Markets Today: Bond yields fall on less taper talk
An ensuing impeachment of the US President continues to be of little concern to the markets.
Overview: Creepin’ up slowly
“Take a chance on a rumor; Heard from a friend; That something is gonna change; It’s creepin’ up slowly; She’s taken me over; It’s turning me on”, Taxiride 2002
Impeachment proceedings have had little impact on markets, as we await Biden’s detailed economic plan which is scheduled to be released today.
Pushback on taper talk continued overnight with the Fed’s Brainard going one step further and tying such a taper to the realised progress on inflation and maximum employment goals.
An as expected US CPI print also tempered inflation talk somewhat
The Fed of course will look through such base effects (Brainard noted that the y/y for March and April may rise above 2% due to low March and April price readings from last year) and accordingly the three month and six month annualised rates will be more important to watch in the near future when assessing the true pace of inflation in the US (and elsewhere).
Equities rose with the S&P500 +0.3% with tech again helping to drive with the IT sub-index up 0.8%. Tech sentiment was initially driven by news that Intel’s CEO was stepping down (Intel +7.6%), with other tech names also caught in the slipstream.
Key for the outlook for stocks will be how quickly the economy rebounds (tied to vaccine rollout and fiscal stimulus hopes), the chances of tax/regulation changes under a Biden Administration, and on whether inflation starts to lift and whether yields lift significantly in response.
FX moves were largely muted with mild USD strength with the USD DXY +0.2%.
The Swedish Krona underperformed with USD/SEK +1.3% in the wake of the Riksbank’s flagging that it is selling SEK 5bn a month to acquire foreign exchange reserves between February 2021 and December 2023. The announcement is not related to monetary policy, but replaces the way Sweden currently finances its foreign exchange reserves which is principally done through loans in foreign currency via the Swedish National Debt Office (see Riksbank for details). In contrast, the AUD outperformed overnight, unchanged at 0.7737 with little in the way of news to drive.
US impeachment proceedings do not appear to be having an overwhelming impact on markets with a small rally in Yen during APAC yesterday largely reversing overnight (USD/Yen -0.2% to 103.87) and being similar to the moves seen in EUR (EUR -0.2% to 1.2155).
Senate Majority Leader Mitch McConnel has rejected calls to convene an emergency session in the Senate to start impeachment trial proceedings against President Trump, meaning a Senate trial will likely have to wait until after inauguration.
Other data out was largely muted with EZ Industrial Production for November beating expectations (+2.5% m/m v. 0.2% expected), but pre-dating the recent escalation in virus restrictions.
An actual lift in the cash rate though is still tied to the unemployment rate returning to full employment levels and inflation sustainably returning to the 2-3% target range, where Governor Lowe has said previously unemployment may need to fall to “four point something to get the type of wage pressures that will deliver inflation outcomes consistent with” the inflation target
Coming up today
US President-elect Biden is also scheduled to release details of his economic plan, with all focus on the likely quantum of near-term stimulus and on any proposed tax and regulatory changes. Details below:
- NZ: Building Permits – Nov: unlikely to be market moving and no consensus is available.
- JN: Core Machine Orders – Nov: unlikely to be market moving with consensus at -6.5% m/m.
- CH: Trade Balance – Dec: consensus sees the trade balance at $72bn, down slightly from last month’s $75.4bn.
- EZ: ECB Minutes – Dec: the minutes for the December meeting are out.
- US: Jobless Claims: initial claims are expected to remain high at 786k, little changed from last week’s 787k
- US: Fed’s speakers: Chair Powell is talking on a webinar with other speakers also scheduled including, Rosengren, Bostic and Kaplan
- US: President-elect Biden: Biden is expected to release details of his economic plan. Key focal points for markets will be on the magnitude of a proposed fiscal package, how that is likely to be funded – does it include a reversal in Trump’s tax cuts?, and any proposed regulatory changes particularly around climate and the technology sector.
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