hammered the Euro and European stocks sending global risk markets lower.

Mixed markets as speculation mounts on European stimulus measures… Aussie GDP up

2011-12-09T01:00:00.000+11:00

Marginal moves on stocks and commodities overnight as investors pause to consider the outcomes of the EU Leaders Summit beginning today. Doubts linger that any strategic policy will be announced post this latest gathering and will indeed impact investors confidence as we approach the New Year. S&P has placed the European Union on credit watch “negative” potentially threatening its AAA standing.

A strong Australian GDP release yesterday was the result of increases in business investments but surprisingly household consumption contributed 0.7% rising 1.2%. Construction and mining figures were also strong.

The November labour force release today is expected to see unemployment steady at 5.2% with 10,000 jobs added over the month.

RBA cuts cash rate to 4.25%...global focus remains on Europe

2011-12-08T11:38:00.000+11:00

The RBA noted although the Australian economy has reported output “close to trend” it is the moderation of global growth over 2010 that remains a concern, in particular “a significant slowing in economic activity in Europe” having lead in affects to growth in Asia and other parts of the world.

Turbulence in the financial markets as a direct result of the European sovereign debt crisis has no imminent sign of abating. The EU summit beginning tomorrow is expected to produce a possible solution at “ring fencing” the European zone to appease financial markets however this perhaps is naive in the current borderless global markets we have created.

French/German pact welcomed ahead of EU Leaders Summit…RBA once again a close call

2011-12-07T01:00:00.001+11:00

As a precursor to the EU Leaders Summit scheduled later this week French President Sarkozy and German Chancellor Merkel were bolstering hopes of continuing progress to relieve the Euro Region of its debt struggles. In a move designed to appease the ECB and promote action by the central bank in talks planned later this week the French/German alliance promised stiffer penalties for Euro Zone countries that breached deficit limits and/or were lax in the countries implementation of proactive deficit reduction policies.

Standard & Poors also warned that the Euro Zone may face possible downgrades if the EU Summit failed to achieve its desired outcomes. Six AAA nations are among these countries facing a negative outlook over the next three months.

The RBA Board meeting scheduled for today AEDT 2.30pm will indeed be a close call. 13 out of 25 surveyed economists have predicted back-to-back rate cuts – the first since February 2009.

Good news overnight but local market focus on what lies ahead

2011-12-06T01:00:00.000+11:00

A drop in headline unemployment in the US on Friday provided a reprieve to risk assets and boosted the Aussie dollar along with commodities and equities. The reported jobless figure of 8.6% was the lowest level since March 2009. European positivity off the back of the newly elected Italian Government approval of Euro $30 billion rescue package further bolstered markets.

Investors will weigh up encouraging developments in global markets over the weekend as closer to home the RBA Board meeting may be a close call. 13 out of 25 surveyed economists have predicted back-to-back rate cuts – the first since February 2009.

Australian Major Banks downgraded by S&P….Global markets take a dip

2011-12-03T01:00:00.001+11:00

Standard and Poors released a revised Rating Methodology and Assumptions paper back on the 9th of November in relation to Banks globally and their associated Country of Origin. The release last Tuesday of 37 ratings actions on the worlds largest financial institutions is now being felt closer to home.
The Four Australian Majors – CBA, ANZ, Westpac and NAB have been downgraded to AA- from AA.
The boost to global markets was tempered overnight partly in response to large Spanish and French bond auctions and future-funding cost rises. The move by central banks to support a struggle European region remains at the forefront of any short-term market rally.

GLOBAL CENTRAL BANK ACTION

2011-12-02T01:00:00.001+11:00

Overnight the global central banks co-ordinated moved to bolster available reserves available to deal with the looming crisis in Europe.

Markets were bolstered by the move

Westpac Euro economist quote: "I've never been as scared about the outlook for [the] global economy, and particularly in Europe, at any time in my past 25 years as an economist," Shugg told a Westpac conference in Rockhampton yesterday.

US Consumer Confidence bolsters markets…European Finance Ministers regather

2011-12-01T15:52:00.000+11:00

US Consumers have embraced a little holiday spirit it seems as consumer confidence reported overnight was up to a 4 month high of 56.0 from 40.9 in October. Markets reacted positively taking the opportunity to buy off the lows that have been persistent this last week.

A gathering of the EU Finance Ministers this evening was also perceived favourably by investors whom are expecting positive news with regards to continued IMF and ECB intervention if required. The Italian bond auction was outdone with the hopefulness of future positive outcomes.

OECD predicts continued economic disruption…Moody’s warns entire Eurozone may be re-rated…MyState and The Rock merger creates 7th biggest non-bank app

2011-11-30T01:00:00.000+11:00

The Australian economy has been predicted to grow by 4% in 2012 in the latest OECD report delivered overnight. While most nations economic expansion has been revised down over 2012 Australia is expected to benefit from exports growth and relatively low unemployment. Europe however “appears to be in mild recession” according to the OECD chief Economist who also fears that without a concerted effort on the part of Europe’s political leaders the euro zone may wallow ''into deep recession with large negative effects for the global economy''.

Moodys has also warned that rising cost of funds and continued destabilising effects on markets within the euro zone will no doubt give rise to eventual re-ratings on exposed sovereign debt in the region. Short-term implications may have ''negative repercussions for the credit standing of all EU sovereigns'' as action maybe taken as soon as early 2012.

