Markets Daily
Markets mostly saw little net movement, with price action reportedly muddied by month-end flows. AUD slipped to 0.6730. Today’s busy data calendar includes Australia Q4 GDP and January CPI, China February PMIs and US February manufacturing ISM.
Yesterday
Australia’s data calendar was very busy. January retail sales rose 1.9%mth after -4.0%mth in Dec. The ABS noted that turnover is sitting around the level of September 2022 despite high inflation. Australia’s current account returned to a large surplus in Q4, $14.1bn, a long way above the median forecast of $5.5bn. Public spending rose 0.3%qtr and finally, January private sector credit rose 0.4%mth, 8.3%yr. AUD/USD drifted in line with US equity futures, firstly up about 20 pips to 0.6750 then back down to 0.6725. The ASX 200 closed up 0.5% while regional equities were quite mixed.
Currencies/Macro
The US dollar was mixed on the day, with market talk that a dollar rebound was due to month-end portfolio rebalancing. EUR/USD rallied to 1.0645, only to slide to 1.0585, net down 25 pips over the day. GBP/USD traded a >1 cent range, ultimately -0.2% at 1.2040. USD/JPY fell from 136.92 (two-month high) to 136.15. AUD/USD traded from 0.6704 to 0.6758, steadying around 0.6730, a fraction lower on the day. Outperformer NZD rose a net 15 pips to 0.6180. AUD/NZD fell 40 pips to 1.0885.
US house prices (Corelogic 20-city) in December fell -0.5% (est. -0.4%, prior -0.5%), for an annual pace of +4.7%. The MNI Chicago PMI fell to 53.6 in February (est. 45.5, prior 44.3). The February Conference Board consumer confidence index fell to 102.9 (est. 108.5, prior 106.0). The Richmond Fed manufacturing index fell to -16 in February (est. -5, prior -11). The low-profile Dallas Fed services index rose to -9.3 in February (prior -15.0).
Inflation data for France and Spain for February was stronger than expected. For France, CPI rose 1.0%m/m and 7.2%y/y (est. 1.0%m/m and 7.0%y/y). For Spain, CPI rose 1.0%m/m and 6.1%y/y (est. 0.7%m/m and 5.8%y/y).
Australia’s February CoreLogic home prices edged down -0.1%, but with Sydney up 0.3%, its first rise in 13 months. Melbourne and Brisbane prices both printed -0.4%.
Interest rates
US 2yr treasury yields ranged sideways between 4.79% and 4.83%, while the 10yr yield roundtripped from 3.92% to 3.98% (following strong EU CPI data) and back. Markets currently price the Fed funds rate to be 31bp higher at the next meeting on 23 March, peaking at 5.43% in July 2023.
Australian 3yr government bond yields (futures) rose from 3.58% to 3.68%, while the 10yr yield rose from 3.84% to 3.92%. Markets currently price the RBA cash rate to be 24bp higher at the next meeting on 7 March, peaking at 4.30% in September 2023.
New Zealand markets are pricing the RBNZ OCR to be 39bp higher at the next meeting on 5 April and to peak at 5.46% in October 2023.
Credit is being dominated by supply early in the week. Indices were little changed last night with Main half a bp tighter at 79.5 and CDX flat at 75.5, with cash also fairly subdued, however primary markets have not eased up into month end with Europe seeing 7 issuers (ex-SSA) price EUR9.5bn and the US saw another 8 issuers (making it 24 over the last 2 days) price USD11bn (USD30bn this week). In Europe, McDonalds priced EUR1bn across 7yr (MS+80, BBSW+139) and 12yr (MS+110, BBSW+170), MS added to the US flavour with a EUR2bn 6nc5yr at MS+125 (BBSW+180) in what has been relatively rare US bank supply and CreditAg priced EUR2.75bn across 2yr (E+32) and 7yr (MS+90). In the US, AstraZeneca followed last week’s EUR deal with a USD2.25bn 3 part deal (5/7/10yr) ahead of a solid refi year, SMFG priced taps of its 26/28/30/33s for a total of USD1.3bn and HSBC (USD2bn) and Citi (USD1.25bn) both completed AT1 deals.
Commodities
Crude markets rose as Russian oil sanctions started to show some impact of limiting supply and Russia prepared to reduce production in March. The April WTI contract is up $1.35 to $77.03 while the May Brent contract is up $1.34 to $83.38. The Polish Prime Minister announced they will buy no, or “close to none”, Russian oil in February or March after flows through the Druzhba pipeline were switched off by Russia over the weekend. And Indian buyers of Russian oil were said to be facing increased hurdles as bankers sought proof that purchases were taking place below the G7 $60 cap.
In gas markets, the slump in European prices continued with the April TTF contract down 8% so far this week, 19% in February and 40% so far this year. Gas prices in Europe have fallen in 5 of the last 6 months and have posted their longest streak of monthly declines since 2020. Freeport said that train 3 had reached full commercial operations while train 2 was continuing restart activities.
Metals were mixed with copper up 2% at $8,980 while nickel was down 2.4% at $24,890. Aluminium was largely unchanged at $2,372. Aluminium was down circa 10% in February while nickel was down 18%. The LMEX index dropped close to 8% in February. Freeport-McMoRan restarted the Grasberg copper mine as expected after a landslide at the plant in Indonesia forced a closure mid-February. The LME suspended warranting of Russian metals in its warehouses in the US. This does not change the LME’s position on Russian metals; it just reflects the White House’s move to tariff Russian aluminium.
Finally note that iron ore markets appeared to stabilise ahead of the key National People’s Congress which will commence in Beijing on March 5. The March SGX contract is up $1.15 versus the same time yesterday to $124.75. The authorities in Tangshan ordered steel and sintering plants to curtail production Friday ahead of the weekend’s Central Committee of the Chinese Communist Party in Beijing and the upcoming People’s Congress. Traders hope that we will see the focus on policies with “more forceful measures” to expand domestic demand and spending announced at the session.
Day ahead
At 11:30am Syd, Australia’s Q4 GDP data will be released. The economy was in transition heading into year-end as earlier policy and reopening supports worked against the adverse impacts of inflation and interest rates. Hence, we anticipate a soft read for domestic demand, with solid consumer spending being partially offset by flatness in building work and a modest decline in business investment. Westpac’s revised forecast is 0.8%qtr, 2.8%yr.
Australia’s CPI monthly indicator should ease in January given falling domestic holidays and quirks around survey timing. Westpac forecasts a rise of 7.9%yr versus median 8.1%yr, after the unsettling jump to 8.4% in December.
The RBA’s Brad Jones, Assistant Governor (Financial System), is due to speak at an IIF Forum in Sydney at 9:30am.
China: The official manufacturing and non-manufacturing PMIs, alongside the Caixin manufacturing PMI, should all continue to receive support from the removal of COVID-zero restrictions (market f/c: 50.6, 54.9 and 50.7 respectively). The official PMIs are due 12:30pm Syd, the Caixin (S&P Global) survey at 12:45pm.
Eurozone/UK: The housing market correction remains well entrenched in the UK, likely resulting in another decline in Nationwide house prices in February (market f/c: -0.5%) and further easing in net mortgage lending in January (market f/c: £2.9bn). The final estimate to February’s S&P Global manufacturing PMI is also due for both the Eurozone and UK.
US: The ISM manufacturing PMI should continue reflecting the fragility of the sector in February (market f/c: 45.5); the final estimate to the S&P Global manufacturing PMI will likely confirm this too. Meanwhile, construction spending is expected to remain subdued in January given softening demand (market f/c: 0.2%). Minneapolis Fed president Kashkari is also due to speak.
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