Markets Daily
Bond yields rose slightly, while FX and equity markets were little changed on a day lacking major headlines. AUD held around 0.6620. Today’s data highlight is US February retail sales.
Yesterday
Australia’s data calendar was quiet. Regional equities were relatively muted, Japan down for a third straight day on Bank of Japan tightening fears but Korea and Australia’s ASX 200 (0.2%) slightly firmer. AUD/USD didn’t break outside a narrow 0.6600-0.6620 band.
Currencies/Macro
The US dollar was little changed net against most G10 currencies. EUR/USD rose 0.2% to 1.0950. GBP/USD chopped around 1.2800. USD/JPY is near flat on the day at 147.80. The AUD was the second-best performer on the day, rising from 0.6605 to 0.6635 before consolidating at 0.6620. NZD/USD returned to 0.6155. AUD/NZD rose 15 pips to 1.0755.
Eurozone industrial production in January fell -3.2%m/m (est. -1.8%m/m, prior revised to +1.6%m/m from +2.6%m/m), the aggregate distorted by a large fall in Ireland.
UK GDP in January rose 0.2%m/m, as expected, supported by the expected rise in services, with construction also strong. Against that, industrial production fell -0.2%m/m (est. flat).
Interest rates
The US 2yr treasury yield rose from 4.58% to 4.63%, while the 10yr yield rose from a low of 4.13% to 4.19%. A strong 30yr auction interrupted the rise. Markets price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting on 21 March, with a 65% chance of a cut by June.
Australian 3yr government bond yields (futures) rose from 3.64% to 3.68%, while the 10yr yield rose from 4.01% to 4.07%. Markets currently price the RBA cash rate to be unchanged at the next meeting on 19 March, with a 75% chance of a cut by August.
New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged at the next meeting on 10 April, with a 90% chance of cut by August.
Credit continued to grind tighter with indices extending recent gains that see Main in a further bp to 51 and CDX marginally tighter at 48 while US IG cash has also retained positive momentum to be another 1-2bp better. Europe saw 11 issuers (ex-SSA) price ~EUR8.5bn highlighted by a long list of corporates led by Stellantis (EUR1.25bn 6.5/12yr) and Aston Martin (GBP400M 5nc2yr) in the autos space with DT (EUR750M 12yr) and Nestle (GBP800M 5.12yr) also notable. The US saw 4 issuers price USD4bn (USD31bn wtd) with banks driving volumes including Nordea with USD1bn of 3yr fixed/FRN at T+62/SOFR+74 and State Street with USD1bn of 3yr at T+60..
Commodities
Brent jumped to 4 month closing highs as Russian refinery attacks, a larger than expected crude drawdown reported by the EIA and rising tension in the Middle East all added to the strong bid tone. The April WTI contract is up 2.67% at $79.63 while the May Brent contract is up 2.5% at $83.97. Ukraine struck Russian oil refineries in a second day of drone attacks causing a fire at Rosneft’s largest refinery. Reuters reported that Rosneft had been forced to shut down two primary refining units. The FT reported that the two days of attacks had damaged 10% of Russia’s total oil processing capacity. Meanwhile Israeli jets were reported as having struck targets in Lebanon’s Bekaa Valley for a second day, striking Hezbollah targets. The EIA reported that crude inventory fell for the first time in almost 2 months, down 1.5mb, while gasoline fell yet again by 5.66mb. US crude production fell 100k to 13.1mb. Gasoline prices surged with the April NY contract up 4% in the last week. The US DOE bought another 3.25mb of domestic sour crude to refill the SPR at an average price of $77.43. To date the SPR has bought 29.6mb.
Metals exploded higher with copper hitting 11-month highs as press reported that Chinese smelters planned to cut output. Copper is up by a hefty 3% to $8,920, a high back to April last year. Wires reported that a meeting of 15 smelters called by the China Nonferrous Metals Industry Association had discussed possible steps including production cuts by lossmaking smelters and more reliance on copper scrap though no formal decisions were made. Officials from government agencies attending the meeting were said to have told smelters that they were considering capacity limits for the copper smelting industry along the lines of those placed on the aluminium and steel sectors.
Finally note that iron ore fell again with the news of Country Garden missing a domestic coupon payment Tuesday weighing on sentiment. The April SGX contract is down $1.40 from the same time yesterday at 105.95 while the 62% Mysteel index is down $4.30 at $106.45. The 62% Mysteel index has now corrected 25% from the 18-month highs seen above $140 in January. Citi noted last month that the “first line of cost defence” for iron ore lies at about $90 to $95 a ton at which some non-mainstream producers would be loss making. The majors might pursue curtailment below $75 to $80. Rising inventory and weak demand post the LNY holiday period plus signs of ongoing stress in residential construction companies continues weighing on sentiment.
Day ahead
New Zealand January net migration data is anticipated to reflect distortions from the Christmas travel period.
US February retail sales are forecast to rebound from January’s decline but overall growth is still expected to decelerate as consumers remain cautious of their spending and borrowing habits. Consensus is 0.8%mth total, 0.3%mth ex-autos and gasoline and 0.4%mth for the core ‘control group.’
The US February producer price index will likely remain subdued as upstream price pressures are contained (market f/c: 0.3%m/m, 1.2%y/y, prior 0.9%y/y). January’s business inventories are expected to decline as firms continue to reduce stockpiles in the cooling economy (market f/c: 0.2%m/m). Weekly initial jobless claims should reflect low layoff rates (market f/c: 218k).
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