Shareholders of The Rock Building Society have resoundingly voted in favour of the proposed merger with MyState which will see the Tasmanian based Credit Union own 78% of the merged entity. The Rock will operate as a distinct brand but must be treated as part of a merged entity for investment purposes. With $2.2bn in deposits and $2.85bn in loans the new institution becomes Australia’s 7th biggest non-banker financial services provider

Italian bonds upcoming test

2011-11-29T01:00:00.000+11:00

With US markets closed last Thursday most of the action centred around Europe for the close of the week. Italy faces a difficult day ahead with Euro8.75bn of bonds to sell maturing from 2014 to 2023. An auction of Euro8bn worth of 6 month paper last Friday saw investors demanding 6.50% yield, almost double the result in Octobers auction.

The press has reported that the IMF and ECB are moving quickly to create a Euro600bn bail out plan for the beleaguered nation.

Thanks Giving Holiday provides a little reprieve

2011-11-26T01:00:00.000+11:00

With US markets closed last night European losses were limited. German Chancellor Angela Merkel reiterated her opposition to joint “euro bonds” pushing the bond yields of the PIIGS group of nations higher.
The French President and new Italian Prime Minister also conferred that the EU treaty proposals would be put in place prior to the 9-10 December EU summit.

Markets buffeted overnight as “Supercommittee” Stalemate becomes a reality...Moody's cautions France

2011-11-23T01:00:00.000+11:00

The US Congress Supercommittee entrusted with reducing the nations deficit announced “…it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline…”
This means that automatic spending cuts will be enforced in 2013 post next year’s election.

Europe also faced a volatile session with news that the ratings agency Moody’s cautioned that France’s Aaa rating could be undermined by rising borrowing costs, Eurozone debt crisis contagion risk and slowing growth forecasts.
French stocks lost over 3% on the news.

A new Government for Spain and a US stalemate may give rise to a volatile packed start to the week

2011-11-22T01:00:00.000+11:00

Spain has ousted the ruling Socialist Party and provided a convincing victory for the conservative Popular Party over the weekend. The emphasis will be on the incumbent Popular party to provide decisive legislative process and regulation to steer the Spanish people away from the looming and persistent debt crisis engulfing the region.

The US is facing its share of turmoil once again as the US Congress Supercommittee seeks to bring about a deal before Wednesday in order to stave off potential enquiry into ratings downgrades for the worlds most influential country.

European woes continue as norrowing costs rise...Aussie battler back to parity

2011-11-19T01:00:00.000+11:00

Spain's Euro5.5 billion auction of 10 year government bonds last night prompted investors to push yields ever closer to the 7% mark with an issue yield of 6.975%. The previous auction back in October cleared at 5.40%. The significant increases to the regions borrowing costs has weighed down on global markets over the past week pushing stock markets lower and driving commodities and related currencies lower. The Australian dollar this morning was hovering around US1.0000 and gold was down 2.9%.

Investor confidence in Euro Zone waivers….RBA reveals close call in November Board Minutes

2011-11-17T01:00:00.000+11:00

Borrowing pressures mounted in the Euro Region overnight as investor confidence waivered as reported by German and Eurozone ZEW surveys. Persistent low growth expectations over the coming months is driving a real fear of recession in the region and whilst funding costs continue to rise the contagion risk becomes a more material proposition amongst neighbouring nations..

The RBA released its Board Meeting Minutes for November, which revealed their thoughts determining a cash rate easing of 25 basis points down to 4.50%. Members of the Board weighed up “an improved picture for inflation” against the “expansionary effects of the high terms of trade” ie a rates on hold scenario versus a cash rate easing. Significantly they also noted that if the world economy “turned down in a serous way” that would lead to a case for an easing. The question in December now becomes what is a “serious way” in light of Europe’s’ current turmoil….

Markets falter on Italian Bond Auction...RBA November Board Minutes released today AEDT11.30am

2011-11-16T01:00:00.000+11:00

Although an almost one and half times bid cover ratio was achieved last night for the Euro3 billion 5 year Italian Government Bond auction by investors, markets watchers were worried at the sizeable increase in yield required to clear the issue. Within a month of the last auction taking place the yield on 5 year Italian bonds has jumped almost 100 basis points. The concern for the region persists with Spanish bonds also facing the affects of contagion fear and cost of funding increases.

The RBA releases its Board Meeting Minutes for November which will reveal their thoughts in easing the cash rate down to 4.50% earlier this month.

Investors support Euro Zone proactivity

2011-11-15T01:00:00.000+11:00

Mario Monti has been confirmed to lead the Italian Unity Government as Italian Prime Minister Silvio Berlusconi steps aside. Monti has strong credentials as a long-standing economics professor and received convincing EU support as the chosen replacement and investors pushed stocks higher in appraisal.

Tomorrow the RBA releases its Board Meeting Minutes for November which will reveal their thoughts in easing the cash rate down to 4.50% earlier this month. Governor Stevens will be speaking on Thursday and no doubt reiterate the Boards outlook for the remainder of 2011.

Cost of funding increases for Italy....Stable labour market data may see RBA content with neutral stance

2011-11-12T01:00:00.000+11:00

Italy faced an important test overnight with the issue of 5 billion Euro 1 Year T-Bills. The cost to issue the relatively short term funding topped 6% and adds to the ever increasing burden od debt the country faces - now 120 per cent of GDP. The strong bid cover ratio eased market tensions however the 5 year bond issuance next Monday will be a key support indicator for the region.

October labour market data released yesterday was little better than expected with revised figures pushing the unemployment figure back down to 5.2%.

Markets jittery on Italian bond yields

2011-11-11T01:00:00.000+11:00

Pressure mounted overnight as the burden of the Italian sovereign debt crisis further bellowed bond yields out to a seeming untenable 7.5%. These levels reached by the governments 5 year bond are over ~150 basis points over the yields Ireland, Portugal and Greece all required EU assistance. Italy has the world’s third largest debt encumbrance and continued pressure on prices will surely require intervention to once again contain the escalating crisis in the Euro Region.

