Markets Daily
Sterling outperformed on the UK-EU agreement on the Irish border. Bonds were mixed but equities rallied, helping AUD return to 0.6740. Today’s crowded Australian data calendar includes January retail sales and Q4 balance of payments and public demand.
Yesterday
Australia Q4 22 company profits rebounded by more than expected, +10.6%qtr after -11.5% in Q3. Business inventories were close to expectations, -0.2%qtr after +2.1% in Q3. AUD/USD was quiet through the data, mostly 0.6730-40. Later it slipped to 0.6700 as regional risk appetite soured further, the ASX 200 closing down -1.1%.
Currencies/Macro
The US dollar gave up some of its recent gains. EUR/USD rose from 1.0550 to 1.0610. Sterling outperformed most majors as the UK and EU announced an agreement on trade flows between Ireland and Northern Ireland. GBP/USD rallied 1.1 cents or 0.9% to 1.2055. USD/JPY lost a little yield support, easing down 25 pips to 136.25. AUD/USD dipped to a low of 0.6698 then recovered to 0.6740, virtually flat on the day. NZD/USD is net unchanged at 0.6165, the Kiwi underperforming. AUD/NZD is a touch higher at 1.0925.
US durables goods orders (ex-transport) in January were firmer than expected at +0.8%m/m (est. -0.1%m/m, prior revised to -0.3%m/m from -0.1%m/m). Pending home sales in January rose 8.1%m/m (est. +1.0%m/m), taking the annual pace to -22.4%y/y (prior -34.3%y/y). The Dallas Fed manufacturing survey fell to -13.5 in February (est. -9.3, prior -8.4), with a notable decline in production (-2.8 vs prior +0.2).
The February EC Eurozone economic confidence survey disappointed at 99.7 (est. 101.0, prior revised to 99.8 from 99.9), industrial confidence fell to 0.5 (est. 1.8, prior 1.2), and services confidence fell to 9.5 (est. 12.1, prior 10.3).
Interest rates
US 2yr treasury yields fell from 4.85% to 4.77%, currently 4.78%, while the 10yr yield fell from 3.98% to 3.89%, currently 3.92%. Markets currently price the Fed funds rate to be 30bp higher at the next meeting on 23 March, peaking at 5.42% in July 2023.
Australian 3yr government bond yields (futures) ranged between 3.64 and 3.69%, while the 10yr yield ranged between 3.87% and 3.92%. Markets currently price the RBA cash rate to be 24bp higher at the next meeting on 7 March, peaking at 4.35% in September 2023.
New Zealand markets are pricing the RBNZ OCR to be 40bp higher at the next meeting on 5 April and to peak at 5.48% in August 2023.
Credit markets have seen a firm opening to the week for indices in line with broader sentiment with Main in 2bp to 79 and CDX 1.5 tighter at 75.5, however cash was more subdued on a big opening for primary markets. Europe saw 6 issuers including corporate deals from US issuers, AT&T (EUR1.25bn 2yr at E+40) and Ford (GBP500M 3.25yr at UKT+310) and an AT1 offering from Barclays (GBP1.5bn PerpNC6yr to yields 9.25% with books said to be over GBP5bn). The US kicked off the week with 16 issuers pricing USD19bn across a mix of banks, utilities and corporates. The list included UK banks Lloyds (USD1.25bn 6nc5yr at T+170) and NatWest (USD2bn across 4nc3yr at T+135 and 11nc10yr at T+210), while Deere completed that largest deal of the day with its USD2bn 4 part offering including a 2yr at T+40, 3yr fixed and FRN at T+55/SOFR+57 and 5yr at T+75 (full list below).
Commodities
Crude markets pared earlier losses as equity markets bounced and risk sentiment improved. The April WTI contract is down 70c at $75.62 while the April Brent contract is down 77c at $82.39. Crude markets remain in very well-rehearsed ranges despite the enormous build up in inventory so far this year, with the focus very much on China reopening and the removal of supply from Russia as positive drivers. Russia stopped oil flow to Poland through the Druzhba pipeline over the weekend, though the southern leg of the pipeline to Hungary, Czech Republic and Slovakia was operating normally. Meanwhile gas prices in Europe slumped to 18-month lows as weather forecasts improved and gas in storage rose. The April TTF gas contract fell by 6.6%, the largest fall in a month.
Metals stabilised after the slump through last week. Copper is up 1.4% to $8,834 while aluminium rose 1.8% to $2,376. Nickel is up 3.45% to $25,400. There was little fresh news for metals though the White House decision Friday to impose 200% tariffs on Russian aluminium was cited as a reason even though it was seen as purely symbolic and had been well telegraphed. Trafigura was said to be in talks to buy 150kt of aluminium for delivery to China. And a Chinese probe into lithium ore processing in Yichun has forced the closure of somewhere between 8% and 13% of global supply according to local press and analyst estimates.
Finally note that iron ore markets continued their correction as the focus remained on steel mill closures into the Central Committee of the Chinese Communist Party which commenced over the weekend and the upcoming National People’s Congress which will commence in Beijing on March 5. The March SGX contract is unchanged at $123.60 versus the same time yesterday though the 62% Mysteel index fell a hefty $4.90 to $121.70.
Day ahead
At 11:30am Syd we see the final Q4 surveys to help shape forecasts for Australia’s GDP report due tomorrow but also noteworthy January data. An underlying slowdown in retail sales should continue to be evident in January despite recent volatility (Westpac f/c: 1.0%mth, median forecast 1.5%, after December’s shock -3.9%). Rising interest rates will continue to impact private sector credit growth in January (Westpac f/c: 0.4%).
Australia’s current account balance is expected to return to surplus in Q4, driven by a rebound in the trade position (Westpac f/c: +$2.0bn). Hence, net exports are expected to be a material positive in the quarter, adding to GDP growth (Westpac f/c: +1.4ppt, median 1.3ppt). Meanwhile, public demand should continue consolidating in Q4 as the COVID-19 spending spike unwinds (Westpac f/c: 0.2%).
New Zealand: The employment indicator is expected to bounce back in January after a larger than normal dip over the Christmas period (Westpac f/c: 0.5%). Given the disruption from recent storms alongside other significant headwinds already present, ANZ business confidence will likely remain weak in February.
Japan: Softening global demand will remain the key drag on industrial production in January (market f/c: -2.9%).
US: The FHFA and S&P/CS home price indexes are expected to post another decline in December (market f/c: -0.2% and -0.4% respectively). Wholesale inventory growth should meanwhile hold at a stalling speed in January (market f/c: 0.1%), which alongside the Chicago PMI and Richmond Fed index, is reflecting a material loss of economic momentum (market f/c: 45.3 and -5 respectively).
We also see the Conference Board survey of US consumer confidence. This has been consolidating recently but the weight of interest rate and inflation pressures continues to limit progress (market f/c: 108.5).
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