Markets Daily
Risk sentiment weakened further as debt ceiling talks dragged on, Fedspeak was hawkish and high UK inflation data rattled European markets. AUD slipped as far as 0.6530, a low since November 2022. Today’s data calendar is low key, leaving the focus on US politics.
Yesterday
The RBNZ increased its cash rate by 25bp to 5.5%, matching economists’ forecasts while market pricing was split, around 38bp. The big surprise was in the forward profile, in which the RBNZ strongly suggests that it is on hold from here until at least mid-2024. For the first time the MPC held a vote on the decision, debating between no change and a 25bp hike. Two members voted for no change and the others for the 25bp increase. The 2yr swap rate tumbled from 5.55% to 5.21%, the end-2023 cash rate pricing crashed -38bp to 5.46%. AUD/NZD had been printing lows since December in anticipation of a hawkish statement but today jumped from 1.0570 to 1.0710. AUD/USD however struggled, rolling over from 0.6610 pre-RBNZ to 0.6575 by late Sydney. Regional equities didn’t help the Aussie’s cause, most down sharply in the wake of Wall Street’s decline, including the ASX 200, -0.6%.
Currencies/Macro
The US dollar rose against all G10 currencies on the day, especially Kiwi, Aussie and CAD. EUR/USD was volatile, eventually slightly lower at 1.0750. GBP/USD spiked to 1.2470 after the CPI data but later rolled over to 1.2370, net -0.4%. USD/JPY rose from 138.60 to 139.39 (a six-month high), though it then slipped as ratings agency Fitch placed the United States’ AAA rating on negative watch.
AUD/USD extended Sydney session losses to 0.6530 (a seven-month low), steadying at 0.6545. NZD/USD was 0.6255 pre-RBNZ, extending its initial reaction to the RBNZ’s dovish surprise to 0.6110, for a total decline of 1.4 cents or -2.2%. AUD/NZD also extended higher, to 1.0730.
The FOMC May minutes revealed the various uncertainties over the economic outlook that are making policy decisions difficult, especially for the upcoming 14 June meeting. "Several participants" doubted tighter credit conditions would put much downward pressure on prices. and "many participants focused on the need to retain optionality." Inflation remained "unacceptably high" and the labour market remained tight. Downside risks included the cumulative impact of tightening, further strains in the banking sector, and the debt ceiling.
Fed governor Waller (hawk) said he "does not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2% objective”.
UK inflation data for April was stronger than expected. CPI rose 1.2%m/m (est. +0.7%m/m) and 8.7%y/y (est. 8.2%y/y, prior 10.1%y/y), with core CPI rising 6.8%y/y (est. unchanged at 6.2%y/y). BoE Governor Bailey welcomed the pullback in headline inflation from double digits, but said that it is taking longer to decline than they had expected.
Germany’s May IFO business survey disappointed, with the headline Business Climate index falling to 91.7 (est. 93.0, prior 93.4), Expectation at 88.6 (est. 91.6, prior 91.7).
Interest rates
UK CPI showed that inflation is slowing down less than expected, which sparked a selloff across the term structure. 2yr gilt yields rose 24bps to 4.37%, and 10yr government bond yields rose 6bps to 4.21%.
US bond yields shifted higher and the curve was flatter following the selloff in gilts. 2yr bond yields rose 6bps to 4.38%, and 10yr government bond yields rose 5bps to 3.74%. Markets are pricing in a 35% chance of a 25bp hike at the June FOMC meeting.
Australian bond yields took its trend from price action in gilts, but outperformed their gilts and US counterparts. 3yr government bond yields (futures) rose 4bps to 3.37%, and 10yr government bond yields (futures) rose 2bps to 3.66%. The AU-US 10yr bond spread widened, currently at -8bps.
Credit was mixed with indices reflecting weaker sentiment as Main closed 3bp wider at 84.5 and CDX was out another bp to 79.5, however cash spreads have remained more resilient as primary deal flow (particularly in the US) slows. In the primary space we saw 9 issuers price ~EUR6.85bn in Europe led by Vodafone’s dual currency hybrid offering which included EUR750M of nc6.25yr (6.625%) and GBP500M of NC8.25yr notes (8.125%). Vodafone also tendered for EUR and USD hybrids with the net outcome designed to extend tenor and reduce total hybrids outstanding. In the US, JPM returned to the market for the first time in 2023, completing a USD2.5bn 11nc10yr at T+162.5 (BBSW+197).