In local news the Australian Consumer Sentiment for October was buoyed by the RBA 25 basis point easing climbing 6.3%. Today we have October labour market data with market consensus seeking a rise in overall unemployment to 5.3% from 5.2% as the economy struggled to add an expected 10k jobs.

Italian Prime Minister Silvio Berlusconi steps down…New PM for Greece

2011-11-10T01:00:00.000+11:00

Outgoing Italian Prime Minister Silvio Berlusconi has agreed to submit his resignation post the parliamentary approval of the EU negotiated austerity package. Berlusconi has been defiant in his reign over the people of Italy but it is believed that a struggle to achieve an ordinary parliamentary vote yesterday was the ultimate show of lack of confidence displayed by the countries constitutional representatives.

Greece has decided on former European Central Bank vice – president Lucas Papademos as incumbent Prime Minister for the beleaguered nation. European stock markets were buoyed by the news our of Greece and Italy however bond markets edged into weaker territory as the real issue of growing sovereign debt in the region is played out.

European focus moves to Italy...US supports overnight markets

2011-11-09T01:00:00.000+11:00

As concern spreads from Greek politics to the state of politics in Italy the ensuing European Sovereign debt crisis keeps mounting. Investors remain wary of the region shying forcing bond yields ever higher. Positive US unemployment data last Friday and continuing signs of US consumer credit improvement last night has helped stave off the negative effects of the EU region.

Europe remains a challenge...RBA reassess growth and inflationary expectations

2011-11-08T01:00:00.000+11:00

News this morning has emerged that the Greek Prime Minister Papandreou will step down following the formation a unity government who will be tasked with administering the countries austerity measures going forward. Global markets continue to feel the unease in the region and will react accordingly in the short term with expectations of further market turbulence this week. Italy agreed to systemic quarterly reviews by the IMF and EU as part of adherence to their financial stability package.

The RBA’s release of its Quarterly Statement on Monetary Policy on Friday has highlighted a slower than expected growth forecast for the remainder of this year both domestically and internationally. This cautious approach provides room for further easings after the RBA returned to a “neutral” cash rate position last Tuesday. Underlying inflation projections were lowered over 2012 and are not expected to fall within the RBA’s 2.5-3% target band until the latter half of 2013.

Greece backs down on referendum plans...RBA Quarterly Monetary Policy released at 11.30am AEDT

2011-11-05T01:00:00.000+11:00

The Greek Prime Minister last night about faced on his proposal to take the latest EU approved austerity measures direct to a public vote. He qualified his earlier shock announcement by acknowledging the vote was now not necessary as the nations political opposition party has agreed to accept the deal struck at the latest EU Summit last week. Stringent fiscal policies will be enforced in return for a writedown of Greek debt repayments.

Locally the RBA releases its Quarterly Statement on Monetary Policy this morning providing insight into their view on key metrics of employment, growth and inflation.

FED lowers growth expectations and opens the door for QE3

2011-11-04T01:00:00.000+11:00

The two day sitting of the FOMC this month produced as expected no change to the official Fed Funds Rate. Chairman Bernanke cited obvious concerns for the continuing troublesome situation out of Europe and its potential effect on investor confidence and growth in the US. "...We remain prepared to take action as appropriate to make sure the recovery continues.." however no plans were laid out for quantative easing plans at this point. Bernanke also voiced concerns for the continuing high unemployment the nation is battling predicting 8.5% in 2012.

Shock Greek Referendum throws Europe back into uncertain times… RBA cuts official cash rate to 4.50%

2011-11-03T01:00:00.001+11:00

The Greek Prime Minister has thrown the embattled Euro Zone into disarray once again after announcing plans to take the agreed austerity measures to the nations public in a vote. European Leaders are furious with PM Papandreou as the EU Summit has worked hard over the last few weeks to provide stability to the region and global markets.

In local news the RBA announced a return to a more “neutral” monetary policy stance citing the easing pressure on inflation and the continued weak household sector as allowing the opportunity to ease the cash rate by 25 basis points. Once again the timing may be just right given overnight developments in Europe.

Bid tone continues as a result of "European Euphoria" however all eyes on RBA close call tomorrow

2011-11-01T01:00:00.000+11:00

The optimism out of Europe late last week saw most markets support positive territory at close on Friday with the Australian Dollar a substantial beneficiary. $US107.50 is a significant mark at the moment and will be tested over the course of the day ahead of the RBA Board meeting tomorrow.

11 out of 17 economists surveyed by AAP are predicting a 25 basis point reduction in the cash rate announced tomorrow afternoon AEDT2.30pm. A weaker than anticipated underlying CPI release over Q3 2011 and the continuing cautious household sector indicates a weaker domestic economy however a strong push in the Unemployment headline figure and a resolution in Europe may see the RBA lift their growth expectations for 2012 and negate the need to ease the cash rate.

Once again a tough decision for the RBA to make and perhaps prudency and time are the Boards’ strongest allies – as with the case back in August.

October disaster averted - markets rejoice in European resolution!

2011-10-29T01:00:00.000+11:00

As further details emerged on the three-step plan negotiated at the EU Summit this week the European Markets reacted strongly and gathered momentum. Stocks were up 2.9% in London and 6.3% in Paris. As risk sentiment returned so to did the Aussie dollar up 3 per cent to $US1.07.

With a path now in place for Europe to begin the rebuilding phase of a shaken financial system global market tensions have eased and likely to put less strain on the local domestic economy. Thus the RBA may return its cautious approach going into the second last meeting of 2011.

