Markets Daily
US bond yields rose further in the wake of Friday’s solid payrolls report and expectations the Fed will hike in May. The USD was mostly firmer, AUD/USD slipping to 0.6640. Today’s data includes Australia April Westpac consumer sentiment and March NAB business confidence and China March CPI and PPI.
Yesterday
Asian equities were quite mixed to start the week, Japan’s Topix up 0.6% and Korea’s Kospi +0.9% but China’s CSI 300 closing -0.5%. Australia’s public holiday obviously limited AUD/USD trade, the pair chopping around mostly 0.6660-70. New Bank of Japan Governor Ueda said current monetary policy settings were appropriate for the economy.
Currencies/Macro
The US dollar was stronger against most major currencies on the day. EUR/USD fell 40 pips to 1.0865, with a low of 1.0831. GBP/USD trimmed losses to -0.3%, at 1.2385. USD/JPY followed US Treasury yields higher, eventually steadying up about 1% or 135 pips at 133.55. AUD/USD fell from 0.6670 to 0.6620, then steadied around 0.6640. NZD/USD fell 25 pips to 0.6225. AUD/NZD probed higher for a while, then returned to 1.0670.
Major European markets were closed for Easter Monday. US wholesale inventories in February rose 0.1% (est. 0.2%, prior 0.2%). Wholesale sales rose 0.4% (est. 0.6%, prior 0.4% revised from 1.0%).
Interest rates
US 2yr treasury yields rose from 3.82% to 3.98% in the shortened session Friday, responding to the strong US jobs data (payrolls +236k, unemployment down to 3.5%), opened Tokyo Monday a little lower at 3.94 but then rose to just over 4.00% in Monday US trade. The 10yr Treasury yield followed a similar pattern, rising from 3.30% pre-payrolls to 3.42%. Markets currently price the Fed funds rate to be 18bp higher at the next meeting on 4 May, with the peak of 5.01% priced for that meeting.
Australian 3-year government bond yields jumped 10bp at today’s open. Money markets price a small chance of another RBA rate hike in May.
Credit markets were fairly subdued with Europe out. CDX closed half a bp wider at 78.5 while cash spreads were a touch firmer last night despite the weakness seen on the equity open. Primary activity was relatively subdued, however we did see 4 issuers price USD1.95bn despite a significant portion of the investor base being on holiday. Take-Two (GTA publisher) was the largest deal of the day, pricing a USD1bn WNG transaction across 3/5yr, however final pricing failed to gain traction, printing flat to IPT. With US CPI up on Wednesday and bank reporting on Friday, it is going to be a disrupted week.
Commodities
Crude prices probed the lower end of the post OPEC output cut range with the stronger US$ over holiday thinned Easter trading weighing on prices. The May WTI contract is down 96c at $79.74 while the June Brent contract is down 82c at $84.30. This week will bring the OPEC monthly plus the IEA Oil Market Report and the EIA Short Term Energy Outlook, giving us a great deal of information around official supply and demand forecasts. Turkey wants to negotiate payments that it owes Iraq before a pipeline carrying circa 400kbpd is reopened. Markets had expected the pipeline to reopen over the weekend. The Syrian Democratic Forces drone strike aimed at the Iraqi military commander on Friday added to tension in the region. Meanwhile Russia confirmed it reduced oil output by about 700kbpd last month. Citi forecast that crude would fall below $80 despite OPEC’s production cuts as recession hits Western demand and recovery in China is slower than expected.
Metals fell over the holiday weekend with copper last at $8,861, down 2.1% so far this month while aluminium prices are down 3.3% at $2,333. Nickel prices are down 4.3% so far this month to $22,800 while zinc is down 4.9% to a fresh 5 month closing low at $2,779. There was little fresh news though the prospect of another Fed rate hike in May, a possible US recession, slower China recovery and a stronger US$ are all hurting sentiment.
Iron ore markets showed some signs of stabilising just below $120 as the market began to focus on stronger steel activity data for March in March. Wires reported that CISA stockpiles at major steel mills fell 9% compared to the middle of the month. We noted last week that steel production for the third 10 days of March at large Chinese mills was up 4.7%yy and up 9.4% versus the average over the last 3 years. The May SGX contract is down 15c from the same time Thursday while the 62% Mysteel index is 60c at $119.00 over the same period. Recent moves by the NDRC to warn futures companies to “operate in accordance with the law” and “comprehensively, accurately and objectively analyse the iron ore market when issuing research reports” and “not deliberately exaggerate price increases” saw prices slump below $120 last week.
Day ahead
At 10:30am Syd we see the Westpac-Melbourne Institute Australia consumer sentiment survey for April. This could show some relief from the RBA’s decision to leave the cash rate unchanged at its April meeting.
At 11:30am Syd, the March NAB Australia business survey will provide an update on how conditions and confidence are evolving for businesses. In February, the confidence index slipped to -4 but the conditions index remained upbeat at +17.
China: Inflation across both the CPI and PPI is set to remain in subdued territory in March (market f/c: 1.0%yr and -2.5%yr respectively, due 11:30am Syd). Growth in M2 money supply and new loans should remain robust in March upon continued support from authorities (market f/c: 12.7%yr and CNY3300bn respectively, due any day through 15 April).
Eurozone: While Sentix investor sentiment is expected to improve again in April (market f/c: -10.1), cost-of-living pressures will continue to limit growth in retail sales (market f/c: -0.8%).
US: Slowing demand may begin to emerge as a headwind to NFIB small business optimism in March (market f/c: 89.5). Chicago Fed president Goolsbee and Philadelphia Fed president Harker are due to speak at different events.
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