Market Wrap.

Jobs worth.

Despite the lift in US stocks and post market beats from Meta and Amazon giving a further lift to US futures after hours, Chinese stocks came under pressure into their mid-day break and then slid sharply into their mid-afternoon.

An “unseen hand” of support was then apparent and triggered a sharp squeeze, though this failed to be persistent and stocks unwound much of the squeeze into their close (Shanghai Comp fell -3.75%, rebounded to be -0.6% before sliding into a close of -1.46%). Overseas media continue to opine on China’s growth woes, whilst domestic media, as Westpac’s Elliot Clarke has highlighted, focus on the potential gains from investment and production in technological innovations.

Market sentiment elsewhere was sound with a notable outperformance in S. Korea’s Kospi (+2.87%). ASX lifted +1.47% to make a record weekly close with Nikkei closing +0.41% and Taiex +0.51%.

NZ January Consumer Confidence Index ticked up to 93.6 (prior 93.1). Current conditions lifted a sound 5 points from recent weak levels (to 85) though the firmer Expectations slipped 3 (to 99) d. Uncomfortably for RBNZ, inflation expectations rebounded, within the context of its recent downtrend, to 4.3% from 3.9%.

NZ Dec. Building Permits remain highly volatile. Despite a larger than consensus rebound of +3.7%m/m this was after an outsized -10.6%m/m in Dec.

The context should be seen on the 12-month decline, admittedly from very high levels, of -24.8%y/y (-23.9% in Dec.). The impact on the building pipeline continues to moderate because of the very large consents seen in recent years, but there is a more marked slowing of commercial projects as the economy fades.

Real Estate agent Barfoot & Thompson noted a rise in New Year listings and more sales being recorded though the rise in supply has seen prices pullback more than the usual seasonal dip in January.

AU Dec. Home Loans slipped a surprise -4.1%m/m (est. +1.0%) with clear indications that the recent surge is tapering off as rate hikes and affordability constrain the housing market.

The value of Owner Occupier loans fell by -5.6%m/m (-6.7%m/m in numbers of loans) with investors -1.3%m/m.

AU 4Q PPI garnered little interest with a mild +0.9%q/q gain (+4.1%y/y).

The long-standing stevedore strike action and port disruptions has ended with DP World and Maritime Union of Australia agreeing (in principle) to a headline pay deal of 23%, though this is spread over 4 years. The deal occurs ahead of next week’s 2-day new look RBA Board meeting and is likely to increase RBA focus on labour and wages, key factors mentioned in recent policy updates for ECB, BoE and FOMC.

AU focus is clearly now turning to RBA’s meeting, their policy guidance, updated forecasts and views within the SoMP, also published on Tuesday, and Gov. Bullock’s Press Conference. Commentators and market pundits continue to jostle around when the RBA easing cycle may begin.

A dearth of top tier, or even second tier, data in Europe means that markets are holding firm ahead of the US labour force data.

After softer than profiled ADP Employment, a mild uptick in weekly jobless claims and soft employment components in the most recent Fed and ISM surveys, markets may be skewed towards a softer read. However, Bloomberg’s “Whisper” of market participants views for NFP has actually lifted to 210k, above the official forecaster consensus of 185k.

Given the shift in CB focus to labour and wages data, the survey will be scrutinised more intently across all aspects, especially given the recent more solid profile in the Establishment part of the data than the Household Survey.

US will also see the final update for U. Michigan’s Consumer Sentiment and Inflation Expectations survey for January as well as Factory Orders.

US yields are hovering above US closing levels with 10yr yields flat to 3.88% and 2yr +2.5bps at 4.23%.

10yr Gilt yields have lifted +5bps, reflecting the late rebound in US yields, to 3.80%, 2yr +6.5bps to 4.30%.

10yr Bund yields are +1bp at 2.16%, 2yr +4bps towards 2.50%.

USD remains softer ahead of the NFP release.

EUR had lifted to retest 1.0895, edging back to 1.0880 (+0.1%) ahead of US trading.

AUD still outperforming on a rebound above 0.6600 (+0.5%). NZD is +0.25% at 0.6160 with GBP at 1.2760 (+0.1%) while JPY has pared back gains to trade at 146.55 (-0.1%).

European bourses are holding early rebounds with DAX +0.8%, CAC 40 +0.65% and FTSE 100 +0.35%. Nasdaq futures are trading +1%.

We Get

AU: (F) PSI, MI Infl. Gauge, Job Ads. & Trade (5th), 4Q Real Ret. Sales & RBA Policy/SoMP/Press Conf. (6th), RBA Bullock (in Parl.) (9th), Westpac Cons. Sent. & NAB Biz Conf. (13th), Cons. Infl. Exp., Labour Force & CBA Household Spending (15th)

NZ: ANZ Commodity Px. (5th), 4Q Labour/Unempl./Wages (7th), REINZ (tbc), RBNZ 2yr Infl. Exp. (13th), Card Spending & Selected/Food Px. (14th), Net Migration (15th), BizNZ PMI & RBNZ Gov. Orr Speaks (16th)

EZ: Ge Trade, (F) Services PMI, EZ Sentix Survey & EZ PPI (5th), Ge Fact. Orders, ECB Inf. Exp. & Ret. Sales (6th), Ge Ind. Prod. (7th), ECB Bulletin (8th), Ge (F) CPI (9th), ZEW Survey (13th), EZ 4Q GDP & EZ Ind. Prod. (14th)

