Markets Daily
Fed comments supported US bond yields ahead of tonight’s key US inflation data. IMF growth forecasts had no impact. AUD/USD consolidated gains around 0.6650. Along with US CPI, we will see FOMC minutes, the Bank of Canada decision and hear from RBA’s Bullock.
Yesterday
The Westpac Melbourne Institute Consumer Sentiment Index increased by 9.4% in April from 78.4 in March to 85.8 in April. This strong recovery in the Index can be largely attributed to the decision by the Board of the Reserve Bank to break the sequence of ten consecutive meetings when the cash rate was increased by deciding to pause at the April meeting. In the NAB March survey, after a sharp decline of 10pts in February, the business confidence index posted only a partial rebound, up 3pts to –1, remaining in subdued territory. The business conditions index slipped further in March, down by another 1pt to +16. The index remains at a relatively high level compared to the historical average of +5, suggesting that Australia’s economy is still operating at a high level of capacity. Australia’s government announced that it would suspend its WTO case against China for the latter’s 80% tariffs on Australian barley due to an agreement that China would review the tariffs over the next 3 months. Trade Minister Farrell said he hoped for similar progress on Australian wine exports to China. This helped the A$ outperform other majors on the day, AUD/USD up 0.5% or 35 pips to 0.6675. The ASX 200 rallied 1.3% on its reopening after Easter, one of the stronger regional performances.
Currencies/Macro
The US dollar was mixed against major currencies on the day. EUR/USD rose 55 pips to 1.0915, GBP/USD up half a cent to 1.2430. USD/JPY reversed an earlier decline, returning to 133.70. AUD/USD extended its local session rally to 0.6680, then eased back to 0.6650. The Kiwi underperformed, NZD/USD -0.4% on the day to 0.6190. AUD/NZD rose 60 pips to 1.0745, comfortably above the pre-RBNZ levels of a week ago.
Ahead of this week’s spring meetings in Washington, DC, the IMF trimmed its global growth forecast for 2023 to 2.8% from 2.9% in January.
US small business optimism (NFIB) was slightly stronger than expected at 90.1 in March (est. 89.8, prior 90.9).
Eurozone April Sentix investor confidence was not as weak as expected at -8.7 (est. -10.1, prior -11.1).
Interest rates
US bond yields rose slightly, as markets continue to debate Fed dovishness and risks ahead of US CPI. 2yr government bond yields rose 1bp to 4.02%, and 10yr government bond yields rose 1bp to 3.43%.
Australian bond yields rose, following a strong print of consumer sentiment on Tuesday. 3yr government bond yields (futures) rose 2bps to 2.86%, and 10yr government bond yields (futures) rose 2bps to 3.24%. The AU-US 10yr bond spread widened following AU underperformance, currently at -19bps.
Credit indices were firmer to outperform equity with Main in 3.5bp to 84.5 and CDX 1.5bp tighter to 76.5, however cash spreads were more subdued to be little changed, and primary volumes remain sluggish as we head into US CPI this evening. Europe saw a single covered deal (CCDJ 5yr) while MUFG was the sole IG issuer in the US, competing a USD2.5bn 4 part deal across 3nc2yr (SOFR+144, BBSW+142), 6nc5yr (T+170, BSW+196) and 11nc10yr (T+197, BBSW+238).
Commodities
Positive risk sentiment helped crude markets to reasonable gains with the May WTI contract up $1.74 at $81.48 while the June Brent contract rose $1.40 to $85.58. That’s despite the EIA Short Term Energy Outlook forecasting that US supply will outstrip demand by around 530kbpd in 2024 and API reporting a 400kb rise in crude and 500kb rise in gasoline inventory. OPEC and the IEA will issue their Monthly and Oil Market Report later this week. The Dec 23/ Dec 24 Brent spread hit a closing high back to November last year while the May RBOB gasoline contract closed at a high back to June last year. Various reports suggested that French refinery operations were beginning to restart with TotalEnergies confirming strikes had ended and shipments from the Gonfreville refinery in Normandy had resumed while berthing agents reported tankers had arrived at the Fos terminal.
Metals were mixed with copper up 1% at $8,891 while aluminium fell 1.3% to $2,303. Nickel rose 3% to $23,495 while tin fell 2.3% to $23,733. That’s a fresh 5 month closing low for zinc with smelters resuming production weighing on sentiment. Peru reported that copper production fell 3.2%mm and 12%yy. Chile announced some further concessions to its copper royalty bill including capping the sum of all taxes at 50% of operating profits as the bill heads to a full senate vote.
Iron ore markets rose as Australia’s BOM forecast Tropical Cyclone Ilsa will hit land between Port Hedland and Broome late Thursday or early Friday. The cyclone is set to be the strongest to make landfall since December 2013. The May SGX contract is up $2 to $118.75 while the 62% Mysteel index is up $2.75 to $121.75. BHP and FMG reported that vessels will start to be cleared from Port Hedland from today.
Day ahead
RBA Deputy Governor Bullock will participate in a panel at an economic conference in Melbourne from 2:45pm AEST. The topic is ‘Monetary policy since the pandemic: What lessons have we learned?’
Japan: The recent burst in machinery orders is expected to partially unwind in February (market f/c: -6.5%).
US: A slightly softer gain in the CPI is anticipated in March; risks are to the downside given evidence of an imminent turn in shelter inflation and a trend deceleration in discretionary services. Consensus is 5.1%yr versus 6.0%yr in February, but a stubborn 5.6%yr on ex-food and energy, versus 5.5%yr in February.
The FOMC’s March Meeting minutes will provide crucial insight on the near-term path for policy. Fr more up to date commentary, we will hear from regional Fed presidents Kashkari, Barkin and Daly.
The Bank of Canada is fully expected to keep policy on hold as risks to the outlook are assessed (market f/c: 4.50%). They are expected to leave the door open to further tightening.
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