Markets Daily
Fed Chair Powell returned to Congress and clarified that a 50bp hike in March was not a done deal, helping risk sentiment for a while. The Bank of Canada’s policy rate was unchanged. AUD returned to 0.6590. Today’s light calendar includes China February CPI and PPI.
Yesterday
RBA Governor Lowe spoke to a conference in Sydney, focusing on Australia’s labour market, inflation trends both domestic and global and adding some further colour to yesterday’s statement. He confirmed that, “we are closer to the point where it will be appropriate to pause interest rate increases.” AUD/USD flickered a touch lower on the initial headlines, then returned to 0.6590/95 for a few hours. This is about where it finished the day but there was an interim dip to 0.6568, a fresh low since November 2022. Regional equities were mostly quite weak as expected given the US lead, the ASX 200’s -0.8% fairly typical.
Currencies/Macro
The US dollar was little changed against most G10 FX on the day, CAD underperforming somewhat (-0.3%) after the Bank of Canada’s steady hand. EUR/USD was choppy at times but overall about flat at 1.0545, similarly GBP/USD at 1.1840. USD/JPY followed US Treasury yields lower to 136.48, later recovering to 137.25, also about unchanged net. AUD/USD followed early NY equity gains to its daily high of 0.6629, later fading to 0.6590. NZD/USD ranged between 0.6085 and 0.6138, returning to 0.6110. AUD/NZD held around 1.0790.
US JOLTS job openings in January slipped to 10.8mn (est. 10.5m, prior 11.2m revised from 11.0m), continuing to indicate a strong labour market. ADP private sector employment in February was also solid at 242k (est. 200k, prior 119k revised from 106k and a long way from the official private payrolls reading of 443k).
Fed Chair Powell delivered the second leg of his semi-annual congressional testimony, this time to a House committee. He said there was no set path for Fed policy and that there was no decision as yet about increasing the pace of hikes or the appropriate policy decision for the March meeting.
The Bank of Canada kept its benchmark rate unchanged at 4.50%, as was previously signalled and widely expected. It remains data dependent while expecting to remain on hold. The statement cited a slowdown in inflation but a labour market that remained tight. Overall, the BoC said the economy is developing as expected, and is confident that “inflation will come down to around 3% in the middle of the year”.
Eurozone Q4 GDP was finalised in line with estimates, with a zero reading for the quarter (initial reading was +0.1%q/q) and +1.8%y/y (lowered from the initial 1.9%y/y). German industrial production in January rose 3.5%m/m (est. +1.4%m/m, prior revised to -2.4%m/m from -3.1%m/m) and -1.6%y/y (est. -3.7%y/y).
Interest rates
Front end US bond yields rose, as Fed Chair Powell’s testimony before Congress continued, although he stated that the size of this month’s rate hike will be dependent on incoming jobs and inflation reports. 2yr government bond yields rose from 5.00% to 5.06%, and 10yr government bond yields rose from 3.96% to 3.99%. The 2-10yr bond curve reached its most inverse levels since 1981, at -108bps. Markets are pricing in 42bps for the next FOMC meeting.
RBA Governor Lowe’s speech at the AFR summit yesterday confirmed Tuesday’s policy statement, that future rate hike decisions will be data dependent. Overnight AU bond futures took their trend from US price action, yields rose slightly on the day. 3yr government bond yields (futures) rose from 3.38% to 3.40%, and 10yr government bond yields (futures) rose from 3.66% to 3.68%. The AU-US 10yr bond yields narrowed once again following AU outperformance, the AU-US 10yr spread narrowed to -31bps.
Credit was mixed with Europe seeing strong primary volumes, Main little changed (76) and cash spreads firm, while the US saw new issue flow slow post yesterday’s weakness as CDX (+2bp to 75) and cash spreads both moved wider. On the primary side, Europe saw another 17 issuers price EUR8.6bn. There were 11 fins deals in the mix including WestpacNZ with a EUR750M long 5yr covered deal at MS+44 (BBSW+93, BKBM+91) and ASB Bank priced its EUR500M 4yr senior transaction at MS+110 (BBSW+155, BKBM+154). In the US we saw the just the 2 IG deals, however this included an inaugural offering from J&J spin-off, Kenvue, which completed a USD9bn, 8 part deal across the curve (2-40yr) that will fund the separation later this year.
Commodities
Not even the first decline in crude inventory for the year could prevent further losses as traders fretted about higher yields and curve inversions. The April WTI contract is last down another $1.11 to $76.47 while the May Brent contract is down 82c to $82.47. The EIA reported that crude inventory fell 1.693mb last week while gasoline fell 1.13mb. However, production fell by 100kbpd though exports dropped by a hefty 2.267mb from a record the week before. Bloomberg reported that the price of Russian crude and fuel is rising for buyers in Asia with “increased interest from Chinese state owned and large private refiners such as Sinopec PetroChina and Hengli Petrochemical in addition to a jump in Indian demand”. On a technical note, Bloomberg reported that “most cargos are sold on a delivered basis with opacity around shipping and insurance costs”. Adding to US crude production concerns from Occidental noted yesterday, ConocoPhillips CEO Ryan Lance warned CERAWeek in Houston that “you see the plateau on the horizon”, arguing that US crude production will peak in 2030 while Pioneer CEO noted he expects US production to peak in five or six years. And in gas news, FERC gave Freeport permission to restart additional facilities. Finally in coal news, China imported more than 60mt of coal in January and February, a jump of 71% from the previous year.
Metals saw a modest bounce with copper up 1.1% at $8,859 while aluminium rose 0.5% to $2,362. Nickel fell 0.9% to $23,925. Bloomberg reported that “at least four major [Chinese] smelters are planning to deliver between 23,000 and 45,000 tonnes of refined copper in total to the LME in Asia”. Copper inventory has jumped 72% so far this year and exports of refined copper from China would be a clear sign of sluggish demand.
Finally note that iron ore marked time with the April SGX contract down 30c at $126.00 while the 62% Mysteel index fell 20c to $128.00. Traders continue watching Chinese data closely. Next week will see a raft of domestic data including IP, retail sales, FAI and residential property sales. CISA 10 day production data for major steel mills points to a circa 3.6% rise in February Chinese steel production though plant closures at the end of the month ahead of the National People’s Congress suggest a lower number. Steel exports from China jumped 49% in the first two months of the year, again pointing to limited demand.
Day ahead
Japan: The final estimate to Q4 GDP is due (market f/c: 0.2%).
China: Inflation data for February will likely remain at a subdued level for now, both in regards to consumer prices (market f/c: 1.9%yr) and producer prices (market f/c: -1.3%yr, due 12:30pm Syd). As authorities continue to support the recovery, robust growth in M2 money supply and new loans will remain present (market f/c: CNY1500bn and 12.5% respectively). Note that this data is due between March 9th-15th.
US: Initial jobless claims will likely remain at a low level for now (market f/c: 195k). Fed Governor Barr (Vice Chair for supervision) is due to speak on crypto.
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