March 24, 2017

Markets Today: Don’t let me down

Some mornings coming up with a title is a real struggle and then others like today you are spoil for choice. I have no idea if Donald Trump is a Beatles’ fan, but if he is ‘Don’t let me down’ would be one of those songs that he couldn’t get out of his head right now.

If he is a Rolling Stone fan he would probably be humming “You can’t always get what you want” and if he is into heavy metal he would probably be shouting Judas Priest “ Raw deal” in his head. If Trump is a movie fan he would probably prefer to watch “Hall Pass” rather than “ Kill Bill”, ok I could go on, so I better get on with the note…

Well as I am writing Republicans have not been able to reach a deal in order to pass the Health bill to repeal Obamacare with the latest headlines noting that voting has been postpone and  Paul Ryan, the House Speaker, has cancelled his press conference. Prior to this headlines markets were essentially in a holding pattern, but now we are seeing US equity indices under a little bit of pressure, falling around 0.2% in the last hour moving marginally into negative territory. Bond reaction has been pretty muted, after selling a few bps early in the session, 10y UST are essentially unchanged relative to Sydney’s closing levels and are currently trading at 2.41%.

As for currencies, DXY has traded in a very tight range ( 20 pips) with latest headlines doing little to move the index. Looking at G10 currencies, the AUD is at the bottom of the leader board down 0.65% over the past 24 hours with most of the move coming after 5pm Sydney time yesterday. The currency fell about 40 pips to 0.7626 and it has stayed around that level for most of the night. The move was not triggered by any specific news and unlike yesterday, commodities had a reasonable night with iron ore up 1.6%, aluminium 0.5% and copper 0.3%.

The British pound on the other hand has been the top performer, boosted by better than expected retails sales.  In February UK retail sales jumped 1.3%mom ex auto and 1.4% inc. fuel. But as our UK strategist noted, the UK consumer is spending more than he/she earns in aggregate and savings are low by historical standards.  Therefore it is difficult to see how this is sustainable or why today’s number won’t wang the other way in March. For now however GBP is enjoying its time in the spotlight with short covering probably also a supporting factor. BoE Broadbent was also on the wires conceding that it is quite possible that UK interest rates could go up; however his comment was conditional on Brexit not been as bad as expected.

US data was a little bit mixed overnight and seemingly all due to the weather.  Jobless claims rose 15K to a seven-week high of 258K, well above the 240k expected by consensus with the storm that hit the north east during the survey week blamed for the rise in the number. Meanwhile the better than expected rise in new home sales (592k vs 564k exp.) was attributed to warm winter conditions.

Lastly, in a WSJ interview Fed Williams said that that three or “maybe even more” rate hikes this year make sense, depending on how the Bank is doing on its employment and inflation objective.

Coming Up

New Zealand’s trade balance is today’s first data release and our BNZ colleagues anticipate a $268m surplus for the month while the market is looking for a $180m print.

Then it is all about preliminary PMI readings starting with Japan’s manufacturing PMI. Last month’s headline index printed at 53.3 and barring a small blip in November the index has been in a solid upward trend since May last year.

The Eurozone along with France, Germany and Austria release their full PMI sets with preliminary readings for manufacturing, services and composite. Looking at market consensus the expectation is for activity to remain pretty buoyant throughout Europe. That said, on a relative basis political uncertainty might be a factor weighing on France’s manufacturing sector where the survey is expected to print almost unchanged at 52.4 while all other European readings are anticipated to come out above 55. Europe had solid PMI prints in January and February and another solid outcome in March will solidify expectations of a decent Q1 GDP growth.

Loans data is out in the UK and given the recent softness in property prices the data is a timely release that should help assess the level of housing activity within Britain.

The US also gets its manufacturing preliminary reading for March and the market is looking for an outcome of 54.7, marginally above the February reading of 54.2. February durable goods orders are also due out and we have a few Fed speakers on the roster today. Fed Kaplan (hawk) speaks this morning (10am AEDT) in a moderated Q&A session and then tonight Fed Evans speaks at a community developments event, so no surprises expected there. Early Saturday, however, Fed Bullard (dove) and Dudley (neutral) will speak on the economic outlook


On global stock markets, the S&P 500 was -0.11%. Bond markets saw US 10-years +0.72bp to 2.41%. In commodities, Brent crude oil -0.22% to $50.53, gold-0.3% to $1,245, iron ore +1.6% to $86.36, steam coal +0.7% to $80.95, met.coal +0.0% to $156.75. AUD is at 0.7628 and the range since yesterday 5pm Sydney time is 0.7623 to 0.7679.

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Bond markets have been supported by some market-friendly data and while Fed speakers were again mixed, it was the more dovish remarks that captured attention.

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