Markets Daily
Bond yields rose following strong US payrolls data and hawkish Fedspeak. The US dollar is only slightly firmer, though, with equities higher – the S&P500 up 1.1%.
Currencies/Macro
The US dollar index is up 0.2% on the day, a surprisingly modest gain after March US non-farm payrolls handily beat expectations. EUR roundtripped from 1.0840 to 1.0791 and back. USD/JPY rose from 151.20 to 151.75, with intervention fears into 152 continuing to cap the pair.
The AUD initially fell from 0.6592 to 0.6549 in response to the robust US payrolls gain, but later recovered to 0.6585, amid still very heathy equity risk appetite conditions. AUD starts the day little changed in early dealings at 0.6569, its 17th consecutive local start with a 0.65-handle. NZD similarly fell from 0. 6023 to 0.5986 and recovered to 0.6020. AUD/NZD rose from 1.0920 to 1.0950.
US non-farm payrolls in March easily beat expectations, coming in at a very hot +303k (est. 214k, prior 270k), with +22k in revisions over the past two months. The unemployment rate fell from 3.9% to 3.8%, as expected, as participation rose. Average hourly earnings rose 0.3%m/m and 4.1%y/y (prior 4.3%y/y), and weekly hours rose from 34.3 to 34.4.
FOMC member Bowman said it’s too soon to consider cutting rates: “Should the incoming data continue to indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive. However, we are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation.” Logan also said it’s too soon to cut: “In light of these (inflation) risks, I believe it’s much too soon to think about cutting interest rates. I will need to see more of the uncertainty resolved about which economic path we’re on.” Barkin said the jobs report was “quite strong”, and it was striking how strong the jobs market has remained.
Interest rates
The US 2yr treasury yield rose from 4.64% to 4.75% (highest since December), while the 10yr yield rose from 4.30% and 4.40%. Markets price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting on 2 May, with a 50% chance of a cut by June.
Australian government bond yields (futures) rose from 3.65% to 3.71%, while the 10yr yield rose from 4.10% to 4.18%. 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 indices reflect the shift from geopolitical risk to payrolls with Main a bp wider to 54.5 while CDX took back some of the previous days move wider to close a bp better at 52.5, and US IG cash was also 1-2bp better. Primary markets were always going to be quiet given the mix of volatility and payrolls and we saw no supply in either EUR or USD which left US primary volumes for the week at USD24bn, with this week likely to be front loaded once again ahead of US CPI on Wednesday and the ECB on Thursday. We also have US 1Q reporting commencing this week with the large banks the first point of interest on Friday (refer below) with the reporting timetable to influence supply from here.
Commodities
Brent held above $90 with a backdrop of further deterioration in tension in the middle east prompting a repricing of geopolitical risks. Various press described an Iranian response to the attack on Damascus consulate as “inevitable” while Israel withdrew troops from Khan Younis in southern Gaza to prepare for operations in Rafah. The May WTI contract closed up 0.37% Friday at $86.91 while the June Brent contract closed up 0.57% at $91.17, up 4.22% on the week. Saudi Arabia hiked the price of its flagship crude Arab Light blend to its main buyers in Asia for May to a premium of $2, up 30c following on from the OPEC meeting which extended production cuts into Q2 and focussed on compensation for overproduction. The May gasoline future hit a seven-month high.
Metals saw some signs of profit taking on the stronger than expected NFP outcome. Copper was last down a modest 0.12% at $9,348 while aluminium rose 0.27% to $2,451. However, the focus on supply remains intact. Canada’s Ivanhoe Mines reported a drop in volumes at the Kamoa-Kakula complex in the DRC while a drought in Zambia is causing concerns. Goldman noted that supply issues will push the market into “large deficits” in the second quarter.
Finally note iron ore markets closed at 8-month lows with the May SGX contract down 95c at $96.80 while the 62% Mysteel index 62% Mysteel index rose 50c to $97.95. China will report March trade data including iron ore imports on Friday. UBS reported that iron ore is likely to find cost support between $90 and $100 given that steel production had been falling for the last month and a half which is unusual for this time of year.
Day ahead
Australia: Growth in housing finance approvals should bounce-back in February given the improvement in turnover since the start of the year (Westpac f/c: 3.0%); softening construction-related activity may see investor loans outperform owner-occupier loans in the month (Westpac f/c: 2.5% and 3.5% respectively).
Japan: A seasonal bounce in the current account surplus is anticipated for February (market f/c: ¥3078.7bn).
Eurozone: The uptrend in Sentix investor confidence is expected to persist in April as prospects for mid-year rate cuts continues to strengthen (market f/c: –8.4).
US: Fed Presidents Goolsbee (Chicago) and Kashkari (Minneapolis) speak.
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