Fed's Waller inches open the US rate cut door
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Tapas is Head of Market Economics at NAB and provides commentary and insights for our clients on the economy and financial markets including regularly kicking off the working day with key overnight updates on NAB’s Morning Call podcast. Bringing a global perspective, Tapas has previously worked for NAB in London, and continues to work with NAB’s diverse range of clients, from SMEs to institutions, both in Australia and abroad. Prior to NAB, Tapas spent six years at the Reserve Bank of Australia and also worked as an economic adviser in the Department of Prime Minister and Cabinet, advising the Gillard, Rudd and Abbott governments.
Fed's Waller inches open the US rate cut door
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Another choppy night on bond markets with 10yr yields on net little changed and the curve twist flattening slightly.
A choppy session with softer-than expected second-tier US data seeing yields fall, while the USD gained smalls and commodity currencies underperformed
Two events late in the session dominated price action. The first was a poorly received US 30yr Treasury auction. The second was not dovish comments by Powell who sounded still hawkish.
Quiet data wise, but some notable moves in markets.
Risk-on continues in the wake of Wednesday’s FOMC meeting as investors price the aggressive monetary hiking cycle as being closer to the end.
Risk sentiment remained fragile overnight with equities extending recent losses with disappointing earnings outlooks from major tech companies, despite mostly beating on current quarter earnings.
A quiet night for data, but a big night for bonds.
Strong US retail sales sees yields rocket – 10yr yield +14bps to 4.84%
An impending Israeli ground operation into Gaza saw risk aversion rise on Friday.
Global markets were relatively stable overnight ahead of tonight’s key risk event of US CPI.
The sell-off in global bonds continued with fresh cycle highs being set for longer-term yields. The
It’s the same story again today – equities hurting, the US dollar higher and bond yields reaching 16 hear highs. What’s changed today is a sharp rise in oil prices. NAB’s Tapas Strickland says there’s a great deal of nervousness that supplies in the US have been destocked too far, down to levels last seen in 2014
The bond selloff continued overnight in what was a very quiet night for newsflow. The US 10yr hit a 16yr high of 4.55%, now 4.53%, and up some 11.2bps over the past 24 hours.
The BoE is the latest to put rates on hold. But are they done? JBWere’s Sally Auld says its not safe to assume it’s over for any central bank.
The Fed isn’t the only central bank making a call this week. There’s also that expected hike from the Bank of England, plus the central banks of Japan, Switzerland, Sweden and Norway.
It was a subdued market reaction to the highly anticipated US CPI print.
Powell affirmed the Fed will ‘keep at it’ on inflation, but what else happened at Jackson Hole? In the weekly, we pull out some of the key insights, including on the outlook for government debt and the ‘friendshoring’ dynamic.
The latest major bank profit reporting/trading updates suggesting households so far by and large are managing the transition to higher interest rates.
Yields lower on Friday, but still close to recent cycle highs
US Core CPI just 0.160% m/m and 3m annualised rate now 3.1%
Northern hemisphere summer holidays and a lack of data has seen markets treading water ahead of US CPI figures on Thursday.
Yields rise, US 10yr hits 4.12% before easing back to 4.08%, highest since Nov 2022
Markets were generally quiet to start to week ahead of key risk events later in the week (BoE Thursday, US ISM Services Thursday, US Payrolls Friday).
Calling a US recession has been a bit like “Waiting for Godot”, the title of the 1953 play by Samuel Beckett.
Weak European PMIs have seen yields fall, though moves in US Treasuries retraced latter in the day.
US yields higher with Jobless Claims lower than expected
Another bond rally, this time in the UK with inflation coming in softer than expected.
Central bankers globally seem to have switched to a more measured tone recently. Overnight tapas
Yields tumbled and risk assets soared as US CPI came in much softer than expected
A quiet night overnight given shortened pre-holiday trade in the US ahead of Independence Day today.
Fed, ECB, BoE heads reiterate hawkish views; BoJ reiterates dovish stance
Australia’s population growth has surged over the past year. The surprise has been how quickly it has rebounded after borders were re-opened from November 2021.
Soft risk sentiment overall last night which was mostly China driven.
The BoC shocked markets overnight, hiking by 25bps to 4.75%.
A positive night for risk sentiment with equities up (S&P500 +1.0%; Eurostoxx50 +0.9%), USD down (DXY -0.7%), and yields lower (US 10yr -3.8bps to 3.60% and 2yr -6.4bps to 4.34%).
Public Holidays in the US, UK and Germany made for a very quiet night as far as market moves are concerned.
A quiet start to the week with little in the way of significant market moves.
In this Weekly we explore two key US themes we are tracking closely for the trajectory of rates and inflation, in both Australia and the US
Hopes for a deal on the debt ceiling improved.
A quiet start to the week with little in the way of new news or top-tier data.
Payrolls more than solid enough, challenging views of imminent rate cuts
The federal budget has substantially improved over the past year to the extent that the 2022-23 Final Budget Outcome could be in surplus.
Big moves in markets overnight as US regional bank worries reignited, signs of catering in European loan demand, and a sharp fall in US job openings.
A quiet end to a choppy week, with some intra-day volatility following stronger than expected PMIs.
Weaker second-tier US data has helped push global yields lower, while disappointing earnings by Tesla (-9.7%) and talk of margin compression dragged down equities.
A quiet overnight session despite the plethora of earnings reports.
Todays podcast Soft US PPI helps drive a risk-on rally Adds to views the US Fed is almost done USD falls, and AUD and NZD outperform Yields mixed, equities up ahead of earnings Coming up: US Retail Sales, US Bank Earnings “Love is in the air, everywhere I look around; Love is in the air, […]
It was a quiet session overnight ahead of key risk events later in the week (US CPI is on Wednesday and bank earnings are on Friday, including Wells Fargo, Citigroup and JP Morgan).
A softer than expected US Core PCE Deflator (0.3% m/m vs. 0.4% expected) helped push yields lower on Friday (US 10yr -8.1bps to 3.47%).
The FOMC hiked rates by 25bps to 4.75-5.00%, continued QT, and kept the existing dot plot which pencils in one further hike to 5.00-5.25%. Market reaction was dovish, but was not risk on.
