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Stocks Fundamental Analysis

The Reserve Bank of New Zealand held its policy meeting yesterday and elected to keep its cash rate unchanged at 2.5% (in line with expectations) but the accompanying statement hinted at the possibility that a rate hike could be seen in the near future.  This was the main market moving event during an otherwise quiet Asian session.

In the US, the President and Congress have yet to reach an agreement to raise the country’s debt ceiling and as the deadline draws closer, there is still no obvious indication for which side has the advantage.  The Republican proposal being pushed by the House Speaker (Boehner) is probably less likely at this stage, as the President has said that he would use his veto authority to stop it from happening.

Market uncertainty is being reflected in equity markets, as the S & P 500 dropped 2% and Asian markets have followed its lead lower.  Macro data yesterday came in the form of the Federal Reserve’s Beige Book, which showed declines in 8 of the 12 geographical areas.  The EUR/USD closed lower on the day, trading at 1.4335-1.4380 while the USD/JPY was relatively stable at 77.70-78.20.

German CPI in July rose to +2.4% on a yearly basis, which matched market estimates.  The Inflation outlook and the expectations for short-term rates have dropped in the last month, with the markets clearly showing more concern for growth prospects.  Friday, we will see the Eurozone CPI figure to get a sense of the wider trends at work in the EU.

In Japan, Reuters quoted finance officials as saying that intervention in the currency markets (generally thought to be in the value of 1-2 trillion Yen) would be a difficult prospect and that if this is to occur, it would probably not be until after the August 2nd US debt ceiling deadline, as market reactions to this event could bring some correction to the USD/JPY price movements we have seen this year.

In New Zealand, the RBNZ left interest rates unchanged at 2.5%. The central bank Governor (Bollard) released a statement suggesting that the current rate hike expectations are incorrect and that the 2.5% rate is overly accommodative.  He went on to say that the value of the currency (which is trading at all time highs) will be helpful for containing inflationary pressures.  Rate expectations in this region (with Australia included) are at a critical juncture and will have a large effect on equity and commodity prices for the remainder of the year.  Analysts are currently divided on how things will proceed in this region (which is a sharp contrast from the more stable forecasts in the other major economies) so central bank commentary will take on greater importance until the macro data gives us a clearer picture of the regional performance.
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