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Bond yields and the US dollar are higher, following stronger US manufacturing data. Equities are slightly lower.

Currencies/Macro

The US dollar index is up 0.5% on the day, and at a five-month high following a stronger than expected March ISM report. Over the Easter long weekend, US Feb core PCE rose 0.3%, Feb personal spending rose a stronger than expected 0.8% and Chair Powell underscored Fed patience.  

 

EUR fell from 1.0790 to 1.0731 overnight – a six-week low. USD/JPY rose from 151.40 to 151.77. Markets are wary about BoJ intervention risk to stem excessive yen weakness.

 

The AUD remains lacklustre, falling from 0.6525 to 0.6481 overnight – a one-month low, against the background of a stronger USD and still soft iron prices, even as China’s March official PMIs suggest China is stabilising. NZD fell from 0.5985 to 0.5940 – a five-month low. AUD/NZD rose from 1.0905 to 1.0918 – a five-month high.

 

The US ISM manufacturing survey index was stronger than expected at 50.3 (est. 48.3, prior 47.8), an 18-month high, with prices paid notably higher. 

The Atlanta Fed's GDPNow model for Q1 GDP was increased to 2.82% from 2.33%.

 

Interest rates

The US 2yr treasury yield rose from 4.59% to 4.72%, while the 10yr yield rose from 4.19% to 4.33%. Stronger ISM data plus a hefty corporate issuance pipeline were the main drivers. Markets price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting on 2 May, with a 55% chance of a cut by June.

Credit indices moved in line with the broader market with CDX half a bp wider at 52, however US IG cash spreads were little changed.  This was despite a solid opening session for US primary markets which saw 7 issuers price USD8.4bn to open a week that that was only expected to see ~USD20bn in supply. 

 

Commodities

Crude markets hit fresh highs back to October last year with tightening crude supplies, an Israeli attack on an Iranian embassy in Syria and wires reporting that Mexico’s Pemex would cancel contracts to supply its flagship Maya crude oil to the US, Europe and Asia all lifting sentiment. The May WTI contract is up 0.9% at $83.93 while the June Brent contract is up 0.7% to $87.63. The news that Pemex was planning to cut exports comes ahead of the June 2 Mexican Presidential election is part of a plan to produce more domestic gasoline and diesel. The country’s six refineries operated near the highest rates seen in more than six years in February. The move comes ahead of OPEC’s Ministerial Meeting tomorrow which is likely to focus on individual members adherence with agreed output curbs. The Israeli attack on Iran’s embassy in Damascus reportedly killed 3 senior members of the IRGC including a top military commander according to Iranian press.

 

Metals were mixed over the holiday weekend with copper largely unchanged at $8,872 though aluminium was up 1.6% at $2,335 which is a fresh closing high back to early January. The stronger than expected March ISM report in the US and Caixin PMI in China helped sentiment. Press was focussed on Indonesian plans to lift nickel output despite a global supply glut with the country’s production capacity for battery grade nickel expected to quadruple to 1mtpa by 2030 and capacity for nickel pig iron used to make stainless steel to expand by up to 15% in the next 3yrs from the current 1.9mt.

 

Finally note that iron ore markets showed fresh signs of stabilising just above $100 helped by the stronger than expected China PMI data released over the weekend. The May SGX contract is up $1.10 from the same time Thursday at $102.10 while the 62% Mysteel index is up $4.20 overnight at $102.00. CISA last week urged domestic steel mills to “reduce production intensity” as the property downturn and slowdown in infrastructure sector delays steel demand. Spot billet prices have recently dropped to fresh lows back to May 2020 and are down 12% so far this year while hot rolled steel prices are down close to 10% so far this year. CISA data for mid-March showed steel inventory at the highest level since May 2022 while steel production was below average levels for the month of March.

 

Day ahead

Australia: The RBA will release its minutes from the March meeting likely showing more balanced commentary. RBA Assistant Governor Kent will speak on the ‘Future for Monetary Policy Implementation’. March’s CoreLogic home value index is expected to firm up but still be down from 2023 (Westpac f/c: 0.6%mth). ANZ Job ads data for March likely to point to declines ahead.

 

Eurozone: Final March PMIs are on tap. The prelim March figure printed 45.7.

 

US: Factory orders in Feb were likely weak reflecting weakness in durable goods orders (market f/c: 1.0%mth). February’s JOLTS job openings are expected to weaken as fewer businesses are seeking to add headcount. The FOMC’s Williams, Mester and Daly will speak.

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