Markets Daily
US job openings and consumer confidence were weaker than expected, causing the US dollar and bond yields to fall sharply. AUD bounced to 0.6480. Equities rallied sharply. Today’s important data includes Australia July CPI, July building approvals and Q2 construction work, then US revised Q2 GDP and August ADP private payrolls.
Yesterday
Regional equities were very much in the green, extending the global rally to a third day. The ASX 200 joined in, up 0.7%. AUD/USD matched the positive mood with a small gain, pushing up from 0.6430 to 0.6454 before consolidating. RBA Deputy Governor Bullock’s speech was after the local market close.
Currencies/Macro
The US dollar fell against all G10 currencies on the day. EUR/USD bounced sharply from an overnight session low of 1.0782 to 1.0880, net 0.6% on the day. GBP/USD rose a net 0.4% to 1.2645. USD/JPY initially rose to a nine-month high of 147.37, sliding from 147.15 to 145.90 after the US jobs data.
AUD/USD fell as low as 0.6401 in the London morning, then rebounded to 0.6480 amid the broad USD fall, net +0.8% on the day. NZD/USD bounced off 0.5888 to 0.5970, net +1%. AUD/NZD fell from 1.0880 to 1.0850.
RBA Deputy Governor Bullock spoke on climate change but in the Q&A session was asked about monetary policy. She said that inflation is still too high, that the RBA might have to raise rates again but that they would watch the data very carefully and take decisions month by month.
Newswires reported that China was planning to cut both the interest rates on existing mortgages and on deposit rates at state-owned banks sometime this week.
US JOLTS job openings in July fell to 8.827m (est. 9.500m, prior revised to 9.165m from 9.582m) - lowest since Q2 2021. The quit rate fell to 2.3% from 2.4% - the weakest since September 2020 (it reached a record high of 3.00% in November 2021). Conference Board August consumer confidence fell to 106.1 (est. 116.0, prior revised to 114.0 from 117.0). Both the present situation and expectations components fell. Confidence about employment was notably lower while concerns over cost-of-living pressures increased. The CoreLogic 20-city house price index in June rose 0.9% (est. +0.7%m/m, prior +1.0%), while the FHFA price index rose 0.3%m/m (est. +0.6%m/m, prior +0.7%m/m).
Interest rates
US 2yr treasury yields fell from 5.02% pre-data to 4.89%, while the 10yr yield fell from 4.21% pre-JOLTS data to 4.12%, flattening the curve by 7bp over the day. Markets are pricing the Fed funds rate, currently 5.375% (mid), to be 5bp higher at the next meeting on 20 September, with a 55% chance of a hike in November.
Australian 3yr government bond yields (futures) fell from 3.86% to 3.78% while the 10yr yield fell from 4.14% to 4.06%. Markets are pricing the RBA cash rate, currently at 4.10%, to be unchanged in September, with a 55% chance of a hike in February.
New Zealand markets are pricing the RBNZ OCR, currently 5.50%, to be 2bp higher at the next meeting on 4 October, with a 60% chance of a hike in February.
Credit indices extended their recent gains with Main 4bp tighter to be back at 70 and CDX another in another 1.5bp at 62.5 to be back to its ytd lows, while cash spreads remained steady. Primary markets were mixed with a rush back into Euro markets where 11 issuers priced EUR15.1bn (e-SSA), while the US remained quiet, although we did see a few mandates announced.
Commodities
Crude markets rose helped by risk-on sentiment, hopes for a ‘soft landing’ in the US and expectations of mortgage rate cuts in China. The October WTI contract is up $1.06 at $81.16 while the October Brent contract is up $1.14 at $85.56. The move higher came despite Bloomberg reporting that Russian flows had surged to an eight-week high, rising by 880kbpd in the week to August 27. Russian Deputy PM Novak did say earlier this month that Russia would extend its export cut into September but taper from 500kbpd to 300bpd. API reported a massive 11.49mb crude draw last week with Cushing inventory down by 2.235mb. However, gasoline inventory rose by 1.395mb and distillate rose by 2.46mb. The Turkish energy minister confirmed that it was about to end technical work at the Iraq pipeline and aims to make it operational as soon as possible. Citi’s Ed Morse noted that OPECs “fragile five” (Iran, Iraq, Libya, Nigeria and Venezuela) will add about 900kbpd this year and at least the same in 2024, meaning OPEC’s core members may need to consider further production cuts. However, SEB argued that there is no sign that Saudi Arabia will abandon the policy of prioritising high prices over sales volumes. Hurricane Idalia is expected to stay in the eastern Gulf, missing most oil and natural gas platforms though Chevron is moving non-essential personnel from its Blind Faith and Petronius platforms.
In gas markets, despite news that Chevron workers at Gorgon and Wheatstone are planning stoppages of up to 11hrs per day over the September 7-13 period, European gas prices fell as rising supply from Norway and super high inventory levels hit demand. The September TTF contract fell 8.4%, largely unwinding the previous day’s gains.
Metals jumped in line with improved risk sentiment with copper up 1.2% to $8,455 and zinc up 2.7% to $2,446. Aluminium rose by a lesser 0.8% to $2,168 as Morgan Stanley flagged long-term supply risks, noting that “as the world exits a decade of cheap and abundant power, electricity intensive aluminium output is likely to become challenged’. Anglo confirmed that it had resumed operations at its Los Broncos copper mine in Chile after a fatal accident on Saturday.
Iron ore markets marked time with the October SGX contract up 25c from the same time yesterday to $110.85 while the 62% Mysteel index fell 85c to $114.00. BHP recently noted that it was seeing “solid demand for infrastructure, power machinery, autos and shipping offsetting weakness in new housing starts and construction machinery”. Spending growth on railways is running at +25%yy to July while machinery manufacturing was up 15% and auto production was up 12%yy. China’s main steel producers including Baosteel and Angang Steel will report earnings today and guidance for the second half will clearly be important for iron ore markets with expectations that production will be capped.
Day ahead
At 11:30am Syd, Australia’s monthly CPI Indicator should continue to moderate in July, however there is some uncertainty around the impact of state energy rebates and the timing of bill increases. Westpac looks for annual inflation to ease from 5.4%yr in June to 4.8%. The median forecast is 5.2% but 3 of Australia’s Big 4 banks forecast sub-5.0%yr.
Following May’s outsized spike, the unwind in Australia dwelling approvals is expected to persist in July (Westpac f/c: –1.0%). The uptrend in construction work should remain present in Q2 given the need for capital stock expansion amid surging population growth (Westpac f/c: 1.5%; market f/c: 0.9%). The latter is one of the surveys that will help shape forecasts for Q2 GDP, due one week from today.
UK net mortgage lending is expected to stall as higher rates dissuade new borrowing (market f/c: £0.3bn).
No change is anticipated in the second estimate of US Q2 GDP (market f/c: 2.4% annualised), but it can surprise and have a market impact. July’s wholesale inventories are expected to soften as producers sour on the demand outlook (market f/c: –0.3%mth). Further weakness in pending home sales is anticipated given lasting supply constraints (market f/c: –1.0%mth). August’s ADP private payrolls are likely to unwind from July’s large uptick (market f/c: 195k).
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