Markets Daily
A mixed US jobs report and news of a US bank failure helped push bond yields, the USD dollar, and equities lower. AUD underperformed the G10 by holding around 0.6600. Today’s data calendar is very light.
Friday
The Bank of Japan held steady as was widely expected though after the December shock, it seems some were braced for the risk of a change, as USD/JPY popped up from 135.90 to as high as 136.96 and Japanese government bond yields fell. The regional equity mood was sour, extending from Wall Street’s selloff, with a focus on a California bank. The ASX 200 slid -2.3%, its largest one-day fall since September 2022. AUD/USD was fairly resilient considering the equity rout, dipping to 0.6565 but then returning to 0.6585, net unchanged.
Currencies/Macro
The US dollar fell against most major currencies, with the Aussie underperforming in the G10. EUR/USD rose about 1 cent to 1.0680 on Monday morning, most of its gains coming after the unemployment data. GBP/USD starts the week up 1.5 cents at 1.2075. USD/JPY fell from 136.75 pre-data to a low of 134.12 in NY and weakened again early Monday, to around 134.00. AUD/USD popped up from 0.6590 to 0.6640, then slipped back to 0.6600. NZD/USD is up 40 pips, at 0.6140. AUD/NZD is down about half a cent at 1.0755, printing lows since the turn of the year.
US employment data for February was mixed. Non-farm payrolls rose 311k (est. 225k, prior revised to 504k from 517k), but there was a large -57k revision to private payrolls, and the unemployment rate rose to 3.6% (est. 3.4%, prior 3.4%). Underemployment rose to 6.8% (prior 6.6%) and the participation rate rose to 62.5% from 62.4%. Average hourly earnings were +0.2%m/m (est. +0.3%m/m) and 4.6%y/y (est. 4.7%y/y), with average weekly hours worked at 34.5.
Silicon Valley Bank (SVB), the 16th largest bank in the US with assets of around US$209bn, was officially closed by the US FDIC. It is the largest bank to fail since the 2008 GFC. Treasury Secretary Yellen said that “a few” banks were being monitored as a result.
Canadian February employment data was slightly firmer than expected. Unemployment remained at 5.0% (est. 5.1%), with employment rising 22k (est. 10k, previous a massive 150k) and participation at 65.7% (unchanged). Wages growth picked up to 5.4%yr.
UK production data was helped by a firmer services outcome. GDP in Jan. rose 0.3%m/m, est. +0.1%m/m, services rose 0.3%m/m (est. +0.1%m/m) and the trade balance deficit was -GBP5,861bn (est. -GBP7.1bn). However, industrial productions fell 0.4%m/m (est. +0.1%m/m).
Interest rates
US bond yields fell sharply, as investors fled to safe-haven assets on the back of the Silicon Valley Bank collapse. 2yr government bond yields fell 28bps, to 4.59%, and 10yr government bond yields fell 20bps to 3.70%. Markets are pricing in a 33% chance of a 50bp hike at the FOMC meeting this month.
Australian bond futures took its trend from US price action, but underperformed their US counterparts. 3yr government bond yields (futures) fell 19bps to 3.18%, and 10yr government bond yields fell 14bps to 3.49%. The AU-US 10yr bond spread widened on the back of US outperformance, currently at -12bps.
Credit was caught in the SVB flight to quality which saw credit indices dragged wider with Main closing out 6.5bp at 82.5 and CDX was up 4.25bp at 83, however the cash move was greater with US banks 10-15 wider (smaller banks more) with credit more broadly wider across the board. Primary activity is normally quiet on Payrolls Friday, but SVB quashed any potential interest and may lead to a subdued open this week.
Commodities
Despite reasonable gains on Friday, crude markets closed down on the week as the fear of higher for longer rates in the US and a softer China recovery offset evidence of stronger demand from Asia. The April WTI contract rose 96c Friday but fell 3.8% on the week while the May Brent contract rose $1.19 Friday but fell 3.6% on the week. JP noted that Chinese international travel in 2023 so far had been disappointing at only 23% of 2019 levels, leading it to lower its Q1 forecast for jet fuel demand though it left the rest of the year unchanged. And in a sign of the strength of demand for crude in Asia, the spread between Brent and Dubai crude swaps narrowed to the lowest level since September last year. In an important geopolitical move, Saudi Arabia and Iran restored diplomatic ties, with the agreement negotiated by Chinese officials. Whether this will lead to a permanent ceasefire in Yemen remains to be seen. And Kpler reported that the amount of Russian diesel type fuels idling off the coast of Europe, Africa, and Latin America was the highest since the company started collecting the data in 2016. The build-up in floating storage is higher in areas where ship to ship transfers are more common. And in gas markets, the freezing weather in northern Europe, strikes in France which were impacting LNG terminals plus defects discovered at two French nuclear reactors saw electricity and gas futures up sharply Friday and late last week. The April UK NBP contract jumped 22% Friday and 18% on the week while the European equivalent jumped 21% Friday.
Metals remained under pressure as softer China reopening evidence and the prospect of higher for longer US rates weighed on sentiment. Copper fell 0.86% to $8,777, aluminium fell 0.9% to $2,306 while zinc fell 2.2% to $2,909 and nickel fell 2.5% to $22,680. Gold jumped 2% on the SVB news to a close to 4-week highs. On the week, aluminium fell 4.1% while zinc fell 5.5% and nickel 7.8% on the week. Canada announced a ban on imports of Russian steel and aluminium products. The volume of Russian aluminium in LME warehouses more than doubled from January to February.
And finally note that iron ore markets again saw modest gains with the April SGX contract up 30c at $129.55 while the 62% Mysteel index is up 65c at $129.95. The authorities in Beijing were said to have told trading companies that store iron ore at port to sell some of their material. The NDRC also held meetings with industry experts to discuss ways to curb “overly fast” price gains. Raising port storage fees for large volume cargoes was said to be under consideration. The May Shanghai rebar contract is at highs back to June and up 6% so far this year while spot prices are up 9%.
Day ahead
It is a partial holiday in Australia (VIC, SA, TAS). The data calendar is very low key today. Australia’s key data this week is the February labour force survey (Thursday). Note that the US switched to daylight savings time over the weekend, so e.g. US February CPI will be released Tuesday 11:30pm Sydney time.
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