Markets Daily
Market tension ahead of tonight’s US payroll data was illustrated by the extreme reaction to softer than expected weekly jobless claims data. Bond yields tumbled. Equities reversed early gains, pulling AUD back to 0.6590. The calendar also includes the Bank of Japan policy decision.
Yesterday
Australia’s data calendar was empty. China February consumer prices rose just 1.0%yr, down from 2.1%yr in January, with producer prices -1.4%yr, continuing the slide from a late 2021 peak of 13.5%yr. AUD/USD edged under 0.6580 for a while but then rebounded to 0.6615, despite a mixed regional equity mood. The ASX 200 closed barely higher, Japan rallied sharply but China was a little softer.
Currencies/Macro
The US dollar fell sharply against JPY and CHF but was little changed net against most other majors. EUR/USD rose 0.3% to 1.0580, GBP/USD +0.6% to 1.1920. USD/JPY began its descent in the Sydney morning, from 137.30 to 136.10, -0.9%. AUD/USD roundtripped from 0.6590 to 0.6636 and back. NZD/USD similarly roundtripped from 0.6100 to 0.6151 and back. AUD/NZD returned to 1.0790.
US weekly initial jobless claims (4 March) were higher than expected at 211k (est. 195k, prior 190k), with continuing claims at 1.718m (est. 1.660m, prior 1.649m). Challenger job cuts in February were 77,770, from 102,943 in January, and taking the year-to-date total to 180,713 - the highest since 2009. Technology led the way, followed by healthcare.
Interest rates
US bond yields fell and the curve steepened, following weakness in equities and a rise in weekly jobless claims. 2yr government bond yields fell 20bps, from 5.07% to 4.87%, and 10yr government bond yields fell 8bps from 3.99% to 3.91%. Markets are pricing a 50% chance for a 50bp hike at the next FOMC meeting.
Australian government bond yields fell, taking a lead from US price action but underperformed their US counterparts. 3yr government bond yields (futures) fell 8bps, from 3.44% to 3.36%, and 10yr government bond yields (futures) fell from 3.71% to 3.66%. Markets are pricing a 43% chance for a 25bp hike at the April RBA meeting. The AU-US 10yr bond spread widened, from -31 to -25bps on the back of AU underperformance.
Credit followed broader market sentiment with Main closing unchanged (76) despite early weakness, while CDX is now 4.5bp wider at 78.5 (now wider than Main and moving as we write) after giving up early gains and US cash is also wider with weakness led by the banks (bank equity ~6% lower). Primary activity has remained firm as Europe saw 8 issuers price EUR8.9bn including corporate deals from Heineken which priced EUR2bn across 1.5, 7.5 & 12yr and Anglo American with EUR1bn of 5/8yr, which saw books of EUR4.75bn and EUR4.1bn respectively and strong tightening between IPT and final pricing. In the bank space, UBS completed a dual tranche EUR2.75bn deal with the 5nc4yr pricing MS+115 and the 9nc8yr at MS+160. The US saw 5 issuers price USD3.75bn including another 4 utilities in addition to HSBC in the fins space with a short dated deal (USD1.25bn 2yr at T+80).
Commodities
Crude and energy markets closed lower for the third session in a row with traders concerned about the impact on demand of higher rates for longer. The April WTI contract is down $1.07 at $81.54 while the May Brent contract is down $1.12 at $81.54. WTI is down 6% in the last 3 sessions while Brent is down 5.4% with traders bunkering down for the NFP report Friday. However, Shell CEO Wael Sawan told Bloomberg that oil prices are “more likely to be on the higher side than the lower side” over the coming months due to “tight” supply. Strikes in France in response to a plan to raise the retirement age mean that as much as 630kbd of capacity may be at risk. March fuel oil futures in Europe are close to 3 ½ month highs. Meanwhile France’s 4 LNG terminals remain blocked too driving electricity prices higher, with a blast of extreme cold weather across Northern Europe not helping the situation.
The slide in industrial metals continued with copper down another 0.9% to $8,827 while nickel also fell 0.9% to $23,925. That’s a fresh 4 month lower for nickel. News that Chinese smelters are planning to deliver between 23kt and 45kt of refined copper into LME warehouses in Asia is not helping metals sentiment. And with SHFE copper stockpiles well above 5yr seasonal average levels and physical premiums at the lowest in a year, questions are being asked about the speed of reopening in China.
Finally note that iron ore and steel markets bucked the trend seen in other industrial commodities with the April SGX contract up $3.90 while the 62% Mysteel index rose $1.30 to $129.30. The May Dalian contract hit fresh highs despite recent warnings from the authorities that it would severely “crack down on illegal behaviours such as fabricating price increase information, hoarding and price gouging” and also moves by the exchange to limit speculative activity. Hot rolled steel prices hit fresh highs back to mid-June last year and are up 7% so far this year. China will report Feb industrial production on Wednesday.
Day ahead
The Bank of Japan policy meeting concludes today. There is no fixed time for the announcement, though the 18 January statement was released at 1:40pm Syd. This is Governor Kuroda’s final meeting. He has given no hints of an imminent policy change and a surprise policy tweak close to fiscal year-end on 31 March seems unwise. Still, after the shock widening of the 10yr JGB yield target band in December, there will be some jitters in markets as the announcement window looms.
UK: Weakening consumption will likely see the trade deficit narrow over the course of 2023 (market f/c: -£7100mn).
US: Growth in nonfarm payrolls is set to snap back after the unexpected 517k burst in January (Westpac f/c: 180k; market f/c: 225k), though the unemployment rate will likely remain little-changed for now (Westpac and market f/c: 3.4%), supporting robust growth in average hourly earnings (Westpac and market f/c: 0.3%mth, 4.7%yr).
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