Market wrap

Markets, finally recovered on strong news from US and Europe. Italy’s senate passed the debt-reduction measures and paved way for a new government, followed by a jump in US Michigan consumer confidence to a five month high level, crossing estimates. Asia markets saw mixed results as stocks moved with country-level news. London morning trades were choppy but Italian senate vote provided the massive boost. Italian 10 year yields fell sharply to 6.412 %. Spanish yields came back to 5.800% levels after touching the high of 5.865%. VIX is down 3.21ppts, Eurostoxx 50 is trading up 2.9%, S&P 500 opened 1.3% higher on the back of positive consumer confidence data, oil is up 0.8%, copper 1.5% and gold 0.8%.

Euro maintained its positive correlationwith risk markets, rising from the low of 1.3578 to the high of 1.3740. JPYmoved up steadily the whole day from previous close of 77.65 and is at 77.15. AUD had a negative bias for most of the trades with the low of 1.0106 but then gained sharply to the current levels of 1.0219. NZD broke the intra-day band of 0.7755-0.7790 on the upside and is at 0.7802. AUD/NZD was in red for most of the day with previous close of 1.3069 providing a stiff resistance; but is now trading higher at 1.3096 rising from the low of 1.3038.

Weekend news should help risk sentiment improve further. Italian PM Berlusconi resigned after both houses passed austerity packages. However the positive tone may be tempered somewhat by a UK Telegraph article which suggested that the EFSF had to resort to buying its own debt to achieve the recent 3bn auction target suggesting Europe still faces deeply fundamental problems.

Economic wrap

US consumer sentiment rises 3.3 pts to 64.2 in Nov. The detail in the preliminary Nov Uni of Michigan report showed a modest 1.5 pts improvement in current conditions but expectations gained 4.4pts. Both components reached their highest readings since June (as did the index headline). Longerterm inflation expectations softened a further tick to 2.6% in Nov, from 3.0% back in June.

UK producer price inflation eased from 3.8% yr to 3.4% yr in Oct (core output measure). In the month, input prices fell 0.8%, output prices were flat and core output prices fell 0.1%, their first fall since June 2009.

European politics: The Italian senate approved the range of austerity measures intended to avoid a bailout; once it gets final approval in a lower house vote, PM Silvio Berlusconi will resign (he has promised) - probably this weekend. It is widely expected he will make way for a technocrat government led by former EU commissioner Mario Monti. Meanwhile Lucas Papademos (ex ECB/ Harvard) has been sworn in as the new Greek (interim) PM.

Market outlook

AUD/USD and NZD/USD outlook next 24 hours: AUD/USD and NZD/USD outlook next 24 hours: Eurozone industrial production and New Zealand real retail sales are the key events for the day. We see a neutral day as AUD and NZD may test last week’s low of 1.0052 and 0.7732 respectively. Movement for the day should be capped at AUD 1.0232 and NZD 0.7857, barring any big surprises.

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