Two out of three ain’t bad! European Union Summit makes progress... Aussie underlying CPI opens the door for the RBA

2011-10-28T01:00:00.000+11:00

Global markets breathed a sigh of relief as the EU Leaders 14th Summit in 21months produced some strong initiatives. The 27 participants agreed to an increase of 1 Trillion Euros to the Economic Financial Stability Facility that aims to support countries in the region in satisfying their sovereign debt commitments. This seems to have satisfied investors that in the event of ongoing support to embattled nations such as Greece, Portugal and Ireland there is still room to provide support to others such as Italy who may be in need.

A European bank recapitalisation plan was also tabled and agreed. Reuters reporting that the core capital ratios of banks were to be raised to 9 per cent by June 2012. Banks however have not agreed on what the eventual write-downs will be on their holding of Greek sovereign debt.

Australian Q3 headline CPI released yesterday came in right on consensus at +0.6 QoQ and +3.5 YoY however the underlying or trimmed mean figure was below expectations. This potentially opens the door for the RBA to ease rates.

Finance Ministers meeting in Europe cancelled…Australian Q3 CPI data released today 11.30 AEDT

2011-10-27T01:00:00.000+11:00

Global markets were cautious overnight awaiting the outcomes of the EU Leaders Summit scheduled this evening. The precursor to this meeting was to be a gathering of the regions Finance Ministers which was apparently cancelled and deemed unnecessary ahead of this evenings proposed agenda. Strong action is required to prevent the market from showing severe disdain.

Australian Q3 CPI is scheduled for release this morning. Market concensus is +0.6 QoQ and +3.5 YoY. Annual inflation is predicted at 2.75% which is within the RBA’s implied target. Any deviation to the downside presents an opportunity to ease however we see the likely outcome next Tuesday is rates on hold.

CPI expected to be in RBA's target range - rates on hold?

2011-10-26T01:00:00.000+11:00

A strong signal has been delivered this morning from the RBA via Deputy Governor Ric Battellino’s speech on Economic and Financial Developments. He acknowledged that while the global markets remain reasonably fluid key indicators such as global GDP growth remain in line with their expectations hence predicting a “…a reasonably benign environment for the Australian economy…”

The Deputy Governor also acknowledged the strong emerging markets influence on growth has potential to wane however language such as “…this will flow through in due course…” grants the RBA the leverage to use monetary policy sparingly in the coming months.

Although the RBA made mention that an improved inflation projection “…would increase the scope for monetary policy to provide some support to demand, should that prove necessary…” we believe that the underlying rate of inflation released tomorrow will be within the RBA’s expectation and stay their hand on any cash rate adjustment.

EU Summit part 2 required to finalise bank recapitalisation plans...A week ahead of key data

2011-10-25T11:20:00.000+11:00

Last Sunday’s meeting of all 27 European Union member representatives failed to finalise a solution to the regions mounting debt crisis. Although a broad plan was outlined important resolutions such as European bank recapitalisation, rumoured to be just over Euro $100 billion, are still pending. Policies to ensure embattled countries such as Italy, Spain and Greece embark on debt and deficit restructuring measures are also yet to be outlined. The second part of the EU Leaders Summit will take place this Wednesday.

This week key data in the US and in Australia will provide momentum across markets with ammunition to react ahead of both countries monetary policy meetings next week. In Australia today we have PPI mkt +0.8%for the month and +2.9%yoy. PMI’s are also released in Europe tonight but GDP on Thursday will be a key determinate to assess the nations growth over Q3. Australia can also look toward a CPI release this Wednesday a vital component of the RBA’s interest rate intentions going forward.

Figures out of the US overnight were slightly positive overall but were overshadowed by ongoing concerns from Europe

2011-10-22T01:00:00.000+11:00

The fall in US Jobless figures (403k from 409k) continued their downward trend which began in April and the Philly Fed manufacturing Index showed an unexpectedly promising result (+8.7) which outweighed a fall in existing house sales and contributed to a slight rise in US treasuries. 10yr yields were up 0.02% to 2.18% and 30yrs up 0.03% to 3.17%

However divisions remain in Europe and despite assurances from Germany and France there are still doubts over the ability of the Union to reach agreement at either of the Sunday or Wednesday summit meetings.

Locally the release of the CPI figures on Wednesday 26th October will be a focus.

Public Demonstrations in Greece amid Parliamentary Vote on Reforms...RBA examines Bank Funding

2011-10-21T01:00:00.000+11:00

As protestors rallied through Athens yesterday the Greek Parliament pushed through the first stage of their austerity measures ensuring global markets remained subdued. A final vote is due this evening and is likely to be passed despite local uprisings. European markets closed in positive territory.

Assistant Governor Guy Debelle addressed the annual FTA congress yesterday and discussed the issue of bank funding amid the current volatile financial markets. Asserting that “…Australian banks' deposits with the RBA (ES balances) have remained around $1¼ billion for over 18 months now….” Indicates little counterparty pressure in the interbank market. “…deposit growth has outstripped credit growth..” and provided an alternate source of bank funds as opposed to tapping wholesale debt markets.

RBA minutes reveal "a very complicated task"

2011-10-20T01:00:00.000+11:00

The Reserve Bank of Australia's monetary policy meeting minutes released yesterday indicate the fluidity by which future decisions on interest rates will be required to be made. Developing global market uncertainty and financial market instability has put pressure on Australian domestic economic conditions “…which was complicating the task of assessing the strength of the overall economy…”

Mixed key indicators have confirmed an improvement in inflationary expectations early into the new year however the cautious household sector and poor consumer wealth sentiment may continue to dampen productivity for the economy as a whole.

The RBA has provided for any potential adjustment in terms of monetary policy assisting demand to remain a key part of their statement last month however the balance of expectations now sees any use of such a tool on standby.