The collapse of SVB, the 16th largest bank in the US with $209bn in assets (as at 31 Dec 2022), shook markets on Thursday and Friday. That
Markets broadly held onto Tuesday’s wild moves, which were driven by US Fed Chair Powell’s Senate Testimony. Overnight Powell spoke again to the House.
Is Australia different? We put the inflation and activity data in context and discuss why Australian rates might not need to go as high as elsewhere.
The US 10yr finally breached 4.00% for the first time since November, following five days of resistance. A hot German CPI and renewed price pressure in the Manufacturing ISM drove, while risk assets were mixed given the strong China PMIs yesterday
Overall clients on the Sunshine Coast and Noosa continue to report strong conditions and very tight labour markets. While only a microcosm, the themes from these clients are broadly reflective of what we are picking up in the NAB Business Survey, and it is clear the RBA is not yet in sufficiently restrictive territory to slow demand enough to be confident that inflation will return to the 2-3% target
A quiet start to the week with no top-tier data. The biggest piece of news was the EU and UK agreeing to a new Northern Ireland trade agreement, now termed the Windsor Agreement.
It was mostly quiet on Friday and on the weekend, with an initial push higher in yields and sell-off in equities largely reversing later in the session.
A hot US PPI and hawkish comments by the Fed’s Mester and Bullard saw yields push higher and equities fall, though initial moves were pared somewhat.
Fed pricing has shot back up following Payrolls and the ISM to almost fully pricing a 25bps March hike and then a follow up May hike (there is now 40bps priced across the two meetings, up from 30bps the day prior).
Big moves overnight with the BoE and ECB feeding the market narrative that the end of the tightening phase may be nearing.
First to US wage data overnight. The Employment Cost Index (ECI) is closely watched by the Fed as it compositionally adjusts wages growth..
Since Australia Day the two biggest pieces of news were the BoC explicitly signalling a pause to the hiking cycle on Wednesday after hiking by 25bps, and US Q4 GDP which although beating expectations had a soft underbelly (2.9% annualised vs. 2.6% expected; but private domestic just 0.2%).
We compare the state of the economy to that assessed by the RBA at their December 2022 Board Meeting.
Very weak US retail and industrial production adds to the tumble in yields
US CPI cools as expected, but with even more encouraging details.
Recession risks were highlighted on Friday with the US S&P Global Services PMI again in contractionary territory.
Solid US PPI cements apprehension ahead of the US CPI & FOMC
It was a quiet night for markets devoid of any top-tier data or news flow ahead of key risk events next week (of US CPI, FOMC, ECB).
A key issue for markets is whether the US economy is headed for a recession in 2023, and when can we expect a meaningful moderation in inflation that would then enable the Fed to start to pivot
WSJ’s Fed Whisperer Nick Timiraos wrote overnight if CPI on Tuesday comes in hot then the Fed could consider another 50bp increase in February.
Markets hold, and more importantly extend yesterday’s post-Powell moves.
The RBA Review is underway and the three panel members recently publicly discussed their approach. In this Weekly we summarise these discussions and what changes the RBA panel is likely to recommend.
Latest Fed speak from Boston Fed President Collins, suggests 75bps is still in play for December, noting markets price around 52bps for the December meeting.
Republican ‘red wave’ failed to materialise, but still expect slim House majority
By downshifting the pace of hikes, central banks are acknowledging that decisions are becoming more finely balanced as they tread a fine line of returning inflation to target, while avoiding significantly overtightening policy and slowing the economy more than needed.
Risk appetite soared on Friday as Chinese whispers swept markets last week that China had put together a ‘conditional re-opening plan’, reportedly mapping out a material re-opening by March 2023.
Wednesday’s FOMC meeting continues to reverberate through markets.
NAB has pencilled in a 25bp hike, we also think there is a real risk that the RBA hikes by 50bps, and that this risk is higher than the 22% chance that markets are currently pricing.
Terminal Fed Funds pricing have lifted to 5.00% by March 2023 from 4.92% last week and continue to price a 75bp hike at the upcoming November FOMC meeting and a 75% chance of a follow up 75bp at the December meeting.
Australia’s second Budget for 2022-23 will be handed down next week (7.30pm on Tuesday 25th). Treasurer Chalmers has framed this Budget as one that will not add to inflation risks amid elevated cost-of living pressures and which occurs with a background of rising global recession risks.
Another big UK fiscal U-turn and positive earnings from BofA boosted global risk appetite last night.
It was ‘good news is bad news’ for US Payrolls which were a touch better than expected and seen as too solid to support a pivot narrative.
In Australia there are two macro developments worth watching, Seek new job ads and Consumption imports in the August trade balance.
A surprise U-turn by the UK government on the fiscal package and a weaker than expected US ISM Manufacturing (50.9 vs. 52.0 expected) have driven a large fall in global yields.
In a positive development the OBR will provide preliminary costings of the UK’s fiscal package on 7 October, instead of the previously signalled deadline of November 23 (the same day as the Budget).
This week we update our analysis of the inflation reads in the NAB Business Survey and what this may mean for CPI pressures in Australia, particularly in Q3.
Positive risk sentiment ahead of US CPI tonight.
A volatile night where earlier price action in Asia was largely reversed.
A goldilocks payrolls report failed to support risk assets on Friday, with equities and the USD quickly reversing on news that Russia was not restarting gas flows through the Nord Stream pipeline
The bond sell-off shows no signs of abating with a stronger than expected US ISM Manufacturing helping to drive the US 10yr yield up.
Central bank officials from around the world met at Jackson Hole last week. In this Weekly we highlight the key discussion points and what implications this may have.
Goldman’s noted inflation could hit 22.4% y/y in the UK in early 2023 if gas prices don’t moderate and if there is little in the way of cost of living relief.
Another night devoid of top-tier data or news flow. The past week has been a bit like Waiting for Godot with markets apprehensive ahead of US Fed Chair Powell’s Jackson Hole speech on Friday.
Markets are apprehensive ahead of US Fed Chair Powell’s Jackson Hole speech on Friday
This week we expand on the hot inflation reads seen in the NAB Business Survey and what this may mean for CPI pressures in Australia, particularly for Q3.
Equities continued their relentless rise, brushing off the inflation expectations data and hawkish Fed rhetoric
It was all about US CPI overnight with markets reacting sharply to a lower than expected print with Equity and FX markets taking the CPI miss as a positive signal, taking some pressure off the Fed and a sign that inflation has peaked.
