Markets Daily
Markets were mostly contained in US trade, awaiting today’s key US CPI data. AUD rose slightly to 0.6380. Along with US CPI, today’s crowded data calendar includes Australia Westpac consumer sentiment and NAB business confidence, UK wages and Germany ZEW investor sentiment.
Yesterday
RBA’s Marion Kohler said that the “road ahead could be bumpy”, with the next stage of monetary policy aimed at bringing inflation back to target likely to be more drawn out than the first phase. But she did note that policy is restrictive and that the Australian economy is growing below trend. AUD traded very quietly, mostly 0.6355-65. Regional equities were mixed, not taking much inspiration from the sharp rally on Wall Street on Friday. The ASX 200 closed down -0.4%. Singapore markets were closed and the data calendar was low key, ahead of major releases starting Tuesday.
Currencies/Macro
The US dollar as mixed on the day. EUR/USD fluctuated between 1.0665 and 1.0706, a touch higher overall. Sterling outperformed, GBP/USD up 50 pips to 1.2280. USD/JPY rose from 151.50 to 151.91, suddenly tumbled to 151.21 amid talk of options-related selling, then steadied around 151.65. AUD/USD performed well, rising from 0.6360 to 0.6391 before easing to 0.6380. NZD/USD softened -0.2% to 0.5880, leaving AUD/NZD up 0.5% at 1.0845.
China released October lending data, new loans slightly firmer than expected at CNY738bn, aggregate financing a little below consensus at CNY1850bn, both series very volatile.
NY Fed inflation expectations 1-year ahead fell to 3.57% in October from 3.67%, in contrast to the Univ. Michigan survey version which last week showed a rise.
Bank of England MPC member Catherine Mann said climate change is likely to increase inflation long term.
ECB member de Guindos said that the Eurozone economy should remain subdued near term and there are signs that the labour market is starting to soften. On inflation: “We expect a temporary rebound in inflation in the coming months as the base effects from the sharp increase in energy and food prices in autumn 2022 drop out. But we see the general disinflationary process continuing over the medium term.”
Interest rates
US 2yr treasury yields closed 3bp lower at 5.03%, while the 10yr yield fluctuated between 4.62% and 4.70%. Markets are pricing the Fed funds rate, currently 5.375% (mid), to be 5bp higher at the next meeting on 13 December, with a 35% chance of a hike by February.
Australian 3yr government bond yields (futures) fluctuated between 4.28% and 4.33%, while the 10yr yield fluctuated between 4.66% and 4.72%. Markets are pricing only a 10% chance of a hike at the next meeting on 5 December, with a 60% chance of one by March. New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged on 29 November, with a 10% chance of a hike by February 2024.
Credit indices have seen a solid open to the week with Main following equity higher to in another 1.5bp at 74 while CDX has extended Friday’s gains to close half a bp better at 67.5. US IG cash was flat to a bp better as primary activity got underway, however volumes have clearly lagged that seen in the last couple of weeks as we look toward US CPI tonight. Europe saw 4 issuers price EUR2.8bn while in the US, 5 issuers completed USD2.65bn.
Commodities
Crude markets continued their modest recovery, gaining for the third consecutive session helped by OPEC’s bullish consumption forecasts. The December WTI contract is up another $1.32 to $78.49 while the January Brent contract is up $1.30 to $82.73. The OPEC Monthly went to unusual lengths to emphasise the “healthy and supportive market fundamentals” and push back against “overblown negative sentiment”. In the US, the American Automobile Association forecast that Thanksgiving travel is shaping up to be the busiest since 2019. Goldman gave the go-ahead to ‘go long’ commodities, arguing that “fading monetary policy drag, receding recession fears, and reduced industrial destocking will support demand and spot prices in 2024”. US Treasury sent notices to ship management companies in about a dozen countries capturing about 100 vessels it suspects may have violated price caps on Russian oil. In a sign that the Ceyhan pipeline is getting closer to restarting, the Iraqi oil minister Hayyan Abdul Ghani confirmed he was holding legal, financial and technical discussions with his Kurdish counterpart to ‘help resume flows as quickly as possible’. Markets will watch developments closely given that circa 450kbpd of exports through the pipeline were halted back on March 25.
Metals saw a modest bounce too with copper up 1.9% to $8,187 while aluminium was up 0.7% to $2,230 and nickel up 0.6% to $17,355. There was little fresh industry news though First Quantum confirmed that it was slowing its massive Cobre Panama mine operations as protests blocked port operations. Reuters reported that Trafigura “has agreed to help Chinese smelters clear imports of copper concentrate from Australia, suggesting an informal ban has been lifted”. India’s aluminium demand is growing 10% every quarter, helped by a boost in infrastructure ahead of next year’s elections according to Hindalco’s MD Satish Pai. Exxon announced that it had acquired 120k acres of land in Arkansas where they are “drilling wells 10,000 feet underground into saltwater reservoirs” to produce lithium from salty brines. The new business venture will be branded Mobil Lithium and will begin production in 2027.
Iron ore markets were mixed at close to eight-month highs, helped by optimism on China property market stabilisation. The December SGX contract is down 75c from the same time yesterday at $127.40 though the 62% Mysteel index is up 60c at $129.95. China new loans data for October came in above expectations at 655bn, up 20%yy though up by a lesser 5.8% versus the average of the last 5 years. China will release industrial production data, including steel production, on Wednesday.
Day ahead
At 10:30am Syd, the November Westpac-Melbourne Institute Australia consumer sentiment survey will capture the sentiment impact of the RBA’s November rate hike.
At 11:30am Syd, NAB’s business survey for October will likely show cost and price pressures easing as conditions moderate. The conditions index was a still lively +11 in September, the confidence index a soft +1.
StatsNZ will release an expanded set of monthly price gauges in addition to their food and rental indexes. RBNZ’s Assistant Governor Silk will speak on balance sheets and financial stability.
In Germany, the November ZEW survey of investor/analyst sentiment is expected to show a slight improvement in expectations, to +5 from -1 but well within the wide range of the past year or two. The current situation index is seen remaining deeply gloomy at -77. The second estimate of Eurozone Q3 GDP will be released (market f/c: -0.1%qtr).
The UK’s average weekly earnings for September should show further easing in private sector wages (market f/c: 7.4%yr).
The US focus will be on October consumer price index. Consensus on overall CPI is 3.3%yr versus 3.7%yr in September as energy prices eased but CPI ex-food and energy is seen unchanged at 4.1%yr, core inflation supported by medical and housing costs.
Fedspeak continues with FOMC Vice Chair Jefferson and Chicago Fed president Goolsbee. The NFIB small business optimism survey for October is likely to be pessimistic as businesses face growing costs (market f/c: 90.5pts).
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