European deadline looms however more time maybe needed…RBA minutes released at 11.30am

2011-10-19T01:00:00.000+11:00

The October 23 G-20 summit was supposed to reveal the Euro zones plan to stabilise the region and put forward cohesive measures to prevent any on going sovereign debt crisis however a speech last night by the German Finance Minister indicated there will be no “quick fix”. Unfortunately the rally of optimism in the financial markets was thwarted by Schaubles’ comments as realisation any solution may take some time.

This morning the RBA minutes of this months board meeting will be released at 11.30am. Although the board acknowledged that inflationary expectations have eased the change in rhetoric over the past 3 months will make for interesting reading and provide clues toward their bias for the remaining two meetings for 2011.

US Retail Sales higher

2011-10-18T01:00:00.000+11:00

A boost to the embattled US economy through retail sales on Friday night will keep investor confidence high through markets this Monday morning. A stronger than expected 1.1% means US retail sales are now running +7.5% yoy which is promising in terms of consumer sentiment.

In European news S&P downgraded Spain’s long term debt to AA from AA- as economic growth and systemic banking issues continue to hamper the nation.

Domestically the RBA board minutes are released tomorrow providing some insight towards the two remaining meetings for this year.

Shock Australian Employment data send rates higher!

2011-10-15T01:00:00.000+11:00

Employment data released yesterday surprised sharply on the upside as a result of an unexpected increase in jobs gained. Australia's unemployment rate moved down to 5.2% as 20,400 jobs were added. Interest rate markets sold off boosted by the positive data, the first increase since in over three months.

Europe buoyed by EU Commissioners comments...US FOMC minutes released

2011-10-14T01:00:00.000+11:00

A “united effort” was the message from the European Union Commission President Jose Barroso last night as he promised to deliver funds to Greece and employ a permanent strategy to support the region in the future. European markets took heed and ended in positive territory.

In the US FOMC minutes showed the divergence between economic indicators and pessimist investor confidence at all time wide levels. The “considerable uncertainty” being faced by the embattled nation and indeed the world has forced the board to keep a third round of Quantitative Easing in reserve to be called on if required.

Labour force data released today is expected to see the unemployment rate hold steady at 5.3%.

Slovakia slows down the ratification of the expansion of the EFSF

2011-10-13T01:00:00.000+11:00

16 out of the 17nation Euro zone participating countries have agreed on policy measures to expand the European Financial Stability Facility (EFSF) designed to prevent the spread of a sovereign debt crisis among its members. Slovakia held up the process of ratification last night as the countries main opposition party staged political warfare designed to deleverage the government in power. The vote is expected to go through today after the current standing government meets particular provisos imposed.

Yesterdays NAB monthly Business Confidence Survey rose as expectations of easing interest rates and depreciation of the Australian dollar would assist companies struggling with productivity pressures. Consumer Confidence is released later today as well as Housing Finance Data.

European bank recapitalisation a reality as first European sovereign intervention required

2011-10-12T01:00:00.000+11:00

Amid the backdrop of a French and German alliance to propose a plan to bolster the capital structure of European banks, the Franco-Belgium-Luxemberg banking configuration of Dexia is set for dismantling. The Belgium government is buying the Belgium banking arm for $4bn Euro as plans to provide a further $90bn Euro in funding over the next 10 years were announced.

Risk assets benefited from the Euro optimism as the Australian Dollar rallied back to parity this morning and commodities performed strongly.

This morning the NAB business confidence Survey for September is released while ANZ job ads fell 2.1% as expected.

A positive start to the week

2011-10-11T01:00:00.000+11:00

The US added 103,000 jobs in September and revised upwards the dismal previous months forecast to provide a boost to risk sentiment and investor confidence this morning. Although Europe faced some negative ratings agency action from Fitch (Spain and Italy sovereign debt ratings were downgraded) the market once again took heart from the German and French resolve to announce a plan in the coming weeks.

In local news Consumer sentiment is released on Wednesday and will provide a market barometer as to the recent impact of the global financial turmoil over the past few months. Key data on Thursday is the ABS release of labour market figures - forecasts indicate a small rise of 10k.

Talk turns to action as the ECB and BoE do their bit

2011-10-08T01:00:00.000+11:00

Voicing concerns about growth and amid a sense of foreboding that Europe’s debt crisis may deepen before it gets better the Bank of England Governor and the European Central Bank President announced plans to help stabilise the region.

The BoE announced plans to increase its bond purchase program by $75bn pounds to $275bn pounds the largest increase to its quantitative easing program since March 2009. Similarly the ECB pledged support to the financial sector by extending its long term funding operations with European Banks and encouraged them to participate in the $40bn Euro covered bond purchase program. Neither Central Bank moved on their respective cash rates.

In local data construction activity reported this morning indicated further cause for concern as the index fell for the16th consecutive time. Slipping 2.1 points to 30 points in September the worst performance since February 2009.

Equities higher on suggestions of European bank recapitalisation

2011-10-07T01:00:00.000+11:00

Global stock markets rallied around speculation that European officials were meting out a proposal to support the regions troubled financial sector and bolster bank capital. As France and Belgium work to contain Dexia SA’s declining trading book via a “special purpose vehicle” rumours circled posing a similar possible solution for poor performing Spanish and Italian bonds. The market once again took exaggerated heart out the Eurozones determination to work towards a solution with out any concrete resolution.

US private employment data reported overnight was better than expected (+91K) while manufacturing data fell slightly in August to 53.0 from 53.3 (mkt 52.8).

No local data today. BOE and ECB hold their monetary policy meetings tonight.