In this Weekly we look at job ads in more detail to see what they may be portending for activity, and we also cross check the data with other information.
China is continuing its military drills around Taiwan, but that hasn’t impacted markets apart from gold (+0.7% to 1,787.61) retaining some slight geopolitical risk premium.
In Australia, the RBA met yesterday and raised the official cash rate by 50bps to 1.85% as expected, the third consecutive 50bps increase to be at its highest level since April 2016.
More price increases are likely for food and grocery. If they continue to rise in Q3 and Q4, it is hard to see US core inflation numbers moderate sufficiently for the Fed to pivot.
The ECB hiked rates by a more-than-expected 50bps, taking the deposit rate back to 0% and ending its negative interest rate policy that has been in place since 2014
In this Weekly we shine a spotlight on the household sector and what trends are starting to show as households react to higher interest rates and above-target inflation.
Risk sentiment rallied on Friday with a better than expected US retail sales print and positive earnings from Citigroup lifting equities
Risk off again overnight as recession fears intensify
In this Weekly we highlight some of the indicators that suggest a peak in global inflation is near
Risk off ahead of a big week for data, partly driven mainly by China virus news
Risk sentiment improved over the past 24 hours.
In this Weekly we explore how central banks may respond to rising recession risk and expand upon some of the leading indicators of recession
Europe remains stuck in the middle between the Russia/Ukraine crisis and a weakening global economy
A wild night for risk assets with recession risks rising.
The key policy challenge will be to gradually return inflation to the 2%/2-3% target ranges sought in the US and Australia respectively, while avoiding taking interest rates too high producing a recession and a sustained rise in unemployment
A hot US CPI report and signs of inflation expectations de-anchoring on Friday has seen yields surge, risk assets sell off, and recession talk rise.
Yields rose notably in what was a quiet night for data and events.
A positive day for risk sentiment ahead of US Payrolls tonight on no new news
Monday’s upbeat sentiment was short-lived with falls in equities and yields overnight.
The biggest news overnight is commodities, oil prices are up, which threatens to prolong the inflation narrative.
US Consumer Sentiment fell further than expected to be at its lowest level since August 2011 and with consumer confidence so low, the risk of recession is rising.
The RBA met last week and raised rates by 25bps, lifting the cash rate target to 0.35%, and signalled further hikes over coming months
The current debate in Markets is whether the Fed would be willing to let the economy slip into recession to tame inflation.
A wild ride in FX markets over the past 24 hours
In this Weekly we look at the potential impacts on theoretical borrowing capacity at different interest rates.
Global yields continued their March higher over the Easter period with the US 10yr yield hitting a fresh cycle of 2.88%, its highest since 2018.
Higher inflation is starting to impact buying conditions in the US. Will we see the same trend emerge in Australia?
Bond yields continue to climb with risk assets now coming under pressures.
The RBA clearly signalled it is contemplating lifting rates over coming months, removing language about being “patient” and pivoting the RBA to once again being forward looking.
Talk of Europe restricting Russian oil and gas has re-surfaced, driving oil prices higher
Economists outdo each other for Fed hikes with Citi calling four 50 basis point hikes back to back
The Australian Budget is set to be unveiled next Tuesday night, ahead of the federal election that must be held on or before 21 May 2022.
Yields continue to rise with US 10yr now +9.6bps to 2.39%.
Russia makes USD bond payments, adding to a sense of hope on Russia/Ukraine
In this Weekly we explore how central banks might balance the two conflicting forces – inflation expectations key according to Fed speak.
Yields have soared even as commodity prices have fallen.
Risk sentiment was hammered on Friday with sharp falls in stocks and a large rally in bonds
EU considering further measures against Russia overnight which would allow them to impose tariffs and quotas to Russian exports, further disrupting global trade.
History suggests Russia’s actions in the Ukraine may result in only a short-lived episode of risk aversion with contemporary macro themes eventually reasserting themselves.
Risk sentiment craters (S&P500 -1.3%) as the Russia/Ukraine situation has no sign of ending
Ukraine/Russia tensions continue, no further military escalation apart from cyberattacks
How high rates will go in this cycle is a key question that is being asked by clients.
Geopolitical tension lifted overnight with President Putin formally recognising the two Ukrainian breakaway regions of Donetsk and Luhansk and signing aid and cooperation agreements.
Russia/Ukraine headlines weighed heavily on risk sentiment late Friday with the US again warning Russia could invade at any time.
US inflation comes in hot again with core measures showing wides-spread inflation pressures
The key question as yields march higher is how high can they go in this cycle?
European yields soar as ECB pivots more hawkish – Lagarde fails to rule out hiking in 2022
Bostic retracts his 50bps comment, states “is not my preferred policy action” for March
CPI figures last week illustrated Australia is not an island when it comes to global inflation pressures
Hawkish hold by the FOMC/Powell sees yields rip higher and equities reverse earlier gains
Bond yields retreated at the end of last week even though the assumption remains that the Fed will signal a March hike.
RBA to end QE in February while forecasts suggest Omicron is set to peak, adding greater inflation risk.
Expect a cautious start to the week with the Netherlands going into lockdown on Sunday
The FOMC delivered a hawkish tilt for Christmas with the Fed dot plot showing three rate hikes in 2022 while also accelerating the taper profile.
2022 is set to become a year of central banks removing monetary accommodation.
Slight risk aversion to start the week with equities down, yields down and US dollar up
As we start a new week, Omicron headlines were positive on Saturday which may add to some stabilisation in risk sentiment.
Risk sentiment recovered overnight with virus/vaccine news flow being net positive
It has been a volatile session overnight driven by differing headlines around vaccine efficacy, capped off by very significant hawkish tilt by US Fed Chair Powell in Senate Testimony.
BoE’s Bailey still guiding that rates will need to be higher ahead of the Dec MPC meet.
Dovish Fed Official (Daly) flips to looking at accelerating tapering and to hikes in 2022
Austria has re-imposed lockdown restrictions with a sharp rise in hospitalisations being driven by both the unvaccinated and older fully vaccinated people.
Fed speak was not market moving, but it is worth noting it is mostly turning slightly hawkish.
