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Bond yields rose further but the US dollar fell, amid mostly solid economic data in the US, Eurozone and UK. Equities fell, the S&P500 down 0.7%.


The US dollar index is a touch softer, down 0.2% on the day, somewhat unexpectedly against the background of higher US yields, higher crude oil prices and a rare setback in risk appetite overnight (S&P500 -0.7%). EUR rose from 1.0725 (a six-week low) to 1.0779, with stronger than expected March final manufacturing PMI’s for the region helping to stabilise sentiment. USD/JPY fell from 151.80 to 151.47. 


The AUD rose from 0.6490 to 0.6524 overnight. The RBA minutes for their March meeting cemented a further shift towards a neutral stance, showing the Board didn’t consider the case to raise interest rates and noting the balance of risks to the outlook were “a little more even” than previously. 

CoreLogic March house prices rose 0.6%, matching February’s monthly gain, while the Melbourne Institute inflation gauge eased to 3.8% y/y from 4%y/y. 

NZD rose from 0.5945 to 0.5973. AUD/NZD rose from 1.0910 to 1.0928 – a fresh five-month high.


US job opening (JOLTS) in Feb were higher than expected at 8756k (est. 8730k, prior revised from 8863k to 8748k). Factory ordersin Feb rose 1.4% (est. 1.0%, prior -3.8%), the ex-transport measure also beating expectations.


FOMC member Mester said the recent inflation readings confirmed the bumpy nature of disinflation, still expecting price growth to continue toward the Fed’s 2% target but at a slower pace than last year: “But I need to see more data to raise my confidence. Some further monthly readings will give us a better sense of whether the disinflation process is stalling out or whether the start-of-the-year readings reflect a temporary detour on the downward path back to price stability.” Daly said the three rate cuts indicated in the dot plot: “I think that is a very reasonable baseline. But growth is going strong, so there’s really no urgency to adjust the rate”.


Eurozone manufacturing PMI for Mar was finalised higher at 46.1 (est. 45.7, prior 45.7). German CPI in Mar rose 0.4%m/m and 2.2%y/y (est. 0.5%m/m and 2.2%y/y), the EU harmonised version at 2.3%y/y (prior 2.7%).

UK manufacturing PMI for Mar was finalised higher at 50.3 (est. 49.9, prior 49.9).


Interest rates

The US 2yr treasury yield roundtripped from 4.69% to 4.73% and back, while the 10yr yield rose from 4.30% to 4.40%, currently 4.36%. Markets price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting on 2 May, with a 60% chance of a cut by June.


Australian government bond yields (futures) rose from 3.62% to 3.66%, while the 10yr yield rose from 4.05% to 4.12%. Markets currently price the RBA cash rate to be unchanged at the next meeting on 7 May, with a 75% chance of a cut by September.


New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged at the next meeting on 10 April, with a 100% chance of cut by August.


Credit spreads reflected the risk off tone with Main 2bp wider to 56 which represents the wides on the new series, while CDX was half a bp wider to 52.5 and US IG cash little changed. 



WTI traded above $85 for the first time since October with Mexican production cuts, rising tension in the middle east, and expectations that today’s OPEC meeting will focus on individual members adherence with agreed output curbs, all adding to the positive tone. The May WTI contract is up 1.6% at $85.08 while the June Brent contract is up 1.7% at $88.91. The WTI May/June prompt calendar spread traded above $1 for the first time since February while the rolling Brent equivalent closed at $1.01, a closing high outside of expiring contracts back to October last year suggesting the physical market is indeed tightening up. Iran vowed revenge on Israel after blaming it for an air strike on its embassy in Damascus which reportedly killed 3 senior members of the IRGC including a top military commander, according to Iranian press. OPEC’s crude production remained steady according to a Bloomberg poll, though Iraq, the UAE and Gabon are collectively pumping several hundred thousand barrels a day above their agreed quotas.


Metals rallied despite the softer tone to equity markets and stronger US$, with the focus remaining on potential China output cuts. Copper is last up 1.6% at $9,011 while aluminium is up 1.5% at $2,372. There was little fresh news though wires cited rising optimism on Chinese outlook plus the jump in the US ISM as supportive factors.


Finally note that iron ore markets continued to find support above $100 with the May SGX contract up 75c at $102.85 while the 62% Mysteel index is up 25c at $102.25. Bloomberg reported that China’s MIIT would meet with executives from 10 major steelmakers to analyse their current difficulties and to promote the steel industries stable operations and healthy development.


Day ahead

NZ: Growth in monthly employment is unlikely to maintain the strong pace reported in January (Westpac f/c: 0.0%).


China: The Caixin services PMI is expected to continue signalling expansionary conditions for the sector in March (market f/c: 52.5).


Eurozone: ‘Sticky’ services inflation will likely persist through March, with only a small moderation in annual consumer inflation anticipated (market f/c: 2.5%yr). Meanwhile, the unemployment rate is expected to remain unchanged at its historic low (market f/c: 6.4%).


US: The ISM services PMI should continue to report positive conditions in March; developments around employment will be of particular interest (market f/c: 52.8). FOMC Chair Powell will discuss the economic outlook at a Standard Forum. The FOMC’s Bowman, Goolsbee, Barr and Kugler are also due to speak at different events.

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