Markets Daily
Markets were mostly muted ahead of key US August CPI data, though the euro did pop higher on an ECB story. The data calendar also includes UK July GDP.
Yesterday
Australia September Westpac consumer sentiment slipped -1.5% to 79.7. Sentiment has languished at deeply pessimistic levels for more than a year now, despite easing fears of further interest rate rises. The NAB business conditions index rose in August, up by 2pts to +13. The index, having taken a sharp step lower in May, down 5pts, consolidated over the following 3 months. That still has the index well down from the highs of late 2022, when it averaged +25 through September to November but above long-term averages. Business confidence however is fragile as the economy slows. The confidence index edged higher in August, up 1pt to +2. The confidence index has averaged zero over the past 11 months, from last October - which is below the low run average of +5. AUD/USD traded a quiet 0.6416 to 0.6439 range. Regional equities were mixed, the ASX 200 somewhere in the middle, +0.2%.
Currencies/Macro
EUR/USD was down about 20 pips on the day at 1.0730 when a Reuters source story hit the wires claiming that the ECB’s quarterly forecasts on Thursday would show inflation remaining above 3% next year, “bolstering the case for a tenth consecutive interest rate increase”. The euro popped up to 1.0760. GBP/USD is down 15 pips over the day at 1.2495. USD/JPY rose from 146.50 to 147.10. AUD/USD is barely changed at 0.6425, with a range of 0.6408 to 0.6440. NZD fell from 0.5920 to 0.5905. AUD/NZD rose from 1.0865 to 1.0885.
The US NFIB August small business confidence survey was little changed at 91.3 versus 91.9 in July. NFIB Chief Economist Dunkelberg said, "with small business owners' view about future sales growth and business conditions discouraging, owners want to hire and make money now from strong consumer spending …"Inflation and the worker shortage continue to be the biggest obstacles for Main Street."
The Germany ZEW survey of investors’ economic expectations unexpectedly improved in September, to -11.4 (est. -15.0. prior -12.3).
Interest rates
US 2yr treasury yields rose from 4.99% to 5.02%, while the 10yr yield slipped from 4.29% to 4.28%. Markets currently price the Fed funds rate, currently 5.375% (mid), to be 3bp higher at the next meeting on 20 September, with a 55% chance of a hike in December.
Australian 3yr government bond yields (futures) rose from 3.82% to 3.86%, while the 10yr yield ranged between 4.14% and 4.17%. Markets currently price the RBA cash rate, currently at 4.10%, to be 1bp higher in October, with a 40% chance of a hike in February.
New Zealand markets are pricing the RBNZ OCR, currently 5.50%, to be only 1bp higher at the next meeting on 4 October, with a 40% chance of a hike in February.
Credit spreads were softer within recent ranges as supply continued ahead of US CPI this evening. Credit indices were wider with Main out 1.5bp to 71.5 and CDX a bp wider at 64.5 with US IG cash also giving up 1-2bp. Primary activity continued as expected with Europe seeing 7 issuers price ~EUR3.5bn, while the US saw 11 issuers price USD19bn, to now be USD30bn over 2 days, meeting expectations for the week.
Commodities
Brent crude oil bounced 1.4% to $91.94/bbl, WTI +1.8% to $88.84, both year-to-date highs. An OPEC report projected a 3.3 million barrels per day global deficit in Q4, the tightest such conditions in more than a decade. International Energy Agency executive director Birol wrote in the FT that the IEA annual World Energy Outlook would show that the peak in global demand for fossil fuels is in sight for the first time, “in the coming years.”
Chevron Corp’s request for the Fair Work Commission to intervene in the dispute with trade unions representing workers at its WA LNG facilities will be heard on 22 September. Partial strikes are proceeding in the meantime. ICE Dutch natural gas futures closed -3.2% after three straight daily gains.
Base metals on LME all closed down or flat. Comex copper closed -0.4%. Bloomberg noted ongoing concern over Chinese property as holders of yuan bonds issued by state-backed Sino-Ocean Capital rejected a proposed payment extension.
Spot iron ore rose another 1.5% to $122/tonne, Singapore futures +1.5% to $119/tonne. Price resilience remains somewhat puzzling though reversals can be sharp and China’s National Day holidays loom, starting 29 September and not reopening until 9 October.
Event Outlook
Eurozone/UK: The UK’s July GDP reading will reflect easing following strong momentum in June (market f/c: -0.2%mth). The trade deficit is anticipated to have narrowed following declining demand for imports (market f/c: -4.5bn). Industrial production in Europe is likely to have eased in July as regional demand falters (market f/c: -0.9%mth).
The US August CPI dominates the global calendar. A bounce in gasoline prices and stubborn shelter component should boost the headline figure, expected up 0.6%mth, 3.6%yr versus 3.2%yr in July. Other components seem to be moving in the right direction as a better alignment of supply and demand emerges in the economy, helping the core rate ease somewhat, consensus 0.2%mth, 4.3%yr versus 4.7%yr in July.
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