UK: (F) Serv. PMI (5th), BRC Sales (6th), RICS Hse. Px. & Jobs Survey (8th), Employment/Earnings (13th), CPI/RPI/PPI & Hse. Px. (14th), 4Q GDP, Monthly Prod. & Trade (15th), Retail Sales (16th)

US: NFP/Employment, U. Mich. Cons. Sent. & Infl., Fact. Orders & Services ISM (2nd), (F) Serv. PMI & Service ISM (5th), Trade Balance (7th), Claims & Wholesale Inv. (8th), CPI Revisions (9th), NY Fed 1yr Infl. Exp. (12th), NFIB & CPI (13th), NY Emp. Fed, Retail Sales, Imp./Exp. Px., Claims, Ind. Prod. Inventories & NAHB (15th)

Westpac publications

AU & NZ Economics Weekly : Drop back and bumping around the bottom of the cycle.
Westpac AU & NZ Economics

Data flow since November and this week’s CPI release have sealed the deal for Luci Ellis (standalone). RBA is unlikely to raise rates further with cash rate on hold next week.
AU CPI details confirm disinflation and Cliff Notes see AU data signal soft activity. FOMC and BoE kept policy on hold as disinflation plays out, but with concern over sticky services inflation. China’s difficult growth path outside of high-tech and infrastructure.
Updates to views and forecasts with data reviews and previews.

AU Dec. 2023 Housing Finance : Soft finish.
Matthew Hassan

Dec. home loan approvals value fell -4.1%m/m (+11.7%y/y) as owner occupier loans fell -5.6%m/m (number of loans -6.7%m/m) as housing moderates, hit by affordability pressures.

AU Economics Update Video : The Redbook – Will the consumer gloom lift?
Matthew Hassan

Despite some promising signs on inflation, consumer sentiment remains stuck near historic lows. What will it take to lift the mood?
Examples from overseas, notably US, it may be sometime for confidence to turn and cost-of-living issues may persist for some years and disposable incomes have contracted.
Themes from The Redbook/Consumer report show depressed time-to-buy levels, themes remain in similar gloomy mood of the past year and soft spending extending into 2024.

NZ Dec 2023 Building Consents : Despite rebounding, trend of consents is firmly on downside.
Satish Ranchod

Consents rose +3.7%m/m (Westpac est. +5.0%m/m), but this is after -10.6%m/m in Nov. and the annual profile was a fall of -24.8%y/y (prior -23.9%).
The falling trend in consents will lead a downturn in building activity in 3035, but delayed pipelines due to material and labour constraints leaves much to be completed.
Fewer commercial projects are coming to market with floor space consents falling. Higher cost structures for developers and a softening economy are putting the brakes on projects.

NZ Weekly Economic Insights Video : Horses for courses.
Kelly Eckhold

RBNZ’s Conway did not react to softer data releases recently and underscored their hawkish stance due to high and sticky domestic inflation pressures despite low growth.
Comments from US Fed. pushed back expectations of rate cuts, but were open to cuts later in the year with easing inflation despite their firmer (than NZ) economic outlook.

Strategy Views on a Page : Summary of Westpac Strategy Group’s key market views.
Martin Whetton, Sean Callow, Richard Franulovich, Imre Speizer, Damien McColough

FX

USD - Regional US bank instability clouds USD prospects, but still favour long DXY around 103.75 support for moves to 104.25. Risks of softer NFP and a flow of Fed speakers should reinforce the push back on March easing. Weak China sentiment should also support USD.
AUD – Muddied USD outlook, but yield spreads and undermined risk appetite to keep AUD on backfoot. RBA will be key next week post softer AU CPI and 0.6500-10 remains at risk.
NZD – Near term range (0.6060-0.6150) has held and now risks a push through resistance into 0.62’s. Unlikely now to get a buy potential near 0.6000 and look to chase an upside break (potential for 0.6300).

Rates

US – Post FOMC rally continues with bull flattening, but with 10yr at 3.88% and 6 cuts priced over the year, can rally extend? US NFP key near term, but still expect 3.80-4.10% range yet favour buying any dips within that range.
AU – RBA key to dissuade or affirm market pricing of mid-year start to easing and 2.5 cuts into year end. Still like IRM4-IRM5 spread widener. 3-10yr curve unlikely to steepen further and bounces from flat in AU-US 10yr spread favoured as Fed likely to cut first.
NZ – 2yr swap consolidating in 4.50-4.80% range, though momentum testing downside on offshore pressures. NZ labour data and Orr speech may whip market and lift volatility with a bias to reduce pricing of easing. Remain payers of 2-10yr spread and 10yr NZGB vs swap. Syndication in NZGB a focus as well and impacting weekly tender cover.

Funding/Basis

Funding stable, though liquidity concerns may evolve from US regional banks and poor European earnings reports.
Further tightening of AU BBSW/OIS and banks remain well funded with no sign of higher bill issuance around maturing TFF.
AUD Xccy basis low/tight with few clear opportunities for investors.
Is pricing of RBA easing too much too soon? May be opportunity to take some trades off table.

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