Markets Daily
Bond yields and the USD extended Friday’s rebound despite limited news flow. AUD outperformed, returning to 0.6700. Today’s calendar features RBA April minutes, China Q1 GDP, Germany April ZEW sentiment and UK February unemployment.
Yesterday
Regional equities were mostly quite upbeat despite the lukewarm lead from Wall Street, especially China and Hong Kong, both up well over 1%. The ASX 200 closed +0.3%. AUD/USD consolidated Friday’s decline, trading a tight range either side of 0.6700.
Currencies/Macro
The US dollar made broad-based gains. EUR/USD fell from 1.0990 to 1.0925, GBP/USD down 35 pips to 1.2375. USD/JPY rose 65 pips to 134.45, printing intra-day one-month highs. AUD/USD dipped to 0.6681 but then recovered to around 0.6700, flat over the day, A$ second only to the US$ in the G10. NZD/USD trimmed its losses to 20 pips, at 0.6180. AUD/NZD rose 30 pips to 1.0835, touching 1.0850 – a one-month high.
US homebuilder confidence (NAHB) matched expectations at 45 in April (prior 44) - still well below the long-term average in the mid-50s. The New York Fed’s Empire State manufacturing activity index rebounded sharply from the strangely weak -24.6 in March to +10.8 in April (est. -18.0), led by new orders. Work hours and prices received also rose, while employment and prices paid fell.
Richmond Fed president Barkin said he wants to see more evidence that inflation is trending back to the 2% target. He thinks the economy can function "just fine" with rates at these levels. One "never wants to declare victory" with respect to the Fed's response to the banking crisis, but he is more reassured currently. On the economy he noted it has moved from "red-hot to merely hot."
Interest rates
US bond yields rose and the curve flattened as markets continue to recalibrate Fed rate hike expectations. 2yr government bond yields rose 10bps to 4.19%, and 10yr government bond yields rose 9bps to 3.60%.
Australian bond yields took their trend from US price action, but outperformed their US counterparts. 3yr government bond yields (futures) rose 8bps to 3.04%, and 10yr government bond yields (futures) rose 9bps to 3.46%. The AU-US 10yr bond spread narrowed following AU outperformance, currently at -14bps.
Credit indices were largely unchanged, with CDX at 74 and main at 82, while cash continued to move tighter. In primary, Europe saw four issuers price EU7.0b, inclusive of corporate transactions from LVMH, Cargill (who issued on both sides of the Atlantic) and Eurogrid. In the US, four issuers priced transactions for USD7.85b in aggregate, led by transactions from Wells Fargo and Mars.
Commodities
Crude markets softened on a stronger US dollar and weakness in global diesel markets. The May WTI contract is down $1.54 at $80.98 while the June Brent contract is down $1.47 at $84.84. Industrial action in Nigeria saw Exxon Mobil declare force majeure on oil loadings from multiple terminals. Bloomberg reported that Russian oil exports climbed back above 3mbpd last week according to tanker tracking data. The US government warned that some oil tankers are manipulating their Automatic Identification Systems to conceal ship to ship transfers at sea. The Office of Foreign Asset Control urged companies to “improve detection of AIS manipulation” and warned that a “refusal by a counterparty to provide documentation showing Russian oil was purchased at or below the cap … should be considered a red flag for possible evasion of the price cap”. Meanwhile diesel prices kept on falling with the US and European contracts touching lows for the month. The May Henry Hub natural gas contract jumped 7.6% on colder weather across the eastern states in the US.
Metals gave back the previous sessions gains with copper and zinc down 0.8% at $8,955 and $2,835 though nickel jumped 2.3% to $24,690 and saw trade above $25,000. There was little fresh news though tin had its largest jump in 9 months, up 10% to $27,367 on an April 15 notice from a state army group in Myanmar halting mining operations in a key production area. Peru reported that copper exports fell 20% in the first two months of the year even as production climbed, leaving miners with mounting inventory at a time of tight global supplies.
Finally note that iron ore markets stabilised even as Port Hedland exports quickly resumed following last week’s Tropical Cyclone Ilsa. The May SGX contract is up $2.95 at $117.35 while the 62% Mysteel index is up 50c at $119.05. Brokers continued reporting weaker demand in the physical market with spot rebar prices falling to lows back to mid-December, down 5% so far this month.
Day ahead
At 11:30am Syd we see the minutes of the RBA’s April Board meeting. Since the meeting, we have heard plenty from RBA policymakers but there will still be close interest in the commentary about the decision e.g. whether pausing was linked to a preference to see Q1 CPI (due next week).
At 12pm Syd we see important China activity data, including the first readings since the Jan-Feb lunar new year distortions. A strong print for Q1 GDP is widely anticipated given the removal of COVID-zero restrictions late last year (median forecast: 2.0%qtr, 4.0%yr, versus 2.9%yr in Q4 22). March’s partials should show strength in retail sales (f/c 7.5%yr), industrial production (f/c 4.4%yr) and fixed asset investment (f/c 5.7%yr ytd) as momentum in the broader economy continues to pick up pace.
Eurozone/UK: Falling energy costs should help narrow the European trade deficit over the near-term. In Germany, the April ZEW survey of “experts from banks, insurance companies and financial departments of selected corporations” is expected to show an improvement in the expectations index to +16 from +13 in March, while the current situation index remains very weak, around -40 versus -46.5 in March.
The UK labour market is expected to remain very tight in the February update, the ILO unemployment rate holding near its recent lows (market f/c: 3.7%). Wages growth ex-bonuses is seen up 6.2%yr.
US: Both housing starts and building permits are expected to partially reverse their sizeable gains from February (market f/c: -3.5% and -6.5% respectively). Fed Governor Bowman is also due to speak.
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