Commodities
Crude rose for a third day following the warning from the Saudi energy minister plus upbeat EIA inventory data. The July WTI contract is up $1.43 while the July Brent contract is up $1.51 to $78.35. The EIA reported a massive 12.45mb draw in crude inventory plus a 2mb draw in gasoline inventory. Exports rose 239kbpd to 4.5mbpd. The US Gulf Coast saw the largest drop on record, by a massive 11.4mb, with no obvious catalyst for the plunge. If we combine the 12.45mb draw with the 1.6mb draw from the SPR, the combined 14.1mb draw is the most taken out of private plus public inventory since September 2016. Implied gasoline and distillate demand also rose, with distillate up a hefty 12% likely due to Memorial Day pre-stocking. However, the general risk off tone capped gains and long-time bull Jeffrey Currie at Goldman noted that “we were wrong on price expectations”. Meanwhile Citi warned that there were “multiple signs” that demand in China was “unlikely to reach anyone’s estimates”. Meanwhile the number of fires burning in Canada’s Alberta province declined to 71 from 93 on Friday helped by cooler temperatures and rain allowing some production and exports to restart.
Metals were slammed again with copper plunging below $8,000 for the first time since November last year. Copper is last down 2.6% to $7,891 while zinc fell by a further 3.3% to $2,295. Copper is down 8.6% so far this month while zinc is down 13%. Concerns about a stronger US$, potential debt default, weakening China data and the general risk off tone have all played a role in the lurch lower in prices. However, traders are watching for signs that copper that has been hoarded at the CMOC Group’s Tenke mine in the DRC due to a royalty dispute is hitting the market. The copper hoard could amount to 200kt with circa 50kt a month being shipped through the end of 2023 according to sources. First Quantum also reached an agreement with Panama over taxes at the Cobre Panama mine (about 1.5% of global copper production) back in March allowing it to resume operations. And Antofagasta supervisors at the Centinela copper mine in Chile accepted the company’s latest wage offer, averting strike action. LME copper inventory has risen by circa 50% so far this month while the discount for spot versus the 3-month contract hit the lowest level seen on record back to 1994.
Iron ore markets plunged back below $100 on the lull in Chinese steel demand. The June SGX contract is down $2.75 to $96.25 while the 62% Mysteel index fell $4.8 to $97.30. We noted yesterday that steel production at major mills on a rolling month basis to mid-May is now down 1% versus the average over the last 3 years having been as much as 9.4% above the average at the end of March according to CISA data. China Baowu Steel told investors that it had seen a “slower-than-expected” demand recovery leading to steel price cuts.
Day ahead
Australia’s data calendar is empty again, ahead of April retail sales tomorrow. There is also little of note in China or Europe.
The second estimate of US Q1 GDP is expected to reveal no change from the initial estimate (market f/c: 1.1% annualised). The Chicago Fed activity index and Kansas City Fed index will likely continue to reflect weakness in economic conditions (market f/c: -12 and -0.20 respectively).
US weekly initial jobless claims should remain broadly unchanged (market f/c: 245k). While a modest increase in pending home sales is anticipated in April, a sustained recovery looks hard going (market f/c: 1.0%). Regional Fed presidents Barkin and Collins are also due to speak.
Stay informed with Westpac IQ
Get the latest reports straight to your inbox.
Related articles
Aussie bulls press the advantage
Browse topics
Disclaimer
©2025 Westpac Banking Corporation ABN 33 007 457 141 (including where acting under any of its Westpac, St George, Bank of Melbourne or BankSA brands, collectively, “Westpac”). References to the “Westpac Group” are to Westpac and its subsidiaries and includes the directors, employees and representatives of Westpac and its subsidiaries.
Things you should know
We respect your privacy: You can view our privacy statement at Westpac.com.au. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
Disclaimer
This information has been prepared by the Westpac and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that (a) no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material; (b) this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate; (c) to the best of the author’s knowledge, they are not in receipt of inside information and this material does not contain inside information; and (d) no other part of the Westpac Group has made any attempt to influence this material.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz .
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). In accordance with APRA's Prudential Standard 222 'Association with Related Entities', Westpac does not stand behind WCM other than as provided for in certain legal agreements between Westpac and WCM andobligations of WCM do not represent liabilities of Westpac. This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK and EU: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
Westpac Europe GmbH (“WEG”) is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.