Trio of strong data with US Retail, US Industrial Production, and UK Jobs all beating
In this Weekly we look at Australia’s latest monthly deficit figures ahead of MYEFO in December, which show the deficit is set to come in much better than expected even with Sydney, Melbourne and Canberra having been in lockdown
There was a mixed market reaction to the better than expected US Payrolls print on Friday with equities up, yields down and the USD lower.
The BoE shocked markets overnight with its thunderous silence.
Global yields fall at the short end in the wake of the RBA’s dovishness yesterday.
A volatile night for rates markets with short-end rates shooting up driven by hawkish signals from yesterday’s Aussie Q3 CPI and Bank of Canada meeting, but longer-end rates tumbling after the UK budget showed a sharply lower debt profile.
The RBA is likely to lag the US, UK and NZ in rates normalisation coming out of the pandemic.
Inflation fears continued to build amid the backdrop of a strong Q3 earnings season which is showing firms have some pricing power to pass on higher transitory inflation
Inflation fears are clearly lifting, with the latest driven by the rise in energy prices.
With markets having aggressively pushed Fed pricing into 2022, it is likely there is some thought that such a tightening will weigh on demand earlier.
The rise in energy prices is fuelling concerns that the transitory lift in inflation seen in the wake of the pandemic may prove to be longer lasting.
High vaccination rates should give consumers confidence to resume economic activity as restrictions ease.
Equities made an unconvincing “buy the dip” bounce as yields consolidated their recent moves.
Fed talk overnight tilted hawkish with the Fed’s Bullard advocating for two hikes in 2022 and also flagging the case for balance sheet unwind after tapering ends.
BoE meeting more hawkish than expected, seen opening door to hikes by year’s end.
US equities fail to bounce after Monday, with the S&P500 down -0.1 ahead of the FOMC.
In this weekly we look at the recent reviews done at the Fed and the RBNZ to glean what a review into the RBA may recommend.
Caution is in the air ahead of the FOMC this week where market moves on Friday tiled towards a mildly hawkish outcome.
The lift in equities appears to be a case of ‘buy the dip’ with an absence of any positive news flow apart from the very second-tier Empire Fed Manufacturing Survey which surprised sharply to the upside.
At the Fed’s annual Jackson Hole conference, markets understandably reacted to US Fed Chair Powell’s speech which effectively significantly divorced tapering from rate hikes.
It has been a slow start to the week with little in the way of market moves outside of commodities. Markets overall appear to be in a holding pattern ahead of US CPI figures tonight and the FOMC next week . The S&P500 swung between small gains and losses to finish up 0.2% after five consecutive days of losses, helped along by energy stocks.
Household consumption is almost back to pre-pandemic levels in Australia with Q2 GDP figures showing consumption is now just 0.3% below pre-pandemic December 2019 levels.
US payrolls came in softer than the consensus (235k vs. 733k expected), but a soft print was widely expected given the weakness seen in high frequency indicators such as HomeBase. The surprise for markets was more on Average Hourly Earnings which were stronger than expected
In this Weekly we argue why we think activity should again rebound sharply once lockdown restrictions are eased. Key to how sharply activity can rebound is will people feel confident to resume activity and have household and business balance sheets been sufficiently insulated from recent outbreaks?
A quiet night with markets continuing to bask in the glow of Powell’s Jackson Hole speech. The explicit de linking of tapering to rate rises has allowed equity markets to rally, while yields have moved lower. The S&P500 rose 0.4% overnight and is up 1.3% since Jackson Hole on Friday.
Cautiousness has crept back into markets on the eve of Jackson Hole. Twin suicide attacks outside of Kabul airport has seen 12 US service members killed along with at least 60 Afghans. Coming up today, Fed Chair Powell gives his key mark address at Jackson Hole.
Another day of equity gains and commodities prices. Markets are still basking in the glow of the Pfizer/BioNTech vaccine having received regulatory approval on Monday. China’s delta outbreak also appears to be under control with two consecutive days of no new domestic cases.
Lockdowns in Australia are likely to have a very acute impact on the economy, much more than what the RBA had pencilled in only a week ago. While NAB still expects a sharp rebound in activity when restrictions ease, the near-term impact is likely to be larger with lockdowns extending beyond Sydney (e.g. NSW, Melbourne and ACT).
US consumer sentiment plunges to below pre-pandemic levels with yields tumbling (US 10yr -8.2bps), but equities steady to higher with the S&P500 +0.2% to a new record high. For bonds, the plunge in consumer sentiment is an amber signal for the near-term, which if realised in real activity may impact on the timing and form of tapering and puts the focus squarely on retail sales on Tuesday
US inflation moderates, taking the pressure down a notch and playing into the Fed’s transitory narrative. It’s no surprise to see yields and the USD lower in the wake. The US 10yr fell 1.5bps to 1.33%, though CPI was the catalyst for a larger fall after it reached an intra-day high of 1.3743%.
Markets opened with a cautious mood to start the week , reflecting on both the stellar US payrolls report on Friday and the surge in the delta variant which has seen China tighten restrictions and Israel contemplate another lockdown. The Fed’s Bostic was the first voter to speak post payrolls, indicating that the Fed should taper after one or two more payroll prints.
The S&P500 (+0.6%) hit another record high ahead of US Payrolls later tonight. Payrolls of course key to the Fed’s decision on the timing and pace of tapering (see Coming Up for details). Market moves elsewhere were more limited
The antipodean central banks are taking an optimistic view of the recovery with the RBA pushing ahead with its tapering of asset purchases (despite the protracted Sydney lockdown) and the RBNZ has as good as said the central bank will lift rates in August.
Strong earnings continue to outweigh Delta concerns with the S&P500 reaching a new record high, So far 87% of companies reporting have beaten expectations and if maintained would be the strongest earnings beat since 2008.
Strong earnings have swept away Delta concerns in the US with 85% of companies reporting so far beating expectations.
Markets have dipped sharply on the back of rising COVID cases.
The Sydney lockdown is now in its fourth week with restrictions tightened further on the weekend. In this Weekly we update our estimates of the impact of these recent lockdowns.
There’s more caution in the markets today, even though numbers out of Australia, the US and China were better than expected. There’s a bit of battle fatigue hitting the market says NAB’s David de Garis.
US inflation has surprised again, up even higher than last month. But NAB’s Tapas Strickland says the indications are that it’s still transitory.