RBA's inflation concerns abate and preparations are being made to act...if required

2011-10-06T01:00:00.000+11:00

The careful and precise tones of the Reserve Bank of Australia's monthly overtures has been been replaced with backflips and cartwheels over the last three months as the Board struggles to keep up with the velocity of global markets. To recount;

Back in August the Board had remained “…concerned about the medium-term outlook for inflation…” as a consequence of severe weather and natural disasters having supply side effects. Global growth forecasts were optimistic despite the first mention of growing concerns “…for the public finances of both Europe and the United States.” The decision to keep the cash rate on hold was openly acknowledged as one of the closest calls the RBA had to make.

Prudency was rewarded as September’s Monetary Policy decision highlighted the “…uncertainty about both the resolution of sovereign debt problems and the prospects for economic growth in Europe and the United States…” The RBA’s inflation concerns were mitigated to a degree by “…continued cautious behaviour by households…”

The October statement by Glenn Stevens importantly acknowledged the RBA is poised to act again - “…An improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary…”

Global markets see red as Greece misses Troika 2012 deficit target....RBA announcement today AEDT 2.30pm rates expected to be on hold

2011-10-05T01:00:00.000+11:00

Although the International Monetary Fund, The European Union and the European Central Bank (collectively known as the Trioka) has accepted the Greek governments revised planned deficit cuts from 6.5% of GDP to 6.8% of GDP in 2012 investor sentiment waned. These cuts were a significant part of the Greek governments efforts to secure austerity measures and prevent default and current market perceptions remain pessimistic that this is indeed possible. The Dow Jones slid 258 points closing at 10,655.30 - a 12 month index low and the Euro faced heavy losses moving to $US1.3238 at its worst point.

Positive manufacturing data in the US signalled growth was still occurring however all momentum was lost in the Euro Regions debt concerns. Local markets are expected to fall on the open this morning.

The RBA releases its minutes later today and although interest rate markets have priced in significant easings over the next 2 years the all important wording by Governor Glenn Stevens will indicate the reality of the situation heading towards year end. The cash rate is broadly expected to remain at 4.75% today however the possibility of a rate cut in 2011 is growing.

Germany agrees to increase austerity measures and positive US data eases the Friday tension

2011-10-01T09:12:00.000+10:00

Any planned increase to the European Financial Stability Facility (EFSF) seemed to hinge on last nights German parliamentary vote as Chancellor Angela Merkel put forward her case to both sides of the lower house. Thankfully the dissidents remained silent and Germany became the 11th European country to ratify the proposal made back in July.

In the US positive economic data on unemployment and growth helped the markets rally to end in positive territory. The US economy grew in the second quarter beating expectations and rising 1.3%. Jobless claims also fell more than expected to 37k.

Closer to home we are expecting mixed signals through the August Private Sector Credit numbers released mkt +0.2% for the month and +2.8% YoY and house price data is expected to decline. Wayne Swan will also deliver his final Budget figures for 2010/11.

10 out 17 Eurozone participants agree to rescue package...Germany to vote tonight

2011-09-30T09:12:00.000+10:00

Finland's parliament last night ratified the agreement made in principal by Eurozone leaders last July to increase the European Financial Stability Facility (EFSF). A positive step forward to assist the beleaguered region and unite in their fight against a broad sovereign debt crisis. Tonight's acid test comes via the German parliamentary sitting as Chancellor Angela Merkel puts her political career on the line to sway her own coalition party to stand with her in approving the EFSF expansion. Fears that internal dissent may cause Merkel to rely on the opposition for support has fuelled rumours of political upheaval in the Europe’s largest economy.

Also weighing heavily on markets overnight was the continuance of the Italian and Spanish ban on short selling of financial stocks. The ban was introduced to protect investors from the wild swings in European Banks. Since the ban French Bank Societe Generale has seen an 18.5% fall in its share price however things could have been much worse.

In local news Australian HIA figures on new home sales rose 1.1% after falling 8.0% in July. Today we see Australian Job Vacancies for August.

Aussie stocks reflect optimism however doubts linger

2011-09-29T01:00:00.000+10:00

Investors rallied behind risk assets overnight as confidence grows towards an EU solution. The Australian stock market added $40 billion bouncing back to record its largest one day gain at close yesterday the S&P/ASX up 3.6% and the All Ords up 3.5%. Tonight Germany votes on the controversial expansion of the European Financial Stability Facility and will be a key indicator as to the progression of such a plan going forward.

Today we receive local housing data and US duarble goods are out tonight.

Rumours pacify markets for now...

2011-09-28T01:00:00.000+10:00

Political leaders have delivered enough positive rhetoric over the past few days to pacify investors sufficiently to take most markets into positive territory last night. The strong tones set by the IMF's chief Christine Lagarde in pledging her support for the embattled Eurozone have worked their way through to further rumours on potential ways to resolve the impending crisis. Markets took heart from the discussions about Government Debt Guarantees and increases to the European Financial Stability Facility in the absence of any strong economic data.

A European pledge to restore confidence and stability....markets wait but how patiently?

2011-09-27T01:00:00.000+10:00

The Group of 20 Finance Ministers gathering over the weekend was expected to produce some decisive action to combat the worsening situation in European markets but risks moving too slow for the worlds global financial markets. The sharp drops seen on Friday may be a sign of things to come as our local bourse posted over $18 billion in losses for the week just ended, currencies and commodities also suffering as a consequence. The regions plans to boost the European Financial Stability Facility and prevent further contagion risks seem to be stalled in talks of conflicting ideas and as a result investor confidence will continue to erode in the short term.

The RBA's Review of Financial Stability continues to support the strong position of Australia's domestic postion however the risks from unknown offshore factors remain ever present.

No local data today.

