Today’s Podcast

https://soundcloud.com/user-291029717/the-faangs-bite-back-concerns-on-us-funding-costs

Overview

• US equities rebound amid improvement in risk sentiment
• But the Tech sector lags the rally
• CAD leads commodity link currencies outperformance
• JPY, US Treasuries and gold underperform

After initially trading in and out  of positive territory, US equities have closed higher recovering some of the sharp losses incurred during the previous night. Mo Money Mo Problems is still an issue for Amazon, but an overnight Bloomberg report helped sentiment within the tech sector noting the White House isn’t actively looking to challenge Amazon’s business. CAD has led a commodity linked currencies outperformance against the USD while safe have assets such JPY, Gold and UST Treasuries have underperform amid the improvement in risk sentiment.

After a choppy start to the overnight session, US equities recorded sharp gains in the last couple of hours of trading with all sectors in the S&P 500 closing in positive territory. Gains were led by energy, health care and materials sectors, although the recovery in the technology sector was a big factor for the turn in sentiment. While regulatory risk and question marks on business models remain big concerns within the technology sector, the above mentioned Bloomberg report appears to have contributed to the turn in tech sentiment. The S&P 500 ended the day 1.26% higher, recovering just over half of the losses recorded on the previous night.

In a somewhat delayed fashion, yesterday’s news that the US is aiming for a preliminary NAFTA deal at a summit in Peru next week has helped propelled the CAD to the top of the G10 leader board. The Lonnie is up 0.83% and is currently flirting with a move sub 1.28 (last week we published a positive note on CAD and suggested the CAD had room to outperform both the AUD and NZD). The improvement in risk sentiment along with a recovery in commodity prices has also helped other commodity link currencies outperformed the USD. The AUD (0.29%) and NZD (0.60%) are both up over the past 24hrs, however both currencies remain contained within their recent trading ranges.

After briefly trading above the 77c mark, the AUD currently trades at 0.7684. Yesterday the RBA policy announcement was a non-event as expected, the Bank is still waiting for some further progress on unemployment reduction, a process which is expected to be gradual. Meanwhile NZD currently trades at 0.7256, on the upper half of its recent 0.7150/0.73 range.  The latest GDT dairy auction showed average prices falling by 0.6%, in line with expectations.  It was the fourth consecutive fall in a row, although the reduction in prices has been modest against the prior ramp up earlier this year.  Whole milk powder prices rose by 1.6%.

Unsurprisingly the improvement in risk sentiment has pushed JPY to the bottom of the G10 leader board. USD/JPY now trades at ¥106.61, up almost one big figure relative to yesterday’s opening levels.

Recovering in equities and better than expected US Auto sales have combined to push UST yields higher, bear steepening the curve. The 2y rate is up 3.2bps at 2.28% and the 10y tenor is up 5 bps to 2.775%. Earlier in the session 10y bunds and 10y gilts closed essentially unchanged at 0.50% and 1.359% respectively.

As for commodities, metallurgical coal is the outstanding outperformer, up 5.4%, but iron ore is the big loser, down almost 3%. Gold (-0.74%) also lost a bit of ground amid the improvement in risk sentiment while oil and copper prices closed almost 1% higher.

In other news, current regional Fed President Williams will replace the NY Fed’s Dudley from mid-June.  This will give Williams a permanent vote on the FOMC.  He is considered centrist and he currently favours the consensus view of three or four rate hikes for 2018.  He is well known for his views of “R*”, or the neutral interest rate, which he believes has fallen substantially since the GFC and may stay low.

Coming Up

• AU Retail Sales and Building Approvals are the domestic focus this morning while the Caixin Services and Composite readings for March are the data highlight in Asia. NZ gets Consumer confidence.
• NAB is expecting strong retail sales monthly growth of 0.7% (market is at 0.3%), following strength in the NAB Cashless Retail Sales Index and current budget numbers that indicate GST receipts have risen
• Later today, the Construction PMI is out in the UK and the EU gets the March advance CPI reading.
• The US ISM non-manufacturing is released tonight (59 exp. vs 59.5 prev.)  along with the ADP employment report. Fed Bullard and Mester are on speaking duties.

Market Prices

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets