Markets Daily
Financial contagion fears continued to recede, stocks closing higher in Europe and the US. Bond yields rose but the USD softened, AUD edging up to 0.6710. Today’s data includes China March PMIs and key inflation readings for the Eurozone and US.
Yesterday
Australian job vacancies fell -1.5%qtr in February, after a revised -4.6%qtr in November, the third consecutive quarterly decline, after a huge rise from November 2021 to May 2022. AUD/USD probed a little lower for a while (0.6662 low) then rebounded to above 0.6700, to lead G10 FX on the day. Regional equity sentiment was mostly upbeat, following the sharp gains on Wall Street on Wednesday.
Currencies/Macro
The US dollar fell against all G10 FX on the day. EUR/USD rose 60 pips to 1.0905. GBP/USD rose 70 pips to 1.2385. USD/JPY is down only fractionally at 132.65. AUD/USD rose 25 pips net over the day, to 0.6710. The Kiwi was strongest on the day, for no obvious reason, up a net 0.6% to 0.6265. This left AUD/NZD down 25 pips at 1.0715.
US GDP for Q4, in its third estimate, was revised from 2.7% to 2.6% (est. 2.7%). Weekly initial jobless claims rose slightly to 198k (est. 196k, prior 191k). Continuing claims rose to 1689k (est. 1700k, prior 1694k revised from 1685k).
German CPI in March rose 7.4% y/y (est. 7.3%, prior 8.7%).
Interest rates
US bond yields were mixed, and the yield curve was flatter as banking system fears subsided somewhat. 2yr government bond yields rose 2bps to 4.12%, and 10yr government bond yields fell 2bps to 3.55%.
Australian bonds continue to outperform their US counterparts, as Wednesday’s weaker than expected monthly CPI figures have markets focused on the RBA’s policy action next week. 3yr government bond yields (futures) fell 2bps to 2.93%, and 10yr government bond yields (futures) fell 2bps to 3.34%. The AU-US 10yr bond spread narrowed on the back of AU outperformance, currently at -21bps.
With another more settled session in play, credit continued to firm with indices in positive territory again (Main and CDX both 2bp tighter to 89 and 77.5 respectively), cash skewed toward better buying and primary remaining in focus as issuance continues. Europe saw another 5 issuers price ~EUR2.2bn including 4 corporate issuers led by Schneider Electric’s short dated EUR750M 2yr deal, while the US saw just the 2 deals completed including a debt offering from Northern Star Resources with its USD600M 10yr at T+270 (IPT +300).
Commodities
Crude markets hit two-week highs as supply disruptions and rising equity markets lifted sentiment. The May WTI contract is up $1.39 at $74.36 while the May Brent contract is up 94c at $79.22. Turkey closed a pipeline from Northern Iraq to the port of Ceyhan last week and producers are either diverting flows into storage or shutting down fields. The legal fight has halted about 400kbpd though Kurdish officials are planning to return to Iraq early next week and Citi analysts warned that a political settlement could actually increase flows by about 200-300kbd. Rosneft signed an agreement to boost sales to India. In February, Russia exported an average of 1.7mb/d to India, more than 15% of total exports. And natural gas prices slipped further in response to forecasts of above normal temperatures in the Eastern US next week. The May Henry Hub contract fell 3.4% to $2.11. Peabody confirmed that a fire at its Shoal Creek met coal export mine in Alabama had shut operations there with no details of when the mine might restart. The mine supplied circa 1.9mt in 2019 and had been expected to supply 1.7mt this year.
Metals were mixed with copper unchanged at $9,001 while aluminium rose 0.5% to $2,392 though zinc fell 1.4% to $2,927 and nickel fell another 3.1% to $23,005. Chinese copper smelters cut fees due to overseas disruptions, with the floor price for treating ore at $90 and 9c for refining in Q2, down from $93 and 9.3c in Q1. Ford announced it would invest $4.5bn in a nickel processing facility in Indonesia in a joint venture with PT Vale Indonesia and China’s Zhejiang Huayou Cobalt. The high pressure acid leaching (HPAL) facility is expected to start up in 2026 and will help Ford hit its target of 2m EVs that year. And Mardeka Battery said it would invest $1.28b to build a nickel HPAL facility which will double capacity to 120kt per year. The LME announced it plans to launch a new spot nickel market in China as part of a broad overhaul which will see it expand the range of metal that can be delivered against the contract to include coarse nickel powder. Nickel has dropped 23% so far this quarter.
Finally note that iron ore continued its steady push higher with the May SGX contract up $1.50 to $124.80 while the 62% Mysteel index rose $2.45 to $127.80. China Minmetals noted that “steel mills are mainly purchasing on an as-needed basis, with only lukewarm interest in taking volumes” suggesting moves to restart and ramp up infrastructure in China has been slow.
Day ahead
At 11:30am Syd, growth in Australian private sector credit is set to remain at a subdued pace in February as rising interest rates continue to impact (Westpac f/c: 0.4%).
Japan: A bounce in industrial production in February will do little to unwind the broader down-trend from softening global demand (market f/c: 2.7%).
At 12:30pm Syd we see China’s official PMIs for March. The removal of COVID-zero should continue to support the manufacturing and non-manufacturing PMIs, with both expected to remain in solid territory (market f/c: 51.6 and 55.0 respectively). Yesterday Premier Li Qiang said that China’s March economic activity was stronger than in January-February.
Eurozone: The unwinding of prior energy price spikes should see annual headline inflation decelerate sharply in March (market f/c: 7.1%yr); however, a further modest lift in annual core inflation is anticipated (market f/c: 5.7%yr). Meanwhile, the unemployment rate should remain at a historic low (market f/c: 6.6%).
US: A flattening trend in personal income and personal spending growth is set to crystalise in February (market f/c: 0.2% and 0.3% respectively). This will be key to the slowing of PCE inflation over the course of 2023 (market f/c: 0.3%mth headline; 0.4%mth core). The Chicago PMI is meanwhile expected to remain in substantially weak territory (market f/c: 43.0). The FOMC’s Williams, Cook and Waller are due to speak at different events.
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