ANZ Morning Brief: Lacklustre overnight session for markets

GLOBAL MARKETS:  It was a rather lacklustre overnight session for markets. A positive start from yesterday’s sentiment that the US fiscal negotiations would be sewn up by Christmas faded as senior Democrat spokesperson, Chris van Hollen said they are “not close to a deal”. Republican US House Speaker John Boehner echoed similar sentiment, saying there had been “no substantive progress” on budget talks. Most of the overnight data prints were reasonably close to market forecasts, although US pending house sales outperformed, showing the US housing sector continues to recover. This left European equities 1-1.5 percent higher at close and US equities are currently up 0.2-0.5 percent. Sovereign bond yields were flat with the rally later in the session due to a retracement of earlier falls in peripheral spreads. Note that Italian 10-year yields fell to 4.48 percent at one point after the Italian bond auction, the lowest yield since December 2010. The USD was a touch weaker. However, the AUD/USD underperformed after weak investment intentions in the CAPEX report saw the rates market firm up calls for an RBA rate cut. This dragged the NZD/USD down. Commodities were stronger, apart from grains and natural gas. Crude oil had a decent night, up nearly 2 percent.

RBA TO CUT NEXT WEEK: Australia mining investment intentions for 2012-13 were revised sharply lower yesterday, adding to downside risks for Australian growth. Overnight this firmed up calls by commentators for a 25-50bps cut by the RBA next week. Our Australian colleagues believe the cash rate will be lowered by 25bps, but acknowledge it will be a close decision.  Expectations for total nominal CAPEX in 2012-13 were revised 3 percent lower from the previous estimate. This was a weak outcome as the fourth estimate has been, on average over time, roughly 6 percent above the third estimate. The downgrade was driven entirely by the mining sector, with unadjusted mining CAPEX expectations for 2012-13 revised 8 percent lower – the sharpest downward revision on record. While non-mining CAPEX intentions did not worsen, there was little to suggest that non-mining investment will pick-up from weak levels in the next few quarters despite recent easing in monetary policy. With downside risk to the Australia mining investment outlook and growth, this will no doubt create an even tougher picture for NZ manufacturers. Luckily the Christchurch rebuild will provide some offset, but with the RBA likely to cut it means the RBNZ will be on the sidelines for a while yet.