Markets Daily
Amid little major news, the US dollar and bond yields fell slightly, while equities rose - the S&P500 up 0.9%.
Currencies/Macro
In a mostly uneventful session the US dollar index rose and fell, and is down 0.1% on the day. EUR roundtripped from 1.0660 to 1.0624. USD/JPY rose from 154.60 to 154.85 – a 34-year high.
AUD rose from 0.6425 to 0.6455, among the outperformers as global risk appetite extended its recovery after Friday’s tumble linked to Mid-east geopolitics. NZD rose from 0.5895 to 0.5929. AUD/NZD rose from 1.0880 to 1.0905.
The Chicago Fed’s national activity index edged up to 0.15 (est. 0.09, prior revised from 0.05 to 0.09).
Eurozone consumer confidence slipped to -14.7 (est. -14.5, prior -14.9).
Interest rates
The US 2yr treasury yield fell from 5.00% to 4.95%, while the 10yr yield fell from 4.66% to 4.61%. Markets price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting on 2 May, with an 85% chance of a cut by September.
Australian government bond yields (futures) fell from 3.90% to 3.86%, while the 10yr yield fell from 4.36% to 4.31%. 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 60% chance of a cut by October.
Credit indices reflected the solid session in equity with Main 2bp tighter to 58 and CDX in 2.5bp to 54, US cash was also flat to a couple of bp better, however it was a fairly subdued open for primary. Europe saw 4 issuers price ~EUR3.25bn (ex-SSA) including deals from US issuers Prologis (dual tranche EUR550M 10yr, GBP350M 16yr) and P&G (EUR1,5bn across 4/10yr). It was quieter in the US with Amex’s USD3.5bn post earnings offering the only deal in the market, completing a combination of 3nc2yr and 6nc5yr senior together with an 11nc10yr Tier 2 offering.
Commodities
Crude markets marked time with limited signs of rising conflict in the Middle East capping gains but moves to sanction Iran’s oil sector limiting losses. The June WTI contract is down 0.1% at $82.14, while the June Brent contract is also down 0.1% at $87.20. An Iraqi Government spokesman said that resuming Kurdish oil exports via the Ceyhan pipeline will likely “take some time” and there is “no specific time frame to resolve negotiations with foreign oil companies in the region”. Flows through the 450kbpd pipeline were halted on March 25. In gas news, the EU will consider a ban on Russian LNG imports as part of a 14th round of sanctions. Swedish Foreign Minister Billstrom said “one of the most important things that we see to it will include the import ban on [Russian] liquified natural gas”.
Metals jumped yet again as copper surged towards $10,000 helped by expectations of stronger activity data in the US and further signs of mine disruption in Africa adding to the momentum. However, we are closing the day slightly lower on copper, down 0.23% at $9,853 while aluminium also fell 0.41% to $2,658. Bloomberg reported that “Glencore and Trafigura’s sanctions games are draining the LME” of aluminium after new UK sanctions on Russian metals saw a rush towards arbitrage trades. Under the new rules, the UK has allowed ‘old’ Russian metal held pre-April 12 to continue to be traded on the LME. But by withdrawing then re-registering the metal under a new category, the metal can only be traded by non-UK persons, increasing the period of time it will sit there generating “rent sharing”. 91% of aluminium at the LME is Russian while its 62% for copper. The spot to 1 month LME aluminium spread has surged to the highest level since June last year on the developing trade. Meanwhile the IAI reported that global aluminium production rose 3.54%yy with production in China rising a hefty 4.88%yy.
Finally note that iron ore showed signs of profit taking after the aggressive run up through April. The May SGX contract is down 60c from the same time yesterday at $115.30 while the 62% Mysteel index fell 25c to $116.65. There was little fresh news, though in steel markets Chile was reported as reopening its largest steel plant after the country imposed tariffs on Chinese imports. Latin America imported 10mt of Chinese steel last year, up 44%yy according to data from the Latina American Steel Association.
Day ahead
Japan: The Jibun Bank PMIs have highlighted a persistent softness in manufacturing conditions since late last year, whilst services activity continues to improve.
Eurozone/UK: The Eurozone’s HCOB PMIs should continue reporting a tough outlook for manufacturing and subtle improvements in services activity (market f/c: 46.5 & 51.8). In contrast, the UK’s S&P Global PMIs are painting a more constructive picture so far this year, across both manufacturing and services (market f/c: 50.4 & 53.0).
US: April’s S&P Global PMIs are expected to showcase a slight improvement in conditions across both manufacturing and services in the month (market f/c: 52.0 for both). Until a material improvement in supply eventuates, new home sales will likely hold around current levels (market f/c: 1.3%mth). April’s Richmond Fed index should continue reflecting a fragile manufacturing sector for the region (market f/c: –8).
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