The Fed will not see the need to act swiftly after Friday’s payrolls numbers, but it will be a different story for thew RBA tomorrow. NAB’s Tapas Strickland says, given the improvements in the Australian economy, the need to run QE at $100 billion every six months is not there anymore.
It’s been a scratchy session, says NAB’s David de Garis, as markets shy away from sharp moves ahead of Friday’s payrolls data from the US.
Risk appetite retreats a little ahead of the non-farm payrolls on Friday and with the Delta strain delaying the reopening of economies, says NAB’s Tapas Strickland on today’s Morning Call podcast.
Analysis: RBA Preview – what to expect and what to watch at the July 6 meeting
Bond yields are back to where they were before the FOMC meeting, says NABs David de Garis, with the focus now back on the reflation trade.
Last week’s post FOMC sell-off was overdone, says NAB’s Tapas Strickland on today’s Morning Call podcast, evidenced by a big reversal overnight. Although markets remain jittery.
The FOMC meeting is tonight and markets are being cautious, with little movement in bonds or equities. A weaker than expected set of retail sales numbers has added to the uncertainty.
Bond yields have fallen further overnight, in some cases to levels not seen for several months.
We look at inflation expectations which have rising strongly in the US and the potential implications for the US Fed.
The rising Yuan is clearly a concern for the PBoC who announced measures to tackle it, whilst Chinese authorities are now permitting families to have three children.
The Euro lost ground on Friday as President Lagarde refused to commit to any schedule for talking tapering.
The FOMC minutes gave away more than expected with the Fed suggesting it might be appropriate at some point to discuss a plan to adjust the pace of asset purchases if the economic recovery continues.
US shares fell as investors once again weighed up inflation concerns.
US CPI numbers came in on the high side and markets have reacted swiftly with equities falling sharply and the bond sell-off pushing Treasury yields up.
US non-farm payrolls markedly undershot market expectations on Friday with just 266k more people in work versus the expectation of close to one million.
How tight does the labour market need to be for the RBA to change forward guidance?
Markets turned a little sour at the end of the week.
Markets were on a positive frame of mind at the end of the week,
The Canadian dollar has been boosted by the Bank of Canada markedly increasing their growth forecasts for this year
US equities dipped a little overnight, pulling back from record highs.
RBA and APRA suggest no imminent tightening.
Equities in the US finished Friday on new highs.
Australia has become the latest nation to express concern about the use of the Astra Zeneca vaccines on young people, except here young is anyone under 50.
There were no significant market moves overnight.
President Joe Biden and Treasury Secretary Yellen are about to give the details of their long-awaited infrastructure spending plan.
The JobKeeper wage subsidy scheme ended on Sunday March 28, how many people could potentially be displaced?
It’s been another mixed session.
Even though countries are pressing ahead with vaccine role outs, the speed of recovery might be slower than envisaged.
There were big rises in US shares overnight, with the NASDAQ rising 1.7% in this session, helped by a moderate fall in Treasury yields.
Last Thursday’s sharp fall in unemployment to 5.8% from 6.3% took the market by surprise.
Central banks are pursuing ‘maximum possible sustainable employment’, an understated evolution in inflation targeting.
Bonds yields rose sharply again on Friday, with 10 year Treasuries reaching their highest level since February last year.
The RBA’s 3yr YCC target and QE program have come under some challenge over the past week and a half amid the global bond sell-off.
The RBA might have left itself with very little to say today, having upped their bond buying in response to the sharp rise in yields last week.
Despite the increasing dovishness of central bankers the markets have been selling government bonds like they are going out of fashion.
Many believe the RBA didn’t go far enough on Monday, buying up a $1 billion of bond purchases in the face of sharply rising bond yields.
Yields are rising in Australia and globally as the reflation trade takes hold.
In this Weekly we delve into monthly trade figures and show how Australian exporters are finding markets for some of the goods subject to Chinese restrictions.
There’s absolutely no surprise that Donald Trump has been acquitted in Washington,
Markets have been fairly subdued on the back of soft inflation numbers in the US, and as investors hold off for any revelations from Jerome Powell as he addresses the Economic Club of New York.
Australia's vaccine rollout is due to start in late February with the ambitious target of having the population vaccinated by October.
Janet Yellen shrugged off concerns about the Biden stimulus package unleashing inflation on the US economy.
Today sees the first RBA Board Meeting of the year.
Equities were hit hard on Friday as the Reddit warriors made their mark.
The IMF has upped their forecasts for global growth but, as Tapas Strickland suggests on this morning’s podcast, markets don’t tend to pay a lot of attention to these numbers
New highs on the NASDAQ and S&P500.
An internal RBA document obtained under a freedom of information request discussed the likely impact of low interest rates on asset prices (see RBA FOI).
Markets are looking through the prospect on any unrest on inauguration day, but the more immediate question is what will the President do today?
An ensuing impeachment of the US President continues to be of little concern to the markets.
The inoculation program in the US has ambitious targets.
Even though a hard deadline has been set for Sunday for the UK-EU trade deal, there’s no guarantee it will all end there.
The UK has started injecting people with the COVID vaccine. If only they could inject compromise in the UK and EU negotiators who remain a long way from reaching a deal.
The prospect of a COVID-19 vaccine being deployed from mid-December (US/UK) is helping drive market expectations of a sharp cyclical rebound in 2021.
OPEC+ has struck a deal to slowly increase oil production from next month, rather than letting the production cuts fall off a cliff.
There’s a positive vibe about this morning, pushing equities higher and Treasury yields have seen a sharp rise too.
Treasurer Frydenberg today stated JobKeeper numbers have more than halved from a peak of 3.6m, to now just 1.5m as at 26 November.
The labour market has improved sharply over recent months with employment outside of Victoria almost back to pre-pandemic levels.
NAB has revised its forecasts for growth in the Australia economy.
The markets are more focused on the short-term economic hit of lockdowns than the longer-term vaccine fuelled positive outlook.
There was no new vaccine news overnight and the markets seemed a little disappointed by that, with equities down and a move to government bonds.
APRA recently released updated details on the major banks’ home loan deferral scheme.
There’s still an outside chance that in January the Democrats could take control of the Senate.
Markets have adopted a risk-on stance with the hope that there'll be fiscal stimulus to counter the impacts of COVID-19.
The RBA announced cuts to interest rates and a $100bn bond buying program yesterday.
