March 3, 2021

Markets Today: Australia’s growth, China’s warning

All eyes will be on Australia’s GDP read this morning, which Ray Attrill says is expected to be close to 3% growth QoQ, driven by consumer spending.

Today’s podcast

Overview: Calm after the storm

  • AUD back above 0.78 – stronger commodity prices helping
  • NZD back on a 0.73 handle following stellar Global Dairy Trade auction
  • Fed’s Brainard not as nonchalant as colleagues about last week’s bond market sell-off
  • AU Q4 GDP, Caixin China services PM; US ADP and ISM services, UK Budget


Ooh after all that we’ve been through, There ain’t nothing new, here in the calm after the storm – The Common Linnets


A Dutch country pop due who came second with this song in the 1975 Eurovision song contest. What do you mean you’ve heard of them? Looking across markets there is no obviously strong theme overnight and whether in bonds, FX or equities things look relatively calm after the ructions at the end of last week.  US equities are little changed overall with tech. underperforming (NASDAQ -0.7%) versus rises for financials (+0.4%) and materials (+1.2%) the latter helped by a strong rebound in some commodity prices. This has put the AUD back above 0.78 versus its start of week level close to 0.77. NZD also stronger after a stellar Global Dairy Trade auction. US bond markets are fairly flat.  Australian Q4 GDP this morning, and then tonight ADP Employment and ISM services..

US Treasury yields are little changed overnight, currently sitting at 1.41% at 10 years, which is exactly where we left them yesterday, having been up to as high of 1.45% at one point.  Federal Reserve Governor Lael Brainard had something to say on bonds in the last couple of hours. She said it will take “some time” to meet the conditions laid out by the U.S. central bank for reducing the pace of its massive asset purchases – the stock Fed comment – but noted recent bond market volatility. “I am paying close attention to market developments… some of those moves last week, and the speed of the moves, caught my eye,” she said, adding that she would be concerned if she saw disorderly conditions, or persistent tightening in financial conditions, that could slow progress toward the Fed’s goals. A little off-message compared to other Fed officials who last week were happy to characterise the back up in Treasury yields and steeper yield curve as a sign of confidence in the US economic outlook. Brainard was on message on inflation, holding the common line that the expected pick-up in coming months will be transitory.

Australian bonds sold off a little yesterday post the RBA – and the AUD rose – particularly in response to the comment in the post-meeting Statement that Monday’s $4bn QE bond buy represented a “bring forward” of its purchases and not a signal that a ramp-up in the pace of QE bond buying was on the cards. There was also nothing on the fate of the 3-year YCC target currently focused on the April 24 bond, not that anyone expected an announcement here (re a possible shift to the November 2 bond – not NAB’s view – as early as this meeting. On the currency, the RBA maintained the (factual) line that the currency was near the top of the ranges of the last few years (albeit it has risen to new 3-yar highs since the last meeting) and that the currency was lower than otherwise as a result of its actions.

The AUD enjoyed a small bounce out of the RBA, after an earlier dip – alongside weaker equities and a small ‘safe haven’ bid under the USD, on reported comments from China’s banking regulator that he was concerned about ‘bubbles’, citing local property process, inflows of foreign capital and elevated global markets, the latter in so far as economies verses were still in the grip of the pandemic, he said. There was no indication that monetary policy should be tightened (something that would in any event likely only encourage stronger capital inflows to China) and indeed a Market News story yesterday suggested that PBoC tightening is now done with policy settings regarded as ‘neutral.

The bigger bounce in the AUD, to a high of 0.7834, has come overnight. Renewed strength in some commodity prices, base metals in particular, is the obvious fundamental driver. The LMEX index of base metals is up 1.9% with gains led by Aluminium (+3.9%) and copper (+1.4%). Iron or futures are also up over 1%, though crude oil has given back the roughly $1 gains we saw in our time zone yesterday (despite which NOK is the best performing G10 currency of the last 24 hours, up 1%).

The NZD is also higher, poking  its nose back above 0.73 as we type (+0.5%). The latest GDT dairy auction results showed a massive 21% rise in whole milk powder to USD4364 a ton, its highest level in seven years. This helped drive the auction price index up 15.0%, to now be up over 39% y/y. The strong auction result puts further upside pressure to Fonterra’s payout for the season. The futures for the 2021 payout has been trending higher and closed at $7.42 yesterday, but that should rise further, our BNZ colleagues suggest.

The USD overall is own about a third of a percent, with EUR/USD up by this amount despite some disappointing German economic data, where employment fell by 10k against an expected 9k rise and retail sales were down 4.5% in January and following the 9.6% December fall.  Lockdowns currently remain in place until at least March 28, but public and political pressure for some relaxation after that is intensifying.

Coming Up

  • Australia has Q4 GDP, where after the various partials in recent days, NAB maintains its forecast for a 2.9% q/q print, above the 2.5% consensus.  Further gains in household consumption (over 50% of GDP) should be the main contributors  as services spending continues to rebound following the easing of lockdown, while (more goods related) retail spending has been strong. Positive contributions re also expected from construction activity (which was up 3% on the quarter) and to a lesser extent business investment.  We also get weekly ABS payrolls data for the period ending Feb 13.
  • In China, we get the Caixin Feb Services PMI (expected at 51.5 down from 52.0 in January).
  • Europe and the US have final Markit services and composite PMIs, but of greater interest in the US is ADP employment (seen +200k) ahead of Friday’s non-farm payrolls and the ISM services index, latter expected unchanged at 58.7. Such a number would confirm that overall activity in the US has run faster than most other major countries as of February.
  • In the UK Chancellor Rishi Sunak will hand  down a budget with particular interest in whether he will announce some immediate tax increase (e.g. a rise in the corporate tax rate).

Market Prices


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