Markets Daily
Markets consolidated the previous day's sharp moves, with minor movement in bond yields and the US dollar following the ECB's on hold decision.
Currencies/Macro
The US dollar index is unchanged on the day, having earlier made a fresh five-month high. EUR fluctuated between 1.0699 and 1.0757 as the ECB sent a clear signal for a potential first rate cut at its next meeting in June. USD/JPY fluctuated between 152.76 and 153.32 – a fresh 34-year high.
Outperformer AUD rose from 0.6520 to 0.6553, clawing back more of its US CPI inspired decline than most. NZD rose from 0.5980 to 0.6015. AUD/NZD cycled 10pts either side of 1.0900.
The ECB remained on hold, as was widely expected (deposit rate at 4.00%, main refinancing rate at 4.50%). It did signal an easing bias, but was otherwise non-committal. Guidance in the statement read: "The Governing Council’s future decisions will ensure that its policy rates will stay sufficiently restrictive for as long as necessary. If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction."
US PPI in March rose 0.2%m/m and +2.1%y/y (est. +0.3%m/m and +2.2%y/y), with ex food and energy at +0.3%m/m and +2.4%y/y (est +2.4%y/y). Weekly jobless claims data showed little sign of moderation in labour market strength. Initial claims rose 211k (est. 215k, prior revised to 222k from 221k), with continuing claims at 1.817m (est. 1,800m, prior revised from 1.791m to 1.789m).
FOMC member Williams said the central bank has made “tremendous progress” toward better balance on its inflation and employment goals, but added there’s no need to cut in the very near term: “There’s no clear need to adjust policy in the very near term. As we collect more data, we’ll be able to assess have we got that confidence that inflation is moving back to 2%...The economy has come a long way toward achieving better balance and reaching our 2% inflation goal. But we have not seen the total alignment of our dual mandate quite yet.” Collins said recent data have eased concerns about an “imminent need” to adjust interest rates, though she still expects cuts to begin later this year: “Overall, the recent data have not materially changed my outlook, but they do highlight uncertainties related to timing, and the need for patience — recognizing that disinflation may continue to be uneven. This also implies that less easing of policy this year than previously thought may be warranted.”
Interest rates
The US 2yr treasury yield fluctuated between 4.92% and 5.00%, currently 4.94%, while the 10yr yield ranged between 4.51% and 4.59%, currently 4.57%. 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 in July.
Australian government bond yields (futures) ranged between 3.80% and 3.87%, while the 10yr yield ranged between 4.25% and 4.32%. Markets currently price the RBA cash rate to be unchanged at the next meeting on 7 May, with a 65% chance of a cut by November.
New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged at the next meeting on 22 May, with a 70% chance of a cut in August.
Itraxx Europe widened 1.3bps to 56.4bps with Santander and Generali the best performing contracts and Lufthansa and VW weighing on the index. CDX IG tightened 0.3bps to 52.8bps; Paramount Global and Freeport had the best performing contracts while D.R Horton and General Motors were a drag on the index. Cash bonds tightened 1.6bps to 118.6, the best performing sectors were utilities and industrials while financials, both senior and subordinated were the worst performing.
Commodities
Crude markets marked time as traders wrestled with the sharp rise in US crude inventories versus the risks of an imminent drone or missile attack on Israel by Iran or its proxies. The May WTI contract is down 1.38% at $85.02 while the June Brent contract is down 0.29% at $90.22. Adding to the headwinds on crude are the overbought conditions, the break higher in the US$ and the pricing out of rate cuts post the stronger than expected CPI release. However, many in the market are still looking for further strength over the summer with Rystad forecasting the supply demand balance will be tight which could push oil up to $100. Macquarie warned though that they think “it will be difficult to maintain Brent above $90 into 2H24 without actual supply disruption associated with geopolitical events”. The OPEC monthly report noted “robust oil demand” in the summer months with global oil demand expected to grow by 2.2mbpd yy in Q2 and 2.7mbpd yy in Q3. The report notes that this will warrant “careful market monitoring, amid ongoing uncertainties, to ensure a sound and sustainable market balance”. In gas markets, Russia again attacked underground gas storage facilities in Ukraine sending gas prices higher in Europe. The May TTF contract jumped 8% on the news though the national energy company Naftogaz Ukrainy reported the facilities were still operating.
Metals showed some signs of profit taking with copper slipping below $9,400 to $9,361 while nickel fell 3.45% to $17,730. BHP’s Escondida mine reported 97,500t of copper production in February, unchanged from January but up strongly from a year ago. However, Cochilco announced 103,700t produced in February, down slightly from the previous month and unchanged year on year. CNMC Copper Mines will almost double its copper output from the Luanshya mine in Zambia. Once it completes a $500m rehabilitation, the mine will produce 83ktpy. The mine has been flooded for 23 years. Bloomberg noted that China is reducing its copper smelting output with data from Savant confirming about 8.5% of the country’s smelters were inactive in Q1, up from 4.1% in the same quarter last year. For March alone, the inactivity rate rose to 9% and “accelerated to as much as 13% in the final days of the month”. Savant noted that “April figures must be watched closely to establish whether this is a trend that will be sustained”.
Finally note that iron ore markets probed 1-month highs helped by news that local governments were further easing housing rules. The May SGX contract is up $1.50 from the same time yesterday at $107.95 while the 62% Mysteel index is up $2.35 at $108.50. A total of 15 cities have lowered the base for mortgage rates on first time home purchases as of Wednesday according to the Economic Observer. Morgan Stanely joined Goldman, upping their China growth forecast, expecting the economy to expand at 4.8% up from 4.2% on better-than-expected export growth. China will report its first batch of March trade data including iron ore imports today and Q1 GDP and March IP next week.
Day ahead
NZ: March’s selected price indices will likely signal some upside risk to the RBNZ’s inflation forecast. An increase in retail card spending is expected in March, but the longer-term trend will remain broadly flat (Westpac f/c: 0.8%mth). The manufacturing PMI has lifted off recent lows but remains in weak territory.
China: The trade surplus is expected to return to an elevated level in March, supported by robust demand from Asia (market f/c: US$69.1bn).
US: The level of consumer sentiment will likely remain little-changed in April; sensitivity around the inflation outlook will remain key over the coming months (market f/c: 79.0). March’s import price index should continue to reflect global goods disinflation dynamics (market f/c: 0.3%mth). The FOMC’s Collins, Schmid, Bostic and Daly are all due to speak.
Related articles
Aussie loses its uptrend mojo
Browse topics
Disclaimer
©2024 Westpac Banking Corporation ABN 33 007 457 141 (including where acting under any of its Westpac, St George, Bank of Melbourne or BankSA brands, collectively, “Westpac”). References to the “Westpac Group” are to Westpac and its subsidiaries and includes the directors, employees and representatives of Westpac and its subsidiaries.
Things you should know
We respect your privacy: You can view our privacy statement at Westpac.com.au. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
Disclaimer
This information has been prepared by the Westpac and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that (a) no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material; (b) this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate; (c) to the best of the author’s knowledge, they are not in receipt of inside information and this material does not contain inside information; and (d) no other part of the Westpac Group has made any attempt to influence this material.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz .
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK and EU: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
Westpac Europe GmbH (“WEG”) is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.