TROUBLES ESCALATE

2011-09-24T01:00:00.000+10:00

We had a few days at the beginning of this week where the waters seemed to calm. Last night and the night before saw these waters being whipped up into a frenzy of white water. The flight to safety has accelerated as Europe unravels. Ironically this flight to quality has involved moving funds to the US. As a result our dollar has dropped through parity and the high airplay this is getting on the news will likely cause consumers to hold onto their savings even more tightly.

The worries were prompted by a number of factors. One of the key ones was the fact that the market was not impressed by the Fed's 'twisting' move to re-jig their portfolio. It seems they believe another round of additional stimulus was warranted and this was not delivered. Comments by the Fed such as “strains in global financial markets” also didn't do anything to calm jittery markets.

Other overnight developments:
* EU is planning to force the re-capitalisation of 16 banks that were close to failing their recent stress tests

* Dow down 3.5%

* Gold down 3.7% (interesting due to it's safe haven status. The market is factoring slower global growth here)

* Copper down 7.5%. Net fall is 23% since peak of late July

Rates
One and 2 year swap rates are down around 4%. This level seemed like an over-reaction until recently considering cash rates are currently at 4.75%. Events of the last couple of weeks are beginning to indicate that perhaps the market's crystal ball is clearer and more accurate than suspected.

As you may have noted from this morning's email ADIs are dropping their rates pretty rapidly at the moment. There remain a number of specials today though - see above - if you have available funds.

US Acts

2011-09-23T01:00:00.000+10:00

The Federal Reserve announced yesterday that it would be 'Twisting' it's investments. While not announcing further Quantitative Easings (a new round of securities buying) it will be lengthening the duration of it's existing portfolio thereby putting downward pressure on longer rates. It will be switching $400bn of their short-term Treasury holdings (up to 3 yrs) to longer term (6 to 30 years). They will also continue re-investing maturities. They made a point of confirming their commitment to holding their cash rate between 0-.25%

The US$ jumped on higher US short-term rates after the “twist”, the $A dropping US2½ cents to around parity.

In other news overnight Moodys downgraded the ratings of three major US banks and the Greek Cabinet met and decided to cut pensions and public sector payroll costs to shore up their budget.

RBA Deputy Battelino spoke in NY on “Whether Australia will catch a US cold”. He expressed optimism that Australia could weather global and US issues due to China ties. He noted that markets have priced in a very pessimistic outlook but that the RBA maintained an open mind on monetary policy.

In Australia yesterday Skilled Vacancies (Sep) -1.5%/-24.5%, indicating more labour market softness ahead

IMF lowers global growth expectations....RBA with room to move

2011-09-22T01:00:00.000+10:00

The International Monetary Fund has revised their global growth expectations for the remainder of this year and into 2012 to 4% - down from their June assessment of 4.3% and 4.5% respectively. With grave concerns for the political and financial stability of Europe and US growth projections lowered, the IMF offered little good news in their six monthly review of global financial markets. The report stated "...Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing..."

The RBA minutes are released yesterday also acknowledged the "heightened volatility" surrounding global financial markets but once again reasserted the strong position of the local financial system backed by "...strong deposit inflows both on and offshore..."

The Board remains cognisant of the markets pricing in imminent rate cuts but maintained "...range of technical factors meant that market pricing might not be giving an accurate reading of expectations in the current circumstances...''

An ever changing international climate has provided an opportunity for interest rate markets to exploit potential downside risks however the RBA remains confident that Australia is well positioned “…to respond to evolving global and domestic economic conditions…'” ie interest cuts, rises or on hold for any length of time.

Surprise cut to Italy's sovereign debt rating....RBA minutes released to today

2011-09-21T01:00:00.000+10:00

Standard & Poors cited poor economic growth as well limitations on the current current governments ability to deal with both "...domestic and external macroeconomic challenges..." as reasons to announce a downgrade by one notch to A/A-1 and retaining a negative outlook going forward. S&P has also acted on Spain, Ireland, Greece and Portugal this year as political leaders within the Euro Zone fight to keep an embattled region viable in worsening global economic conditions.

The RBA minutes are released later today detailing its review of the September monetary policy outcome.

EU Finance Ministers

2011-09-20T01:00:00.000+10:00

EU Finance Ministers met over the weekend with some agreements made but issues over there are certainly ongoing.

Moody's are extending their review on Italy for a possible downgrade from Aa2

US consumer sentiment rose a little to 57.8 from their August low of 55.7

RBA minutes are out tomorrow and Deputy Governor Battelino is speaking Wednesday night in New York.

Political Leaders and Central Banks rally around a faltering European Economy

2011-09-17T01:00:00.000+10:00

With Euro zone growth forecasts expected to slow dramatically over the final quarter of this year political leaders gathered in Poland this week to ensure stability and solidarity are paramount in these turbulent times. Facing the prospect of a Greek default in their midst the two days of talks were designed to ratify the austerity packages announced in July. A unified front stabilised markets last night and investor confidence was further bolstered by the ECB, BoJ, BoE, US and Swiss Central Banks pledging injections of US dollars over year end. A perceived shortage of dollars among French Banks sparked rumours damaging confidence causing central bankers to act swiftly to avoid year end funding issues.

Greece to remain in Eurozone

2011-09-16T01:00:00.000+10:00

French President Nicolas Sarkozy and German Chancellor Angela Merkel held a press conference and released a statement supporting Greece's continued partcipation in the Eurozone economic region and pledging their next round of financial assistance.
This key measure is intended to "...provide stability to the euro zone..." according to the statement issued in Paris last night. The Greek bailouts are based on economic deficit reduction plans which must be adhered to by its political leaders. The market was mixed in reaction however all in all maintained an upward trend to the close despite a Moody's downgrade of two French Banks (Societe Generale and Credit Agricole) by one notch - Aa1 to Aa2.

