Greek Polls Encouraging, but concerns about Spain Increase

Financial markets held broadly steady on Friday night with an initial rebound being set back by news from Spain about borrowing challenges. The initial wave of selling that has hit markets over the last two weeks looked to be abating on Friday night, but news from Catalonia, one of Spain’s 17 autonomous regions, that they needed Government help in refinancing, put everything onto the back foot again. There was some good news though as weekend polls from Greece show growing support for centre right parties, which increases the chances of Greece voting to stay within the Euro.

So as a turbulent May draws to a close we look ahead to what could well prove to be a pivotal June. The major themes of trouble in Europe and gradual recovery in the US look set to continue. We expect easing of Monetary Policy from a raft of Central Banks including, Australia, China, Japan and Europe. We will get an update from the Reserve Bank of New Zealand on June 14th with no change expected, but more of the lower for longer rhetoric, as well as a ready for action call should events in Europe warrant it.

The week ahead sees an update on the National Bank business confidence index, which seems permanently super positive and long disconnected with actual economic outcomes before another update of US jobs data on Friday night with a gain of 150,000 expected.

The Kiwi starts the week in the mid .7500 area vs. the USD and back above .7700 on the NZDAUD cross. The interest rate advantage between Australia and New Zealand continues to shrink in NZ’s favour and implies a cross rate closer to .8000. (See today’s graph). The Kiwi has recovered some ground vs. the Euro, which makes sense given the ongoing issues in Europe, with the NZDEUR rate now back above .6000.