Markets Daily
Fed tightening expectations helped push bond yields and the USD higher, AUD edging down to 0.6925. US equities were somewhat resilient. USD/JPY gyrated on headlines regarding the next BoJ governor. Today’s global calendar is very light.
Friday
The RBA released its February Statement on Monetary Policy. The highlight of these statements is usually the Bank’s revised forecasts for growth, unemployment and inflation. However, this time around it was the more detailed picture around underlying inflation and wages that was of most interest. And on this, the statement does show a notable shift, both indicators now expected to track above 4%yr in 2023 and wages growth to remain around 4% in 2024. AUD/USD traded a tight 0.6911 to 0.6948 range, overall a touch lower. Regional equities were mostly downbeat, aligning with the lead from Wall Street. The ASX 200 fell for the fourth time for the week, -0.8% on the day, -1.7% over the week.
Currencies/Macro
The US dollar rose against most G10 currencies on Friday. The CAD outperformed, helped by strong jobs data, USD/CAD falling from 1.3460 to 1.3350. EUR/USD fell 65 pips to 1.0675, GBP/USD also down 65 pips to 1.2055. AUD/USD starts the week around 0.6910, down about 25 pips from Friday morning. NZD/USD slipped -0.4% to 0.6300, leaving AUD/NZD little changed at 1.0960.
USD/JPY dropped from 131.60 to a low of 129.81 in London trade on Japanese news reports that BoJ Governor Kuroda would be replaced by academic and former BoJ board member Kazuo Ueda, rather than current deputy Amamiya, who is seen as committed to loose policy. But USD/JPY rebounded to 131.50 as US yields rose and as Ueda told reporters that current policy is appropriate and should be continued at the moment.
US consumer sentiment (University of Michigan survey) rose to 66.4 in February (est. 65.0, prior 64.9), with current conditions rising but expectations falling slightly. The 1-year ahead inflation expectations component rose to 4.2% (est. 4.0%, prior 3.9%), while the more important 5-10yr ahead measure remained at 2.9%.
Canada’s jobs report for January was much stronger than expected. Employment rose 150k (est. 15k, prior 69k), the unemployment rate remained at 5.0% (est. 5.1%), and hourly wage inflation slipped to 4.5%y/y (est. 4.4%, prior 4.7%). CAD jumped and Canadian money markets pushed up the projected peak cash rate from 4.60% to 4.75%, versus the current 4.50%.
Interest rates
US 2yr treasury yields rose from 4.47% to 4.53%, the 10yr yield from 3.66% to 3.75%. Markets currently price the Fed funds rate to be 28bp higher at the next meeting on 23 March, peaking at 5.20% in July 2023.
Australian 3yr government bond yields (futures) rose from 3.42% to 3.52%, the 10yr yield from 3.70% to 3.81%. Markets currently price the RBA cash rate to be 23bp higher at the next meeting in March, peaking at 4.20% in August 2023.
New Zealand markets are pricing the RBNZ OCR to be 62bp higher at the next meeting on 22 February and to peak at 5.42% in July 2023.
Credit was weaker on Friday after a strong recent run with Main out 3.5bp to 79 and CDX out 2bp at 73 with cash spreads also wider as the move in outrights and supply begin to weigh. Europe recorded some rare Friday volumes with 3 issuers in the market including Nokia as the sole corporate, pricing a EUR500M 8.5yr at MS+155, and SHBASS in the fins with a EUR1bn 5yr Sen at MS+55 (BBSW+103), however the US saw no action. Monday is now the focus as issuers look to get ahead of the CPI release on Tuesday.
Commodities
Crude had its best week since October helped in large part by the Friday announcement that Russia would cut production by 500kbpd in retaliation for G7 price caps. The March WTI contract closed Friday up $1.66 at $79.72 while Brent rose $1.89 to $86.39. Both contracts were up 8%+ on the week. Additional positives included Saudi Arabia announcing Monday that it was raising prices into Asia plus supply disruptions to the export terminal at Ceyhan due to the horrific earthquake in Turkey and Syria. An OPEC delegate said that the group would not make up for lost Russian barrels, keeping the output plan from last year. Goldman cut its forecast for crude for 2023, expecting Brent to average $92 rather than $98 and $100 in 2024 rather than $105.
And in gas markets, a FERC event revealed new photos from the Freeport LNG plant explosion which closed the terminal in June last year. The event noted that there are still portions of the site that need to be repaired and that the terminal is still waiting on some equipment to arrive to make those repairs. And after 2 years of being banned, the first exports of Australian metallurgical coal to China entered ports late last week with a number of coal miners reporting that they had received enquiries about thermal coal exports. Currently only CEIC and Baowu Steel have been given permission to restart imports though the hope is that a complete lifting of the ban will be seen in March. Newcastle coal fell 13% on the week.
Metals saw further weakness Friday as rising inventory dominated the headlines. Copper closed down 1.4% at $8,854, while aluminium fell 2% to $2,448 and nickel fell 5.8% to $27,450. Aluminium led the move lower, hitting a 1 month low and down 5% on the week as inventory jumped due to Russian deliveries. Meanwhile global copper inventory hit the highest level since September 2021 in a sign that global demand is weakening.
Finally note that iron ore markets marked time in the mid $120s with rising steel mill stocks capping prices. The March SGX contract is last down 75c at $123.95 while the 62% Mysteel index rose $1.05 to $125.75. Fortescue will report earnings Wednesday and Vale on Thursday.
Day ahead
The global calendar is very quiet ahead of Tuesday’s vital US January CPI report. Fed governor Bowman speaks to community bankers.
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