Markets Daily
US yields tumbled in apparent response to a slide in US job vacancies. This weighed on the US dollar though the Aussie remained soft after the RBA decision, steadying around 0.6750. Today’s calendar features a speech by RBA Governor Lowe, the RBNZ policy decision and US March services ISM survey.
Yesterday
The RBA left the cash rate unchanged at 3.60% at its April meeting. There was a subtle change in the guidance. In March the RBA said that “further tightening of monetary policy will be needed”. In April, this was changed to “further tightening of monetary policy may well be needed”. This is a softer guideline than we saw in March but still qualifies as a clear tightening bias. AUD/USD dropped from 0.6785 to around 0.6760, then chopped around for the rest of the afternoon. Regional equities mostly saw modest net change in both directions, the ASX 200 closing up 0.2%.
Currencies/Macro
The US dollar index was weaker against most G10 currencies on the day, the Aussie a notable exception. EUR/USD rose 0.5% to 1.0955. GBP/USD rallied 0.7% or 85 pips to 1.2500. USD/JPY followed US yields lower, steadying down 75 pips or -0.6% at 131.70. AUD/USD fell as far as 0.6721 in the wake of the RBA on-hold decision, later trimming its decline to 0.6750, net -0.5%. NZD/USD rose 0.2% to 0.6310 ahead of the RBNZ decision today. AUD/NZD fell 75 pips over the day, to 1.0700. The twice-monthly GDT dairy auction resulted in an overall price fall of -4.7%, with whole milk powder down -5.2%.
US factory orders in February fell -0.7% (est. -0.5%, prior -2.1%), the ex-transport measure also disappointing at -0.3% (est. 0.0%, prior +0.8%). Durable goods orders (ex-transportation) were finalised at -0.1% (est. 0.0%). Job openings (JOLTS) in February were a lot weaker than expected at 9931k (est. 10500k, prior 10563k). This is the lowest reading since May 2021.
Interest rates
US bond yields fell and the curve steepened, following weaker than expected data, increasing the possibility that the Fed may pull back on rate hikes. 2yr government bond yields fell 14bps to 3.83%, and 10yr government bond yields fell 7bps to 3.34%.
The RBA held the cash target of 3.60% at yesterday’s policy meeting, with commentary from the statement suggesting “further tightening of monetary policy may well be needed”. Markets rallied on the back of the perceived dovish statement. 3yr government bond yields fell 3bps to 2.83%, and 10yr government bond yields fell 3bps to 3.23%. The AU-US 10yr bond spread widened, currently at -11bps.
Credit indices followed the broader market with Main giving up early gains post the JOLTs data to close 1.5 wider (87) with CDX out 2bp to 78.5. Cash spreads were similar with weakness in US cash led by growth sectors as large cap banks held firm and primary activity continued in a shortened week. Europe saw 6 IG issuers (ex-SSA of which there were a few) price EUR5.5bn with 5 issuers in the fins space. While we saw another 3 covered deals, we also got our first non-covered EUR bank deal post SVB with BNP pricing its EUR1bn SNP green deal at MS+137, 23bp inside IPT (BBSW+197) on books of ~EUR1.9bn with final pricing offering a NIC of ~12bp. AXA was also in the market with a 20.25nc10.25bn Tier 2 offering. The US saw 5 issuers price USD3bn which included CNH pricing a USD600M 5yr deal at T+140, while fins issuance remains limited to FA backed deals including MassMutual and Jackson National last night.
Commodities
Crude oil markets eked out further gains helped by API inventory data though softer US jobs data crimped gains. The May WTI contract is up 29c at $80.71 while the June Brent contract is up 32c at $85.25. The API reported US crude stocks fell 4.3mb, gasoline fell 4mb and distillate fell 3.7mb but the drop in US job openings to the lowest level since 2021 added to concerns about a slowing US economy. Bloomberg reported that France released more crude oil and product from its inventory as strikes drag on. More than 3mb has been released since early March, while total releases of crude plus product sit at more than 12.5mb. TotalEnergies confirmed that the Normandy, Donges and Gonfreville refineries remain offline while the Feyzin refinery is operating. Total said about 24% of French refinery workers had joined the strike. The head of foreign media relations for the Kurdistan Region tweeted that “oil exportation through Ceyhan will resume today” after an agreement was reached over the weekend. Turkey closed the pipeline on March 25 impacting exports of circa 400kbpd.
Metals slumped with copper down a hefty 1.8% to $8,756 and zinc down 1.9% to $2,844. Weak US data weighed on sentiment even as Chilean copper production underwhelmed. Codelco reported its output sank 15% in February from a year ago as the prolonged drought and ageing deposits impacted. Gold jumped above $2,000 to hit the highest since March 2022, helped by the weaker US$ and falling US yields.
Finally note that iron ore markets slipped back down through $120 as the NDRC issued a statement warning that it will “increase supervision and resolutely maintain the normal order of the market”. The May SGX contract is down $2 at $118.25 while the 62% Mysteel index is down $1.45 at $121.00. Huatai Futures reported that “steel sales remain slow, with prices trending down” and demand has been “weaker than expected”.
Day ahead
RBA Governor Lowe will deliver a speech on “Monetary Policy, Demand and Supply” to The National Press Club in Sydney at 12:30pm AEST.
At 12pm Syd, Westpac expects the RBNZ to lift the Official Cash Rate by 25 basis points to 5.00%. This is also the consensus forecast, while market pricing is slightly above +25bp. Monetary policy has now moved into what the RBNZ considers to be ‘contractionary’ territory. But given the scale of the challenge, it will still be a long and uncomfortable wait until we see inflation back in the target range. And the anticipated slowing of the economy in response to higher interest rates lies largely in the realm of the forecasts; the actual data has stayed fairly robust so far. For these reasons, the RBNZ is likely to continue to emphasise the potential for further rate hikes. The extent to which they actually deliver on that will depend on how the economy plays out in the coming months.
Markets are closed in mainland China, Hong Kong and Taiwan for Tomb Sweeping/ Ching Ming festival.
Japan: The final estimate to March’s Nikkei services PMI is due.
Eurozone/UK: The final estimate to March’s S&P Global services PMI is due for both Europe (market f/c: 55.6) and the UK (market f/c: 52.8).
US: The ISM services PMI is expected to soften a touch but remain at a strong level in March, forecast to ease to 54.4 from 55.1. We also see the final March reading for the S&P Global services PMI (flash estimate 53.8). A slight widening of the US trade deficit is also anticipated in February (market f/c: -$68.8bn).
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