Core inflation has been below the RBA’s 2-3% target since 2014, and for many central banks around the world, inflation has been well below target for at least a decade.
Markets turned around again with equities rising sharply.
There’s a risk that next week’s US election is more contestable than we might have considered a week ago.
The RBA is widely expected to ease policy further in November by cutting the cash rate to 0.10%, along with the 3-year yield target (YCC) and the TFF rate.
In a few hours Joe Biden and Donald Trump go head to head in the last election debate.
Equities are higher in the US today.
Australia’s population growth is expected to slow sharply over the next two years, primarily due to net migration given closed international borders.
House prices have held up surprisingly well during the pandemic, with household incomes supported by various measures (JobKeeper, JobSeeker, super withdrawals and interest rate cuts), while repayment deferrals have limited forced sales to date.
The US dollar hit a two and a half year low on Friday, whilst the Chinese Yuan showed big gains.
There’s been a market rebound on the hope that some sort of stimulus deal in the US is still possible before the election.
Equities have been helped by some strong data from the US and continued hope on a stimulus deal.
US and European equities rose sharply, with rising confidence seeing a fall in the US dollar and a rise in the Aussie.
The Federal Budget is on October 6 and today's Weekly summarises the key budget initiatives that will likely be announced.
In the US Jerome Powell spelt out very clearly in his testimony before Congress that more fiscal stimulus was needed and had been assumed by many board members in their policy predictions.
It’s been a topsy turvy session overnight.
US equities are on the rise again driven by a flurry of M&A activity, alongside vaccine hopes and reasonable activity numbers from China.
Yet house prices remain surprisingly resilient.
It’s just over six months since the COVID-19 pandemic was declared and we’re still unsure about how it will all end.
There’s been a rebound in risk sentiment.
A drop in the pound was the only significant market move overnight.
US equities continue to rise, even though the jobless claims numbers rose last week.
Labour market recovers 40-50% from pandemic lows, but large spare capacity remains.
US stocks continue to rise to record highs, helped today by strong housing starts and building permits.
Much will depend on Victoria.
Trump’s executive orders hit technology stocks in the US and China on Friday.
President Trump has indicated if no stimulus deal is reached he’ll use his executive powers.
Treasury bond yields are reaching new lows which has heightened the appetite for gold.
“We’re in a tough situation” – that was the response from Jerome Powell to one question during the FOMC press conference this morning.
The US is no nearer to reaching agreement on their fiscal stimulus package.
500k less people means a soft residential construction outlook.
After three days debating the size and shape of the European Recovery Plan, EU leaders failed to reach an agreement.
There's been a lot of employment numbers out over the last 24 hours – for the US, the UK and Australia.
The Euro’s rise is based on hopes that European leaders will reach a consensus on their rescue package this week.
The UK government going halves on lunch if you eat out in the first half of the week.
There isn’t an immense amount of confidence about how quickly economies will recover.
What happens after the JobKeeper and JobSeeker schemes end in September? "Will the economy fall off a cliff?" is one of the most frequently asked questions by clients.
Rising infection rates in US southern states hit equities hard on Friday.
Markets have been hit with a triple whammy – disturbing COVID-19 numbers emerging from the United States, a worse than expected downgrade to global growth forecasts and a big rise in oil inventories.
There’s a lot of positive sentiment again today, with US equities on the up and the NASDAQ reaching a new high.
Australia’s latest unemployment numbers are out this morning and the rate is expected to rise.
Market sentiment is higher again this morning from a surprise rebound in US retail sales, coupled with talk of a $1 trillion infrastructure program from the Trump administration.
Tracking Australia’s recovery through high-frequency data.
The rally in equities has stalled for now – except for the NASDAQ.
We’re seeing iron ore prices rise largely because of concerns over supply from Brazil.
US equities continued to rally as investors looked for signs the economy would be getting back on track. But then …
There’s a strong risk-on mood in the markets this morning.
It’s been another positive session, driving equities higher and giving another boost to the Australian dollar.
There’s been big increases in equity markets and bond yields on news of a successful stage one vaccine trial in the US.
The non-farm payrolls data on Friday showed 20.5 million new job losses in one month in the US and yet equities rose
Future contracts for Fed funds turned negative for the first time.
The Euro and Italian bonds took a hit with German judges challenging the ECB on its QE activity.
A timetable for the relaxation of measures is expected to be unveiled on Friday when the National Cabinet of Australia meets.
Fed warns of considerable medium-term risk.
Again, it seems markets are ignoring the bad data of which there’s plenty.
Industrial production numbers from China on Friday gave investors hope.
Another 5.2 million jobless in the US.
Australia joined the bull run in the share market yesterday, clocking up 20.7 percent growth since March 23.
Hope is a rare commodity these days – unlike oil.
Oil shot up in price overnight.
It’s likely prices will fall further as more countries and regions go into lockdown.
Big falls in equities and oil, as well as widespread selling of government bonds, even gold is being ditched.
The Bank of England and UK government launched a coordinated approach on tackling COVID-19 headwinds, with an emergency rate cut and fresh fiscal stimulus.
Markets have bounced back a little even though the battle over oil seems to be getting worse.
Markets have switched back to risk-off mood.
Friday marked a bad end to a tumultuous week for the markets, with equities, commodities and bond yields all hit hard.
The markets attempted a bit of a rebound earlier but it hasn’t lasted long.
The markets have spun around again,with renewed optimism and not much lingering concern from Apple’s revenue warning yesterday.
Nobody was expecting anything other than a bad GDP read from Japan but it was worse than bad.
The markets are continuing to discount the impact of the coronavirus.
Ordinarily these numbers would be a cause for optimism in the markets, yet concerns of the impact of the coronavirus are having the opposite impact.
The least surprising news today is the decision by the FOMC to keep rates on hold in the US.
Markets push back the timing of a rate cut from the RBA.
The US was on holiday Monday so it’s been a quiet session all round.
Equities have posted further gains and new record highs.
The US and China will sign the phase one trade deal tonight.
Markets have now largely unwound the risk-off moves that have occurred since Friday.
Geopolitical tensions remain centre stage with markets clearly in wait-and-see mode.
The AUD held its position after the better-than-expected Australian Labour numbers yesterday.
Two of the biggest obstacles to global economic growth have seemingly been removed, or at least sidestepped for a while.
