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European equities were upbeat but the S&P 500 faded to close just short of its record high. FX and rates were mostly little changed net, AUD edging up to 0.6530. Today’s crowded data calendar includes Australia February Westpac consumer sentiment and NAB January business confidence, UK December wages and US January CPI.


Regional markets were understandably very quiet with Japan, China, Singapore, Hong Kong, Korea and other markets closed for holidays. AUD/USD traded a narrow 0.6511-0.6530 range. The ASX 200 closed -0.4%. There were no data releases of note, ahead of important data later in the week. 



The US dollar was little changed on the day versus G10 currencies aside from the Scandis. EUR/USD steadied around 1.0775. GBP/USD is net flat at 1.2630. USD/JPY fell to 148.93 then returned to 149.30. AUD/USD rose to 0.6543 then trimmed gains to 0.1% at 0.6530. NZD/USD softened -0.3% to 0.6130. AUD/NZD thus rose half a cent to 1.0655, its first daily gain since 2 February.


The New York Fed’s January survey of inflation expectations showed the 1yr ahead measure ticked down to 3.00% from 3.01%, the 5yr also little changed at 2.5%, while the 3yr fell to 2.4% from 2.6%, the lowest reading in the 11-year history of the survey. The broader consumer expectations survey showed expectations of earnings rose by 0.3% to 2.8% over the year ahead, while job finding expectations fell from 55.9 to 54.2. 


Fed Governor Bowman reiterated that, “as long as economic conditions remain where they are, I think that tells me that our policy rate is in the right place”. She said it’s too soon to say when they will start to cut rates, and not “in the immediate future”.


Interest rates

The US 2yr treasury yield slipped from 4.48% to 4.47%, while the 10yr yield was choppy at times but ultimately flat at 4.17%. Markets price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting in March but price a 55% chance of a cut by May. 


Australian 3yr government bond yields (futures) rose from 3.74% to 3.76%, while the 10yr yield rose from 4.16% to 4.19%. Markets currently price the RBA cash rate to be unchanged at the next meeting on 19 March, with a 65% chance of a cut by August. 


New Zealand rates markets price the OCR, currently at 5.50%, to have a 30% of a hike at the next meeting on 28 February, and a 70% chance of one by April.


Credit indices were tighter with Main in 1.5bp to 57.5 and CDX half a bp better as we write despite giving back some gains as US equity turned weaker. US IG cash is little changed, however primary markets were active ahead of CPI and what is likely to be a quieter session for supply tonight.



Crude markets traded a tight range with geopolitical risks supporting but supply capping gains. The March WTI contract is up just 12c at $76.96 though the April Brent contract is down 17c at $82.02. Israel conducted strikes in the southern city of Rafah and Houthi rebels confirmed they attacked a US listed bulk carrier, causing minor damage according to the UK navy. The ship was traveling south through the Bab el-Mandeb Strait. 27 tankers carrying about 27mbbl of oil have arrived in Europe so far in February after having loaded in the US Gulf according to Bloomberg ship tracking data. Another 40, hauling 37.3mbbl are expected to arrive by the end of February with total volume for the month forecast at 64.3mbbl or 2.2mbpd which would be a record back to 2016 after the US lifted its crude export ban. Goldman reported 0.6mbpd of downside risks to its forecasts for China oil demand in Q4 following a surge in EV sales though they were “comfortable with the $70-90 range call for Brent and see risks as roughly balanced”. Morgan Stanley raised its Brent forecasts for 2024 and 2025 by between $2.50 to $5, saying that ‘recent inventory declines suggest the market has been tighter than initially expected’. Brent is now forecast to be $82.50 in Q1 compared to $80 previously and $80 in Q4 up from $75. Bloomberg reported that the European diesel premium over Brent has jumped to the highest for the time of year since at least 2012, driven by sanctions cutting off seaborne imports from Russia, closure of European plants, attacks on Russian facilities and Red Sea disruption.


Metals bounced despite the continued rise in inventory and strong copper production data from Codelco. Copper is up 1% at $8,257 while zinc rose 1.3%. Zinc stockpiles at the LME rose 4.9% over the weekend and are up 21% over the last 4 days, hitting the highest since 2021, with the increase being driven by deliveries into Singapore. Codelco posted its best copper production month in a year, producing 142kt in December. Glencore announced plans to sell its loss-making Koniambo nickel mine in New Caledonia. The deluge of supply from Indonesia has added to the ‘implosion’ in the nickel market.


Iron ore markets were subdued with China closed for LNY holidays. However, prices in Singapore were supported by BHP strike news. The March SGX contract is up $1.45 from the same time yesterday at $128.55. BHP train drivers announced a 24hr strike from Friday.


Day ahead

From 8:55am Syd, RBA Head of Economic Analysis Marion Kohler speaks to business economists.


At 10:30am Syd, the February Westpac-MI Australia Consumer Sentiment index should capture impacts of the debate over stage 3 tax cuts along with the RBA decision last week. 


At 11:30am Syd, the January NAB business confidence survey is due. The previous report showed the confidence index at -1, business conditions at +7, versus long-term averages of about +6 for both.


The RBNZ’s 2yr inflation expectations survey for Q1 is likely to show further declines, consistent with a drop in actual inflation. The Q4 reading was 2.76%. 


Markets remain closed for Lunar New Year holidays in China, Hong Kong and Taiwan, but Japan and Singapore are among the markets reopening.


The February ZEW survey of Germany investor/analyst expectations is expected to show an ongoing sharp divergence between the current situation (f/c -79) and expectations (f/c +17). 


The UK unemployment rate is expected to edge up to 4.0% from 3.9% in the 3 months to December, with employment seen up 50k. Average weekly earnings growth is expected to ease but remain well above that seen in many other countries, 5.6%yr overall, 6.0%yr ex-bonuses.


The global data highlight for the week is US January CPI. Shelter prices are expected to ensure underlying disinflation is sluggish. The median forecast in the Bloomberg survey is 2.9%yr versus 3.4%yr in December, with CPI ex-food and energy 3.7%yr versus 3.9%yr in December.


The January NFIB small business optimism will provide insight into a large chunk of the labour market. The headline index improved slightly in late 2023 but at 91.9, was still well below even 2021 levels above 100, showing the impact of high inflation and rising interest rates.

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