Markets Daily
US equities jumped on strong tech sector earnings. US Q1 GDP growth was soft but the inflation component rose, the latter causing bond yields to rise. AUD rose slightly to 0.6625. Today’s calendar includes the Bank of Japan meeting, Eurozone Q1 GDP and US Q1 employment cost index.
Yesterday
Australia’s data calendar was empty though there was some interest in inbound M&A news. AUD/USD traded quietly around 0.6600/10 for some time, avoiding fresh lows since mid-March, then kicked up above 0.6635 in late trade. Asian equities seemed to take heart from the outperformance of US tech companies, most higher on the day, outperforming the ASX 200 which closed -0.3%.
Currencies/Macro
The US dollar was very mixed against G10 FX on the day, commodity currencies leading gains, havens lagging. EUR/USD fell to 1.0992 then trimmed losses to just -0.1% at 1.1025. GBP/USD was choppy but eventually 30 pips higher at 1.2495. USD/JPY bounced from a low of 133.24 to 133.90, up a net 25 pips as US Treasury yields bounced on the firmer inflation component of GDP. AUD/USD rose 25 pips to 0.6625. NZD/USD rose 30 pips to 0.6145. AUD/NZD recovered to 1.0785 after a dip to 1.0752.
US Q1 GDP rose 1.1% annualised (est. +1.9%, prior 2.6%), the disappointment led by weak private/business investment and inventories. In contrast, the core PCE deflator for Q1 rose to 4.9% (est. 4.7%, prior 4.4%). Weekly initial jobless claims were 230k (est. 248k, prior 246k), with continuing claims at 1.858m (est. 1.870m, prior 1.861m).
Interest rates
US 2yr treasury yields rose from 3.95% to 4.07%, while the 10yr yield rose from 3.44% to 3.52%. Markets currently price the Fed funds rate to be 23bp higher at the next meeting on 4 May, with the peak of 5.13% priced for June, but then around 60bp of cuts by year end.
Australian 3yr government bond yields (futures) rose from 2.97% to 3.09%, while the 10yr yield rose from 3.35% to 3.45%. Markets currently price the RBA cash rate to be 3bp higher at the next meeting on 2 May, with a peak of 3.73% priced for August.
New Zealand markets were yesterday pricing the RBNZ OCR to be 20bp higher at the next meeting on 24 May and to peak at 5.50% in July 2023.
Credit indices followed the move in equity to end their move wider in recent days with Main 2bp tighter at 84 and CDX in 3bp to 76 with US cash spreads also a touch firmer. Primary activity included a post earnings deal from SHBASS which completed a EUR1.25bn 3yr Sen Pref transaction at MS+53 (BBSW+105) and Philip Morris with a USD2.45bn, 4 part transaction that tapped 3-10yr lines.
Commodities
Crude markets stabilised after two days of heavy losses helped by improved equity sentiment and the previous day’s better-than-expected EIA inventory data. The June WTI contract is up 55c at $74.85 while the June Brent contract is up 60c at $78.29. The war of words between the IEA and OPEC kicked up a gear. The IEA executive director Fatih Birol warned that “the global economy is in a very fragile stage” and “to see higher oil prices and upward pressure on inflation - that is the last thing we want”. OPEC Secretary General Haitham Al-Ghais countered “if anything will lead to future volatility, it is the IEA’s repeated calls to stop investing”. Iran seized a US bound oil tanker in international waters. Repsol’s CEO warned that Russian diesel is still arriving in Europe despite an EU ban. The May Rotterdam gasoil contract hit fresh 14-month lows. In gas markets, Germany plans to at least double its import capacities of LNG on the Baltic Island of Rugen in order to mitigate risks that a key pipeline from Norway is sabotaged. Finally note that Dalian coke prices plunged to fresh 2yr lows as the Chinese steel industry showed signs of destocking.
Metals stabilised with copper up 0.5% to $8,593 while nickel jumped 2.1% to $24,145. Both aluminium and zinc were unchanged at $2,326 and $2,647. MMG said that the copper concentrate stocks held at its Las Bambas mine in Peru had risen to 115kmt up from 85kmt due to road blockades and protests. The inventory represents more than a third of the mine’s annual capacity. Glencore agreed to buy stakes in Norsk Hydro and Vale bauxite and alumina assets in Brazil. And South32 said that automakers are paying $15/t more for green aluminium.
Iron ore markets showed signs of stabilising above $100, helped by comments from Vale noting “really tight” supply-demand for iron ore. The May SGX contract is up 10c at $105.15 though the 62% Mysteel index is down $1.20 at $106.70. Vale did post lower than expected quarterly earnings on the back of disappointing sales volume and lower quality though the CEO remained “confident in [their] ability to achieve 2023 goals”.
Day ahead
Bank of Japan Governor Ueda presides over his first meeting in the role. The policy decision and quarterly report including forecasts are due any time from 12:30pm Syd. Comments from Ueda as recently as this week firmly suggest no major policy change today. Local media indicate the FY25 inflation forecast will be below the 2% target, fitting longstanding BoJ commentary that current above-target inflation is mostly cost-push and will dissipate. Still, there will be plenty of tension in markets ahead of the meeting given the shock decision in December to widen the target yield range on the 10-year JGB to -0.50% to +0.50%.
Australia: Growth in private sector credit is set to remain at a subdued pace given ongoing interest rate pressures (Westpac f/c: 0.3%). The producer prices index should reflect the ongoing easing in goods prices and energy costs over Q1 (11:30am Syd).
NZ: The employment indicator should see strength in March as immigration flows continue to pick-up (Westpac f/c: 0.6%).
Eurozone: After an unexpectedly resilient year, GDP growth will likely remain weak in Q1 as broader economic headwinds continue to materialise (Westpac f/c: 0.1%qtr).
US: The Employment Cost Index is set to print a robust result in Q1, though wage pressures look to be easing on an annual basis (market f/c: 1.1%). A flattening trend in personal income and personal spending growth is expected to crystalise in March (market f/c: 0.2% and -0.1% respectively). This will be key to the slowing of PCE inflation over the course of this year (market f/c: 0.1%). The Chicago PMI will also likely remain in very weak territory in April (market f/c: 43.6).
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