Markets Daily
Bond yields and the US dollar rose as US markets returned from holiday. The FOMC minutes extended these moves slightly. AUD slipped to 0.6655. Today’s calendar includes Australia May trade balance and US June services ISM.
Yesterday
Australia’s calendar was quiet though unofficial data showed a 25%yr jump in new vehicle deliveries in June. The June Caixin China services PMI softened more than expected, down to 53.9 from a buoyant 57.1 in May. The release appeared to contribute to very modest decline in AUD/USD over the day, from a high of 0.6698 to 0.6680. Asia-Pacific equities were mostly weaker, especially Hong Kong and China. The ASX 200 closed down -0.4%.
Currencies/Macro
The US dollar rose against most major currencies on the day. EUR/USD probed 1.0900, then slid back to 1.0855. Sterling was resilient, holding around 1.2700. USD/JPY dipped to 144.10 then returned to 144.60. AUD/USD fell steadily over the day, ultimately -0.6% at 0.6655. NZD was more resilient, -0.2% to 0.6180, trimming AUD/NZD from 1.0810 to 1.0770.
The FOMC minutes for the June meeting reflected disagreement on the policy decision: "Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal." But they also indicated that "almost all participants judged it appropriate or acceptable" to keep the rate unchanged, and most of these participants thought pausing would allow for more time to assess conditions.
US factory orders in May rose 0.3%m/m (est. 0.8%m/m), with ex-transport orders falling 0.5%m/m (prior -0.6%m/m).
Eurozone June services PMI was finalised at 52.0 (from 52.4), the composite falling to 49.9 (from 50.3). Eurozone May PPI in May fell 1.9%m/m (est. -1.7%m/m).
Interest rates
US 2yr treasury yields rose from 4.90% to 4.95%, while the 10yr yield rose from 3.84% to 3.94%. The 2-10yr curve steepened, having earlier reached a 40-year low. Markets are pricing the Fed funds rate, currently 5.125% (mid), to be 23bp higher at the next meeting on 27 July, and another 11bp higher by November.
Australian 3yr government bond yields (futures) rose from 3.94% to 4.02%, while the 10yr yield rose from 3.96% to 4.06%. Markets are pricing the RBA cash rate, currently 4.10%, to be 15bp higher at the next meeting on 1 August, and another 28bp higher by December.
New Zealand markets are pricing the RBNZ OCR, currently 5.50%, to be only 3bp higher at the next meeting on 12 July and to peak at 5.65% in November.
Credit indices underperformed equity with Main 1.5bp wider at 75, while CDX was out 2.5bp to 69 as it backed away from its ytd tights ahead of key US data later in the week. Cash credit held in better to be flat to a bp wider as primary activity returned. Europe saw 5 issuers (ex-SSA) price ~EUR2.65bn including Heathrow Funding with a EUR650M 10yr SLB at MS+148 and on the local front, ANZNZ priced its EUR500M “no grow” 3yr covered deal at MS+33 (BBSW+86, BKBM+71) with the book said to be 7.5x covered. In the US yankee bank supply resumed for the new month with Nomura pricing USD1.5bn across 5-10yr and BFCM USD2.5bn of shorter dated 3/5yr with NIC for both issuers ~10bp across all tranches.
Commodities
Crude markets rose again helped by the Saudi Energy minister telling the OPEC International Seminar in Vienna that he will do “whatever is necessary” to keep oil markets stable and that Russia’s pledge to cut 500kbpd will be meaningful because “it applies to exports”. The August WTI contract is up $2 to $71.79 while the September Brent contract is up 30c to $$76.55. API reported a 4.4mb crude draw last week while gasoline rose by 1.6mb and distillate fell 600kbpd. The DoE is expected to announce a new tender to buy crude for the SPR on Friday for delivery in October and November. The US navy stopped Iranian forces from seizing two oil tankers near the Straits of Hormuz on Wednesday according to AP. Iranian forces were said to have fired shots at the tankers but backed off after the US Navy responded.
In fuels news, Austria’s OMV AG halted wholesale diesel supplies from its main storage facility in Munich without giving further details. Supplies from its Burghausen site and refinery are also impacted. As noted in previous reports, water levels on the Rhine are at the lowest for this time of year in at least three decades. The July ARA gasoil contract rose 3% while the August NY Harbor equivalent rose 4% to a 2 ½ month high. Exxon released a statement noting that lower natural gas prices will hit earnings by about $2bn while lower refining margins will cut $2.1bn. And in coal news, a strike on Canada’s west coast continued into a 4th day, impacting met coal exports.
Metals were generally lower on China concerns with copper down 0.44% to $8,322, aluminium down 1.4% to $2,137 and zinc down 2.4% to $2,354 though nickel rose 3.3% to $21,190. In industry news, Escondida produced 84kt of copper ore in May, down from 105kt in April. McKinsey joined the chorus of voices warning about the supply of metals for clean energy transition. Nickel is expected to face shortages of between 10% to 20% by 2030. However, heavy rains in the Yunnan region in China weighed on aluminium, sending it to a 9-month closing low. India started an anti-dumping probe on aluminium frames from China.
Iron ore markets stabilised with the August SGX contract up $1 at $109.60 while the 62% Mysteel index rose 90c to $111.85. That’s despite further bad news for the Chinese property sector with defaulted property group Shimao Holdings failing to find a buyer for a $1.8bn project in Shenzhen at a forced auction. Sino-Ocean bonds tumbled as well on news it is working with two major shareholders on its debt load. BMI cut its forecasts for iron ore, expecting prices to average $110 in 2023, down from $125.
Day ahead
At 11:30am Syd we see Australia’s May trade data. The surplus is expected to be little changed, with lower commodity prices but a pick-up in export volumes. We look for export values to have edged down -0.3%mth with imports about steady, for a surplus of $11.0bn versus $11.2bn in April.
US initial jobless claims are expected to continue their upwards trend though signs of job-shedding remain scant (market f/c: 245k). May’s JOLTS job opening data will keep pundits on their toes as the low response rates point to inaccuracy and volatility (market f/c: 9900k).
The June ISM services PMI is expected to improve slightly in June to 51.3 from 50.2 in May, consistent with modest growth. We also see the final June reading of the S&P Global Services PMI measure (market f/c: 54.1pts). The US trade deficit is expected to narrow as consumer demand softens (market f/c: -$69bil).
New York Fed president John Williams will be on the wires again, speaking at the Central Bank Research Association.
Eurozone: May’s retail sales will come under pressure as discretionary spending capacity weakens (market f/c: 0.2%mth).
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