ANZ’s morning brief – Hurricane Sandy wreaks havoc

GLOBAL MARKETS: Our London colleagues report that it was all about Hurricane Sandy overnight  with the closure of many markets, including the bond market. With trading on US Treasuries closed and further bad headlines and data out of Europe , German bunds were very well supported, as were Australasian bonds. There is still no official opening time for the CME (where bonds trade), but it looks like it could be closed for a little while yet. Worse still, there are rumours that Friday’s non-farm payrolls data may be postponed. Apparently no decisions have yet been made, but it is possible there will be a host of data reporting delays this week. Back to market trends – broadly speaking it was a classic “risk-off” day, with European equities generally lower, core-country bond yields down, but yields on Spanish, Italian and Portuguese bonds up. On commodity markets, energy got a boost from the storm.

KEY THEMES AND VIEWS TIME FOR REFLECTION:

With all the storm-related disruptions and market closures in the US , we are left looking to Europe and Asia for guidance, and contemplating domestic events. For our part, we prefer to reflect on RBNZ Governor Wheeler’s speech on Friday – in particular his mention of the likely addition of macro-prudential policy tools to his toolkit. Such tools will never replace the OCR, which remains the primary tool, but they will help it, and in the process take pressure off monetary policy. Along with the continued strong focus on price stability and his candid rejection of the idea that OCR cuts might somehow be able to miraculously lower the NZD, we are left with the felling that monetary policy will be on hold for a very long time indeed, supporting lower bond yields and a much flatter yield curve. OTHER EVENTS AND

QUOTES · Hurricane Sandy continues to wreak havoc as it bears down on the East coast of the United States , which some forecasters saying that the storm is the largest storm to ever hit mainland USA . Unfortunately the storm has strengthened as it has headed to shore, prompting large-scale evacuations, school and market closures. The NYSE was hoping to remain open for electronic trading, but close its floor, but in the event it has been forced to close entirely – the first time it has done so on account of weather in 27 years. Trading on bond markets also closed at midday NY time, and will remain closed tomorrow .

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