Market Wrap

Post Payrolls pause

Further Reactions to Friday’s US employment data, which were notably mixed, suggest that recent moves became “tired” and prone to pauses, retracements or corrections. The extent of such moves will help determine whether the Ides of March this week will set markets up for further dynamic moves through the Central Bank policy meetings due next week.

Chinese February CPI data, released on Saturday, saw a larger than anticipate lift in CPI to a still soft +0.7%y/y (est. +0.3%y/y, prior -0.5%y/y). However, the data are always suspect around Lunar New Year and risks lie towards an unwind in subsequent data.
The February PPI data showed yet another disinflationary fall to -2.7%y/y (est. unchanged at 2.5%y/y).

Although stocks fared relatively well (Shanghai Comp. closing +0.74%, H. Seng +1.3%) as local media reinforced that their Two Sessions conferences had inspiring confidence. However, reports that another major property developer, Vanke, is in need of financial support added to concerns about the lack of overt support for the construction sector and triggered sharp unwinds in bulk commodities. Markets are finally talking about the rise in Chinese inventories (as has been highlighted in recent Westpac’s Commodity Narratives.
Dalian May Iron Ore futures sunk to -5.4% in late trading with SGX April Futures slumped some -6.9% to USD107.25/mt. Coking Coal also performed weekly, sliding -2.65% on the day.

Japan’s final 4Q GDP release did see the country avert contraction, but disappointed at +0.1%q/q (est. +0.3%q/q). In conjunction with the strength in JPY, yet further reports that BoJ is poised to start withdrawing from its highly accommodative policy settings and continued weakening in tech stocks from slips seen in US, Japanese stocks underperformed with Nikkei -2.19% and there was no sign of BoJ entering the market.

The continued discussion of BoJ tweaking policy pushed 10yr JGB yields +3bps to above 76bps.

There were no data releases in AU or NZ.
Yields were marked lower, largely in line with moves in US, though the 10yr AU-US yield spread moved to -11.5bps (from -10bps). AU media continue to speculate about the potential shift from Treasurer Chalmers towards more fiscal support for the economy whilst also at times erroneously reporting on the fiscal strains across States, notably Victoria. This week’s Westpac AU & Rates Weekly draws upon the increased interest in state finances, highlighting that much of the recent “news” has already been in the markets. Despite the heavy tone from the media and S&P updates, there were not any notably moves in Semi-spreads though the interest in May’s Budgets period is increasing.

Data across Europe is decidedly low key, allowing markets to focus on the Euro Group’s discussions on Capital Market Union as well as expansion.

Although reports of softening in UK’s labour markets as BoE tightening impacts businesses were released on Friday, they were suggested to be the reason for a mild underperformance in GBP and outperformance in Gilts.

UK’s February labour update tomorrow, and then production data on Wednesday, are therefore likely to gain increased market interest.

USD continued to consolidation and interim rebounds in USD/JPY have faltered, pulling back to 146.65 (JPY +0.3%) though other FX majors have been contained.
AUD has slipped -0.6515 (-0.15%) as it corrects from its stretched rise from 0.6478 on Tuesday to 0.6668 on Friday (standard support likely in the 0.6575-95 area).
NZD is little changed at 0.6177 with EUR flat at 1.0840 and GBP -0.1% at 1.2845.

US yields have seen some minimal curve flattening with 10yr yields at 4.07% (-0.5bps) and 2yr yields at 4.89% (+1.5bps).
10yr Bind yields are unchanged at 2.265% with 2yr +1bp at 2.77%.

UK 10yr Gilt yields are -3bps at 3.945%, 2yr -2bps at 4.23%.

European bourses are close to their opening weaker levels with DAX -0.75%, CAC 40 -0.45% and FTSE 100 -0.25%.

US data is limited to NY Fed’s 1yr inflation expectations survey with the key interest being tomorrow’s February CPI.

We get

AU: NAB Biz Conditions, RBA Asst Gov. Hunter & CBA Household Spending (12th), RBA Policy Meeting (19th), Flash PMIs, RBA Woods speaks (COO) & Labour Force (21st), RBA FSR (22nd), Westpac Cons. Sent. (26th)

NZ: Card Spending (12th), RBNZ Gov. Orr speaks (12th & 13th) in UK REINZ Hse. Px. (tbc), Selected & Food Px. (13th), Net Migration & RBNZ Econ. Conway speaks (14th), BizNZ PMI (15th), PSI (18th), Westpac/McD-M 1Q Cons. Conf. & 4Q C/Acc. (20th), 4Q GDP (21st)

EZ: Ge (F) CPI (12th), EZ (F) 4Q GDP, EZ Ind. Prod. (13th), Ge Imp. Px., EZ Trade & EZ (F) CPI (18th), ZEW Surveys & EZ 4Q Lab. Costs (19th), Ge PPI & EZ Cons. Conf.(20th), Flash PMIs & ECB Bulletin (21st)

