November 14, 2023

Markets Today – The Core

Subdued start to the week ahead of US CPI tonight

Todays podcast

  • NY Fed 1-yr inflation expectations fall to 3.57% from 3.67%, bond yields slip
  • China October New Yuan loan stronger than expected, Aggregate Financing weaker
  • USD/JPY makes new cycle high of ¥151.91, despite softer USD (DXY-0.2%)
  • AUD/USD edges higher but still shy of 0.64
  • Coming up locally: NAB business survey, Westpac Consumer Confidence, NZ monthly CPI
  • Coming up globally: US CPI, UK Labour market, EZ GDP, German ZEW survey

Oh, you have a flame, feel it in your heart, And down at the core is the hottest part – Eric Clapton

Overnight data:

  • New York Fed 1-Yr Inflation Expectations 3.57% from 3.67% (and July 2023 low of 2.55%).
  • China October Aggregate Financing  Y1850bn vs Y1950bn expected and vs 4122.8bn in Sep
  • China New Yun Loans Y738.4bn vs Y655bn expected and Y2311bn in Sep.
  • China M2 Money Supply 10.3% yr/yr as expected and unchanged on Sep.

A fairly subdued start ot the new trading owed something both to the absence of major market moving news Monday and the proximity to the week’s key global economic release – tonight’s US October CPI report.  Locally we also have interest in the latest NAB Business Survey and Westpac’s Consumer Confidence reading, while NZ has its inaugural monthly CPI print.

The data calendar has been light but not without interest.  China credit growth figures released last night were mixed relative to expectations (New Yuan Loans higher, Aggregate Financing lower) but showing relatively steady  loan growth in both overall aggregate financing and the narrower Yuan Loans metric (ditto money supply growth) but with the mix showing strong growth in government debt and relatively weaker private sector loan growth. Almost 85% of net credit extended in October was from the sale of government bonds. The data don’t give us a whole lot of steer on whether this week’s slug of October activity readings (tomorrow) are apt to come in above or below expectations.

More market moving and ahead of US CPI tonight, The New York Fed’s survey of consumer expectations showed one year ahead inflation expectations reading slip from 3.67% to 3.57% (back close to its cycle low of 3.55% recorded in July).  2-year Treasury yields slipped from 5.06% to 5.04% post release.  Treasury market volatility has been low overall, with 10s tracing out 4.63% to 4.695% range, currently on the day lows (-2.4bps versus last Friday’s NY close).  2s have held their post inflation expectations rally, currently -2.5bps down at 5.04%. Earlier in Europe, benchmark bonds were very narrowly mixed (10yr Bunds -0.4%, Gilts -2.1bps). 10-year Aussie futures are 2bps lower in yield terms from Monday’s local close.

On the US political front, markets are travelling on the presumption a US government shutdown from this Saturday, following the expiration of the current Continuing Resolution, will be avoided with incumbent House speaker Johnson’s proposals for a new (‘staggered’) stop-gap funding bill not similar to one his predecessor got through Congress in October (absent funding, at this stage, for the Ukraine and Israel war efforts). Tomorrow of course Presidents Biden and Xie meet, and quite how much bonhomie is seen to be exuding from the encounter will be of some importance.

US Equities are having a quiet day, flitting in and out of the green/red during the last hour of trade, after what was a positive day for Europe but where gains of just under 1% for most indices was largely playing catch up to Friday’s New York afternoon rally.

In currencies, despite a slightly softer USD overall and the aforementioned minor slippage in Treasury yields, USD/JPY made a new cycle high of ¥151.91 overnight (4 pips shy of the 21 Sep 2022 high which preceded BoJ FX intervention). This despite the fact that Treasuries are well off their recent high north of 5.0%. Incidentally, MoF’s currency Czar Kenji Kanda was forced to resign yesterday for non-payment of taxes, so the person who would be phoning the BoJ to order intervention is currently not at his post, not that that should impact on any MoF decision to intervene.

Mild USD slippage (DXY -0.2%, BBDXY -0.13%) goes hand in hand with the small, level shift down in US Treasury yields post the NY Fed inflation expectations data, the main beneficiaries of which have been the SEK, NOK, GBP and AUD, all up between 0.3% and 0.5% (AUD/USD to a high of 0.6391). Oil is up about $1 and gold $6 to $1,947.

Coming Up

  • Locally, we have the latest NAB Business Survey, for which Conditions have slipped to a (still-above average) 11 from 14 last month, and Conditions stuck at a (below average) 1 for the last three months.  Consumer Confidence on the Westpac survey measure has been mired near survey history lows for much of the past year (last at 82.0). No consensus for any of these readings.
  • Across the ditch, Stats NZ publishes its inaugural release of monthly price indices which will include the usual food and rental price indices, along with indicators for fuel and airfares and other measures that will feed into the CPI.
  • For US CPI tonight, there is a strongly consensus for the core (ex-food and energy) measure printing 0.3%, the same as in both August and September and which would leave year-on-year unchanged at 4.1%. Headline should be flattered (lower) by a big fall in petrol prices with consensus at 0.1% (after 0.4% in September) to see year-on-year down to 3.3% from 3.7%.
  • If the consensus is right, the second decimal place will matter, i.e., whether it is a high or low 0.3%.   Also of keen interest will be the so called ‘super core’ measure (services CPI ex-shelter) and which is deemed most sensitive to wage costs.  This edged to below 4% last month (3.91%) for the first time since December 2021.
  • Also out tonight is the US NFIB small Business Optimism survey – consensus 90.5 from 90.8 – and for which the Hiring Intentions sub-series has already been published, down to 17.0 from 18. Europe has the second estimate of EZ GDP (-0.1% first estimate, no difference expected), the German ZEW survey (of financial analysts) and in the UK, latest labour market today (ahead of CPI on Wednesday). Most interest will be in the wage numbers, where weekly earnings on a 3M Y/Y basis are expected to have slipped to 7.4% from 7.8% (ex-bonus to 7.7% from 7.8%). Employment expected -17k.

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