Markets Daily
Equity markets remained risk-averse as banking sector concerns persisted, though tech stocks rebounded. AUD underperformed major currencies, slipping under 0.6600. Today’s calendar highlight is US Q1 GDP.
Yesterday
Australia’s Q1 CPI came in as broadly as expected, rising 1.4%qtr (true it was above market expectation of 1.3% but it was on Westpac’s 1.4%) taking the annual pace down to 7.0%. The Trimmed mean surprised, rising just 1.2%qtr for an annual pace of 6.6%. Our end 2023 target for the trimmed mean is 3.7%yr. The ABS noted that while prices continued to rise for most goods and services, many of these increases were smaller than they have been in recent quarters. AUD was 0.6630 pre-data, slipped to 0.6612 then back to 0.6625 before resuming a steady mild down trend, to 0.6605, printing fresh lows since 15 March. Regional equities were quite mixed, the ASX 200 somewhere in the middle, -0.1%.
Currencies/Macro
The US dollar was mixed against the G10 on the day. Outperformer EUR rose 70 pips or 0.6% to 1.1040, with a high of 1.1095. GBP/USD rose a net 0.5% to 1.2465. USD/JPY dipped to 133.02 in early NY trade but later returned to 133.65. Underperformer AUD extended its decline to 0.6591 – a low since 15 March – then steadied around 0.6600, net -0.4%. NZD fell from 0.6140 to 0.6112 – a one-month low. AUD/NZD returned to 1.0795, net little changed.
Meta shares jumped 12% in after hours trade in response to its earnings report.
US durable goods orders in March rose 3.2%m/m (est.+0.7%m/m, prior +1.2%m/m). However, the core non-defence and ex air component fell 0.4%m/m (est. -0.1%m/m, prior -0.7%m/m revised from -0.1%m/m). Wholesale inventories were as expected at +0.1%m/m.
German GfK consumer confidence remains rose to -25.7 in the ‘May’ report (est. -28.0, prior -29.3). UK CBI retail sales index for April rose to +11 (prior +1), retailing rising to +4 (prior +1) and orders rising to +1 (prior -2 in Feb. and -32 in Jan.).
Interest rates
US bond yields rose slightly as markets recalibrated expectations as First Republic Bank renewed some banking sector concerns. 2yr government bond yields finished unchanged on the day at 3.95%, and 10yr government bond yields rose 4bps to 3.70%.
Australian bonds rallied considerably following a downside miss on the trimmed mean Q1 CPI figures. 3yr government bond yields (futures) rose 3bps in the overnight session, to 2.95%, and 10yr government bond yields (futures) rose 3bps, to 3.34%. The AU-US 10yr bond spread narrowed slightly on the back of AU outperformance versus the US during the day session, currently at -5bps.
Credit indices were wider in line with broader sentiment with Main and CDX each a bp wider at 86 and 79 respectively. Cash spreads were more contained, while primary activity continued in Europe and returned in the US. Europe saw 9 issuers (ex-SSA) price EUR6.2bn including Telstra’s new EUR500M WNG 8yr which priced at MS+73 (BBSW+137) from IPT of +105, providing very little NIC supported by the WNG tag and books of EUR2.6bn. The US saw 3 IG issuers price USD6.15bn including a USD2.5bn 2 tranche deal from AMEX.
Commodities
Despite a 5.1mb drop in EIA crude inventory, crude markets fell below pre-OPEC+ surprise cut levels as concerns about a US recession and weak global growth weighed on sentiment. The June WTI contract is last down $2.72 at $74.35 while the June Brent contract is down $3.04 at $77.73. The 5.054mb drop in crude inventory beat the consensus forecast 1.5mb draw by a significant margin while gasoline inventory also fell by a larger than expected 2.4mb. However, the distillate draw was smaller than expected at just 577kb. Cushing inventory rose by 319kb, the first rise since February, while the SPR fell by another 1mb. Exports rose 5.4% to 4.819, approaching recent records above 5mbpd. Brent’s front time spread flipped into contango for the first time since late Jan (ignoring contract expiration dates) pointing to a lack of demand for physical crude. A study by the KSE Institute found that almost all the oil from the Russian Pacific port of Kozmino sold for well above the G7 $60 cap even though “a substantial share of voyages from Kozmino involved Western-owned and/or insured vessels”.
Meanwhile diesel prices continued their plunge with the May NY ULSD contract down 3.2% to a fresh 15 month low at $237.30. Bloomberg calculated that Russian exports of clean petroleum products, more than half of which are diesel type fuels, were running at their highest for this time of year since at least 2016.
Metals showed some signs of stabilising with copper unchanged at $8,529 though nickel rose 1.1% to $23,610 while zinc jumped 1.9% to $2,648. Copper inventory at the LME has risen in recent weeks and the on warrant stocks have been rising steadily since early April indicating physical metal is becoming more available. There was little fresh industry news though Frist Quadrant suggested it was looking for more joint ventures to develop copper projects after agreeing in March to buy a majority stake in a Peruvian project from Rio.
Iron ore markets showed some signs of stabilising after the previous day’s carnage. The May SGX contract is up $4.70 from the same time yesterday to $105.05 after trading briefly below $100. The 62% Mysteel index rose $3.45. CISA warnings Monday “that there has been a sustained and rapid decline in steel prices in the domestic market posing severe challenges to the production and operation of steel enterprises” was arguably the catalyst for the sharp drop in iron ore though the sharp rise in steel inventory for mid-April when inventory is normally falling added to the slump in prices.
Day ahead
Australia: A decline in export prices is anticipated in Q1 given the continued easing in global commodity prices (Westpac f/c: -2.6%); increases in import prices should also continue to moderate (Westpac f/c: 0.6%).
NZ: ANZ business confidence will likely remain in subdued territory in April.
China: After a tough start to the year, industrial profit growth will take time to build.
Eurozone: The up-trend in consumer confidence is being limited by inflation and interest rates, impacting broader economic confidence (market f/c: 99.9).
US: A solid rise in GDP is anticipated in Q1, but this momentum will likely be short-lived (Westpac f/c 2.2% annualised, market 2.0%). A modest gain in pending home sales is anticipated March (market f/c: 0.7%) and the Kansas City Fed index is expected to remain in weak territory (market f/c: -2). Initial jobless claims should meanwhile remain low versus history (market f/c: 248k).
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