Local data released yesterday suprised on the upside as the Westpac Consumer Confidence for September rose 8.1% after falling in the four previous months. This bodes well for the outlook heading into Q4 and may go someway into reassuring investors.

European leaders provide market reassurance

2011-09-15T01:00:00.000+10:00

Reassurance from key European leaders brought about a much needed reprieve for financial stocks overnight as speculation French Banks were facing funding issues gathered momentum on Monday. The Wall Street Journal article in question identified BNP Paribas as having US dollar funding issues. Stocks fought back last night posting a 3.6% increase after dropping 2.2% post release of the damaging article.

German Chancellor Angela Merkel voiced positive sentiment toward Greece's ability to meet Finlands requirement for collateral in return for further financial aid. The Greek Prime Minister is expected to continue discussions with France and Germany later this evening in an effort to keep the European alliance informed.

Local Data today:
Westpac Consumer Confidence (Sep)

Greece

2011-09-14T01:00:00.000+10:00

The swirling winds of default whipped European markets overnight with expectations of a Geek Debt default becoming iminent. The winds were fueled by comments such as "1-month of cash left' from the Greek Finance Minister and "orderly default" being discussed by the German Economy Minister Phillip Rosler. Expectations that Moody's will downgrade a number of the big French banks due to Greek debt exposure also didn't help.

US markets did however stage a solid recovery due to reports that the China Investment Corp may make significatnt purchases of Italian Bonds and investments in strategic companies.

Financial Claims Scheme & Overseas

2011-09-13T01:00:00.000+10:00

You may have seen our earlier email on the extension of the $1m guarantee to Feb 1, 2011 for new deposits (after Feb 1 only the first $250k will be guaranteed). Existing deposits will be guaranteed until Dec 31 or maturity, whichever is first.

Turmoil continued in overseas markets with worries about Greece intensifying. Their 2 year bonds are now trading at 50% which effectively prices in a near-term default. Equity markets consequently sold off aggressively. Frankfurt sold off 4.0%, US sold off 2.7%. US 10 year bonds have rallied to 5 decade lows at 1.92%

Employment

2011-09-10T10:19:00.000+10:00

Employment figures yesterday showed a reduction in the number employed of 9,700 after a revised fall in August of 4,100. Full-time employed dropped by 12,600. The unemployment rate lifted to 5.3% from 5.1%. Trend wise unemployment is going up slowly from a low of 4.9% in Feb and Mch.

The figures were a little disappointing and fuels those arguing for a rate cut this year. It's not good for a beleagued government either. Forecasts were for a lift in numbers of between 5k and 10k.

OBAMA
Has announced a stimulus package this morning to get the job market moving in the States. The cost of his plan is USD447 bln. The announcement came after the market closed. It dropped through disappointment thatBen Bernanke didn't also announce a stimulus package at a speech he made during the day.

National Accounts.

2011-09-09T10:18:00.000+10:00

GDP showed solid growth in Q2 at +1.2%. March Qtr was revised up from -1.2% to -09%. Much of this is due to a bounce back from the QLD floods. It certainly paints a different picture to the doom and gloom that's been touted recently. The interest rate markets have overreacted to the need for easings in a big way and figures like yesterday's will serve to trigger a return to higher longer term yields. The 1 year annualised swap rate today for instance is 12 points higher than yesterday. The RBA stated the other day that "the board remains concerned about the medium-term outlook for inflation". This to me does not mean they are about to ease. They acknowledge that subdued growth may contain inflation but this just means they may not have to tighten. Despite this the markets have still factored in multiple easings - no doubt reflecting serious concerns about trouble coming over the water from Europe - the big wild card.

NAB GDP forecasts are for 1.75% in 2011 and 4.25% in 2012

Overnight: European markets rallied in response to a German court decision allowing Germany to participate in the euro rescue packages. Talk of Obama stepping in with a $300m job stimulus package also helped US equity markets.

Today: Employment forecsts are for a lift of 5000 in employment numbers and the rate to stay at 5.1%

RBA holds cash rate steady - 10 months in a row...

2011-09-08T10:17:00.000+10:00

The Reserve Bank of Australia is heading toward the longest running period of rates stability since 2005 with the Board announcing yesterday afternoon the official cash rate was maintained at 4.75 for another month.
Interestingly the Statement by Governor Glenn Stevens began with a reflection of recent global market volatility acknowledging "..the outlook for the global economy is less clear than it was earlier this year...". Once again he highlighted the conflicting forces at work within the Australian domestic economy but most interestingly the Board toned down its voice on it concerns on the medium-term inflationary figures with a precursor that "...softer global and domestic growth will work, in due course, to contain inflation...". This type of language indicates that the RBA may infact maintain the status quo for some months as opposed to reacting to any short term pressure on the 2-3 per cent range.

RBA Cash Rate Announcement Today AEST 2.30pm - No Change Expected

2011-09-07T09:14:00.000+10:00

All 25 economists surveyed by Bloomberg yesterday are predicting that the Reserve Bank of Australia holds the cash rate steady at 4.75% later today. There has been no change to the cash rate since the surprise Melbourne Cup rate hike last year. The Australian economy has been undulating in a sea of mixed data - a strong industry and mining sector counter balanced by the conservative household sector has provided some challenges for the RBA to keep inflation and growth forecasts in perspective.

The bullish company profits release yesterday indicates there maybe an upward revision to growth forecasts in Q3 however extreme global volatility may dampen any perceived hawkish sentiment delivered by strong Q2 data. The RBA is expected to maintain the language of last months statement indicating a careful watch on global proceedings in the short term.