Markets Daily
US bond markets were volatile but net changes were limited, with a quiet calendar. AUD softened slightly to 0.6570. Today’s crowded calendar includes comments from RBA Governor Bullock, Australia Westpac consumer sentiment and NAB business confidence, UK wages data and the global focus, US November CPI.
Yesterday
The event and data calendar this week is very crowded but Monday’s slate was thin. Regional equities were quite mixed, some taking heart from Wall Street’s gains on Friday, others such as Hong Kong struggling. The ASX 200 closed up 0.1%. AUD/USD slipped fractionally to 0.6560.
Currencies/Macro
The Japanese yen unwound much of last week’s sharp rally but other G10 currencies were little changed net versus the USD. EUR/USD was net flat at 1.0765. GBP/USD gave back earlier gains to trade flat at 1.2555 and USD/CAD edged down to 1.3570. AUD/USD was tightly contained through European trading at 0.6570 off an interim test of 0.6550 with NZD/USD holding around 0.6120. AUD/NZD was 15 pips lower on the day at 1.0730.
The US November NY Fed Inflation Expectations Survey saw a dip in the 1yr profile to 3.36% from prior 3.57% and medium-term (further year ahead) at 2.7% (from 2.8%).
UK December Rightmove house prices slipped a larger -1.9%m/m (prior -1.7%m/m, but less than Dec. 2022 -2.1%m/m) to be -1.1%y/y. London prices slipped a smaller -0.9%m/m (-2.1%m/m in Nov.).
Interest rates
The US 2yr treasury yield rose to 4.77% then tumbled to 4.71% in late NY trade, to be -1bp on the day. 10yr yields rose to 4.28%, only to slide back to 4.23. Markets are not pricing any move for this week’s (14th Dec.) or January (31st) FOMC announcements, with May 2024 pricing around 100% of a cut, and Dec 2024 Fed pricing edging back -4bps to -107bps or 4.26%.
Australian 3yr government bond yields (futures) pared -3bps to imply 4.00%, while 10yr yields also slipped -3bps to 4.37%. Market pricing in February 2024 and March 2024 remain effectively for zero change. New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged on 28 February, with no further rate hikes in this cycle, and around 30bps of cuts for August 2024.
Credit spreads were little changed with Main locked at 67 and CDX at 61.5 while US IG cash was flat to a bp tighter as the focus remains on data commencing with US CPI this evening. Primary markets are completing their final deals for the year with Europe limited to Siemens EUR750M 2yr FRN as its sole issuer, while the US saw 4 issuers come to market with National Bank of Canada’s USD1bn 5yr deal (T+137.5, BBSW+166) the largest completed.
Commodities
Crude markets marked time with the Venezuela/ Guyana dispute a key focus and the EIA and OPEC monthly reports also due out this week. The January WTI contract is up 0.24% at $71.40 while the February Brent contract is up 0.36% at $76.11. Guyana’s President Irfaan Ali said that oil majors were “moving ahead aggressively” with production plans and that “our troops are going to ensure the territorial integrity and sovereignty of Guyana is respected”. Ali and Venezuela President Maduro will meet on Thursday. Occidental said it would buy Permian Basin based oil driller CrownRock in a $12bn deal. A draft agreement from the UN COP28 climate summit dropped reference to the phaseout of fossil fuels, instead the statement includes reference to reducing “consumption and production of fossil fuels, in a just, orderly and equitable manner so as to achieve net zero by before, or around 2050”. Citi said that Saudi “cuts do need to be maintained to balance the market through the course of next year” and that “they can keep prices in a $70 to $80 if they all work together”.
Metals markets traded lower with copper down 1.25% to $8,343 and aluminium sliding another 0.5% to $2,124 which is a closing low since September 2022. The slide in copper comes despite the Panama government formally ordering First Quantum to end all operations at the Cobre Panama mine over the weekend and Anglo-American announcing plans on Friday to cut copper production in mines including the Los Bronces mine in Chile. That’s enough to flip an expected copper surplus to a deficit in 2024 according to BMO while Goldman now sees a deficit of more than half a million tons. Alcoa was reported to be meeting with national and regional authorities to discuss financial losses at the San Ciprian complex in Spain which consists of an alumina refinery and aluminium smelter which has been operating at half capacity since Q3 2022 to mitigate losses.
Iron ore softened as weak China CPI and the ongoing slump in construction equity weighed on sentiment. The January SGX contract is down 15c at $134.45 while the 62% Mysteel index is down 95c at $136.35. Reuters reported that the Central Economic Work Conference commenced Monday and will likely conclude later today and is likely to reaffirm the 5% GDP goal. The key meeting follows a Politburo meeting that was held Friday vowing that fiscal policy will be stepped up “appropriately” under the slogan of “using progress to promote stability” though monetary policy was ‘downgraded’ to “targeted” rather than forceful. China will report industrial production and fixed asset investment for November on Friday. Mysteel will also hold its annual steel conference in Shanghai on Friday.
Day ahead
RBA Governor Bullock will speak at the AusPayNet Summit, commencing 9:20am Syd.
At 10:30am Syd we see the Australia December Westpac-MI Consumer Sentiment survey, conducted last week i.e. capturing the RBA decision and Q3 GDP. For some time, sentiment has been highlighting elevated concerns regarding the cost of living and interest rates.
At 11:30am Syd we see the November NAB Australia business confidence survey. The conditions index in October was a still-healthy +13 but confidence was a gloomy -2. The long-term averages on both indexes are around +6.
The Germany December ZEW survey of investor and analyst expectations should convey that the economy is past the worst of the downturn, with a sharp divergence between the expectations index around +10 and current conditions, -76.
UK average weekly earnings in the three months to October are expected to ease as the labour market softens but to remain well above the pace consistent with on-target inflation, 7.7%yr versus previous 7.9%yr.
Headline US CPI is expected to remain flat m/m in November due to further declines in oil prices. The shelter component is expected to remain sticky, only slowly decelerating (Westpac f/c: 0.0%mth, 3.1%yr versus 3.2%yr in October. CPI ex-food and energy is expected to hold at 4.0%yr. As always, there is scope for a surprise, with last month’s release undermining the US dollar for about 3 weeks afterwards.
US November NFIB small business optimism will likely remain little changed as credit constraints and softer growth impact small businesses (market f/c: 90.7).
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