All eyes tonight will be on the US non-farm payrolls data.
The markets were spooked overnight by threats of further tariffs from the US President if a trade resolution isn’t reached.
There was renewed hope a phase one trade deal could be reached between the US and China by Christmas.
The markets anticipate the next development in the US-China trade talks.
The markets are still waiting for developments on the US China trade talks.
The NZ dollar saw the biggest currency move over the last 24 hours.
Sterling bounced higher today, shortly after GDP figures showed the UK had narrowly missed a recession.
Shares rose higher on further hope that trade talks with China will see a roll back in existing tariffs.
The markets finished last week on a high.
Markets are more preoccupied with the outcome of the US-China trade talks this week.
US equities felt the heat on Friday with news that the Trump administration was looking at new ways of limiting investment in China.
The markets reacted positively to indications from President Trump that a trade deal with China could be close.
RBA Governor Philip Lowe is talking in Armidale later today.
Oil prices fell sharply on news Saudi oil production will be back in full by the end of the month.
Bond yields have paved down across the world, driven by a sell-off in German bunds.
The US dollar is weaker today on the back of positive developments in other parts of the world.
Boris Johnson stood outside No. 10 Downing Street earlier, saying he didn’t want an election before the Brexit deadline.
UK politics has turned even more toxic with Prime Minister Boris Johnson suspending parliament from September 12, for five weeks.
The markets have done a complete u-turn overnight on the back of positive news on the US China trade talks and some wins from the G7 summit, including proposals to reform WTO rules and a potential US Iran meeting.
The surprise news on Friday were reports that the German government might relax some of its spending rules to splash out and prevent a recession.
An ECB Governing Council member suggests markets hadn’t priced in the extent of the stimulus measures coming next month.
There’s been a sharp turnaround in market sentiment as the US announced delays to the extra tariffs on Chinese imports for certain consumer-sensitive products.
Are the markets more concerned about the relative strength of the Chinese currency than they are about tariffs?
US stocks have bounced back and the US dollar has picked up against the Yen.
A tweet from President Trump promising a 10% tariff on the remainder of imports from China has sent the markets into a tailspin.
The US finished on a high last week.
The race is on to try and get through stuff before the summer recess in the US and Europe.
The Fed’s Beige Book is out this morning.
US retail sales were strong but t’s not all good news.
Fed Chair Jerome Powell didn’t alter his stance despite signs of inflation picking up in the US.
There were no big movements on US equities or bonds overnight, as markets wait to see what Jerome Powell has to say in his Congressional testimonies mid-week.
The markets breathed a collective sigh of relief that the Trump-Xi meeting at the weekend culminated in some sort of truce.
Will interest rates in the UK go up or down?
Even an executive order declaring more sanctions against Iran did little to influence markets.
In the first AMW of the New Year we investigate the important issue of the likelihood of a US recession occurring over the next 12-18 months.
This week, we're reproducing a thematic piece on US stock market valuations.
Technology out of favour, markets a little confused.
Equity markets bounce back. The trade war was yesterday’s news. On #TheMorningCall Phil Dobbie talks to @NAB’s Tapas Strickland about the sharp turn around in risk sentiment.
The markets didn’t react positively to the UK opposition leader’s Brexit speech – infact, they hardly reacted at all. Phil Dobbie asks NAB’s Tapas Strickland in London about the latest chapter in the saga.
To borrow from Depeche Mode, it seems markets Just Can’t Get Enough with a dovish ECB taper and increasing confidence in US tax reform seeing a rally in risk assets.
As song titles go, Sweet Dreams by the Eurythmics probably sums up overnight price action the best.
Unemployment to head lower say labour market indicators.
The biggest news overnight was the finalisation of the NZ Government. Labour’s Jacinda Arden will now be the next Prime Minister following NZ First’s deal to form a coalition government.
Markets were quiet overnight given the Columbus Day Holiday in the US. Equities were flat (S&P500 0.2%), the US dollar was marginally lower (DXY 0.2%), while the US bond market was closed (note futures were open but with little movement).
Despite a stellar US Non-manufacturing ISM, there were only modest market moves overnight.
Jobs boom seeing some emerging rises in advertised salaries.
A mild risk-off theme quickly emerged around midnight following North Korea’s statement that the US has effectively “declared war” and that North Korea has every right to “make countermeasures”.
Yesterday’s song title was Start me up by the Rolling Stones and it still seems an apt description with the risk‑on tone continuing overnight.
A broad risk on rally that started in the Asia continued overnight driven by expectations of a lower damage bill from Hurricane Irma and the absence of geopolitical headlines with North Korea not launching an ICBM on Saturday as many had feared it would.
I don’t care, I love it was the electro pop song of 2012. So it was with the market reaction to the ECB meeting overnight with the Euro higher (+0.9% to 1.2023) and German Bund yields lower (-4.0bps to 0.31%).
Consumer confidence – personal finances weighing.
It was another FX dominated session with the standout performer being the Canadian Dollar, up 1.1% after stellar Q2 GDP figures.
The US dollar rose 0.6% across the board overnight in reaction to stronger than expected US GDP growth and a stellar ADP payrolls print.
It was a very quiet session overnight with little data of note.
Dual-citizenship crisis – government’s majority still likely ok.
The USD rally ground to a halt overnight amid continued US political machinations and uncertainty over the trajectory for inflation in the latest FOMC Minutes.
The Aussie was slightly weaker at -0.5% with weaker than expected Chinese data weighing alongside a stronger US dollar.
Geopolitical tensions surrounding North Korea dominated the overnight session. However, market moves were contained following a winding back in rhetoric by US Administration officials.
In terms of market moves, most action happened in bonds. The bond sell-off continued overnight, underpinned by a weak French 30-year bond auction.
Lift was Shannon Noll’s first post Australian Idol hit. The lyrics “seems like forever that you’ve been falling, it’s time to move on” are an apt description of the mood of central banks, which have been removing expectations of further policy easing and getting the market into thinking of central banks tightening policy. This theme continued overnight with comments from the Bank of Canada’s Poloz and Bank of England’s Carney.
Employment growth is realish.
Norway’s central bank removed its explicit easing bias at its meeting overnight, stating “the balance of risks suggest that the key policy rate will remain at today’s level in the period ahead”.