UK: Unempl./Empl./AWE (12th), Production & Trade (13th), RICS Hse. Px. (14th), BoE Infl. Exp. (15th), Rightmove Hse. Px. (18th), CPI/RPI/PPI (20th), PSNB, Flash PMIs & BoE MPC (21st), GfK Cons. Conf., Ret. Sales & CBI Trends (22nd)

US: NFIB & CPI (12th), Ret. Sales, PPI, Ind Prod., Claims & Inventories (14th), Empire Fed, Imp./Exp. Px., Ind. Prod. & U. Mich. Cons. Sent. (15th), NY Fed & NAHB (18th), Bild. Starts/Permits (19th), FOMC (20th), 4Q C/Acc., Claims, Philly Fed, Flash PMIs, Leading Index & Existing Home Sales (21st), Chic. Fed, New Home Sales, Dallas Fed. (25th)

Westpac publications

AU & NZ Economics Weekly : (Monday Re-Issue) The slow lane in the tunnel.
Westpac AU & NZ Economics

Soft 4Q GDP data confirm Westpac’s view (Luci Ellis Standalone) that AU domestic economy is soft, particularly for the consumer. Pressures on households should ease.
AU economic health check features in Cliff Notes, from demand and trade to housing, alongside ECB policy decision, Powell’s Testimony, US and UK data updates and China’s NPC.
Updated forecasts and views, with data reviews and previews.

NZ Economics Weekly Commentary : Fiscal Pressures and Construction Crunch.
Westpac NZ Economics

NZ’s weak economy was highlighted by Treasury tax take and construction data and coming tax revenue releases will be closely and pressures on NZ’s fiscal stance.
Population growth and easing of construction sector constraints suggest that the slow down will not decline in line with consents but data is likely to remain subdued.
Data previews and reviews accompany updated forecasts.

NZ 4Q 2023 GDP Preview : Flat as a pancake.
Michael Gordon

· Westpac forecast a flat outcome for 4Q GDP (same as RBNZ view) on soft demand but services sector holding firm as tourism lifts.

· Despite population growth, the flat outcome reflects the extent of rebalancing from the prior overheated economy due to Covid period monetary policy and fiscal responses.

US Economics Update : US Labour market – shifting risks require a broad assessment.
Elliot Clarke

Declining household survey employment is a striking contrast to nonfarm payrolls continued strength. The ISMs point to downside risks ahead.

AU & NZ Rates Weekly : Yields near lows, respect range, but remain better tactical dip buyers.
Damien McColough, Imre Speizer, Uma Choudhury

Will the optical 3-10yr box flattener reverse post-roll? What could push swap spreads out of their range?
As budget season approaches there is ongoing focus on state finances & their need to focus on fiscal repair. Semi-Government Funding Progress vs Task.
In NZ, we review our two “soft” steepening trades.

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

FX

USD – Remains vulnerable, despite post-NFP stabilising, given softer details to Payrolls and Chair Powell/s “not far” from confidence to ease. Potential persists for a range flip towards 101.00-25 support.
EUR – Stopped ahead of 1.10, but potential remains for EUR trading in the upper half of its (1.0695-1.1140) range since late Dec.
JPY – USD/JPY likely to remain heavy with selling likely toward 148 on growing expectations that BoJ might tweak policy at 19th March policy meeting. Set to test support in 146-147 area.
CNH – More constructive short term with USD on backfoot and China’s trade firming.
AUD – AUD has gained on softening USD and global issues more than AU domestics but also dividend related inflows. Though AU growth momentum is softening, AUD should find support below 0.66 and push into the 0.6650-0.6700 as a new higher range is being set.
NZD – Upside of 0.6040-0.6220 range since mid-Jan at risk of breaking upwards with a multi-week target of 0.6370.

RATES

US – 2yr and 10yr closed last week at lows of 20bps ranges. Fed speakers now in lockdown into March 19-20 FOMC, so CPI is week’s key release ahead of dot-plot updates. Given scale of recent moves, risks are skewed for larger moves on stronger number and vice versa. Longer term, remain better buyers on dips, basis likely 4.00-4.40% range.
AU – Mostly tracking offshore moves, with lower beta at short end given less ardent pricing of RBA’s easing path. Awaiting better levels to reset AU-US 10yr spread.
NZ – Swaps fell further last week, led by US and previous week’s dovish RBNZ. Potential to fall further next month but at lesser pace, given pricing of OCR easing.
Bias to enter 2-10’s steepeners below -60bps.

Funding/Basis/Liability Management/Commodities

Further views and updates across key areas.

AUD/NZD Snapshot : Corporate focused one-page snapshot of AUD/NZD views.
Richard Franulovich

RBNZ’s less hawkish tone on 28 Feb. set a more secure footing for AUD/NZD. RBA meets on 19 Mar. and is likely to await 1Q CPI (24 April) before re-assessing price trends and policy.
AUD/NZD rebounds from sub-106. In late Feb is sen as having further upside potential towards 1.0850 and potentially 1.09 by Q3 based on AU’s superior fiscal and C/Acc. metrics.

#japan

Stay informed with Westpac IQ

Latest articles

Around the Grounds

FinanceAM

What's Priced In

Browse topics