A split Bank of England (BoE) decision to keep rates unchanged and another fall in oil prices were the two big events overnight in an otherwise quiet night.
Sterling has been hammered (-1.7% to 1.2735) as the BBC exit poll points to a Hung Parliament (Tories are set to be 12 seats short of a majority, being on track to get 314 seats; Labour 266; SNP 34; 326 required for majority).
It was another quiet session overnight with an ever so slight risk-off tone (Yen, Gold, Vix higher and Treasury yields lower) ahead of Thursday’s key risk events – ECB, UK Election and testimony by former FBI chief Comey.
Underemployment dragging on wages growth.
There was little in the way of significant market moves overnight.
The biggest news overnight was the FOMC Minutes, which were interpreted cautiously by the market as confirming the likelihood of a June rate hike, but casting some uncertainty over the trajectory for rates thereafter. The US dollar fell on the news, while bond yields declined.
How much spare capacity is in the labour market?
The two most significant development overnight were a 1.0% surge in the Euro (Euro now fetches 1.1089 – the highest since November 9 2016), and continued weakness in the US dollar with the DXY down 0.7% overnight and at its lowest point since just after the US the election.
Labour market outlook to improve.
The two big events overnight were a 4.8% slide in the oil price and a surge in European risk assets.
Markets have rallied hard on the back of the French Presidential elections on Sunday.
Headline CPI picking up in 2017.
The Pound soared 2.2% overnight following the UK PM’s call for early elections.
Geopolitics took a backseat today with Trump’s Wall Street Journal interview dominating market moves.
The oil price was the standout performer with WTI oil up 1.6% to $53.10 a barrel while Brent reached $55.99 after having risen for six-consecutive days.
The APRA Chairman and RBA Governor both make clear that the recent moves reflect a desire to further tighten lending standards in what is considered to be an environment of heightened risks.
It was a busy overnight session packed full of data that led to some intraday moves.
Titanium was the urban-dance hit of late 2011 and is still a favourite of gym junkies the world around. The lyrics also seem to be an apt description of the US economy where data remains strong even though a risk-off tone has developed over the past couple of days.
Australia’s population growth has strengthened to a 1.5% pace, equivalent to around 350k persons in the past year – almost equivalent to the population of Canberra being added to Australia each year (or a new Darwin and a new Hobart!).
Have markets broken up with the Trump trade? Today will be a key test of this hypothesis with the US Congress voting today on a key healthcare reform bill which is seen as a crucial test of the relationship between the White House and Congress.
What was meant to be a quiet night ahead of key risk events (US FOMC and Dutch elections today) turned out to be rather more exciting.
Markets continue to tread water ahead of the more important risk events later this week – the ECB meeting Thursday and US Payrolls Friday. There was little in the way of significant movement in bonds or currencies, while equities were a touch lower after having had hit fresh highs last week.
Astute readers (and listeners to our early morning podcast) will note Empire of the Sun’s Walking on a dream was one of our first song titles for 2017. That title was prompted by a lack of detail around Trump’s policies ahead of inauguration day which led markets to ask “is it real”?
Strong European data failed to excite markets – the exception being equities – as the upcoming French Presidential elections take centre stage. Betting markets now ascribe Eurosceptic Le Pen a 34.2% chance of winning, while a poll by Elable for L’Express magazine overnight puts her within striking distance in a run-off with Fillion with 44% of the vote – inspiration for today’s title “Livin’ on a Prayer” by Bon Jovi.
My colleague Rodrigo Catril warned yesterday of the possibility of a US Fed March rate hike – what he termed the Ides of March. That argument gained further currency overnight with the US CPI and core‑Retail Sales printing double the market consensus.
The Trump-trade was reignited overnight on the back of the President flagging an impending “phenomenal” tax announcement.
The major event overnight was the US FOMC meeting where rates were left on hold as expected. There were very few changes to the post meeting statement with the Fed playing a straight bat. Markets were somewhat disappointed with Treasury yields and the US dollar reversing earlier gains that had occurred following stronger than expected US economic data.
Today’s 1994 classic Hot Potato by The Wiggles is likely to be seared into the memory banks of parents and children alike – likewise for your scribe. A staple the humble spud may be, but possibly an expensive one in the 4th quarter according to our economists.
Apartment construction which has risen strongly over the past few years was reported by the Statistician to have declined in the September quarter.
Markets continue to digest Yellen’s speech yesterday which was seen as mildly more hawkish and positive US economic data overnight played into that view. The ECB also met last night with Draghi coming off as slightly dovish, playing down the recent uptick in inflation and remaining committed to the asset purchase program.
Against flatter job advertisements of late, job vacancies have been trending higher. Higher job vacancies are usually associated with a lower unemployment rate and greater employment growth
Walking on a Dream was the inaugural 2008 hit song by Aussie electropop outfit Empire of the Sun. That seems an apt description of how markets have been since the election of Trump with a dream run for equities and the US dollar all premised on the idea of a Trump fiscal stimulus boosting growth and inflation. Now with inauguration just a week away (20 Jan), markets are asking “is it real”?
Global equities were mostly lower overnight, dragged lower by the oil price. That added to an already uncertain tone following indications that the UK may be hurtling towards a harder Brexit than first thought.
Tapas Strickland shows his knowledge of the Classics, describing yesterday’s RBA minutes as Delphic, in places.
Australia’s population growth remains strong by historical and international standards at around 1.4% y/y. That is 338,000 persons in the past year – nearly equivalent to the population of Canberra being added to Australia each year.
The US dollar continued to rise after the FOMC rate decision yesterday and Janet Yellen’s more Hawkish tone.
Sterling was the worst performing G10 currency overnight, in part because of worst than expected industrial production figures.
The S&P 500 hit a new high overnight, largely because of a spike in oil prices as Vladimir Putin steps in and says he expects OPEC to reach a deal next week, and agreeing to limit production in Russia.
Our feature article in this Weekly delves into the recent slowdown in employment, which if it continued into 2017 could be the catalyst for further RBA easing.
For those who thought there was a chance Yellen may depart the Fed early, those notions were cast aside with Yellen indicating she was very much Stayin’ Alive and was intending on serving out her full four year term.
Prospects of greater US fiscal spending (infrastructure and tax cuts) under a Trump Presidency continue to buoy equity markets, while US bond markets are sold on the prospects that such policies are inflationary.
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