September 5, 2023

Markets Today – Holiday

It has been a quiet start to the week in Europe and the US with the latter out celebrating Labor Day. US equity futures closed little changed while US Treasury futures are pointing to some small upside pressure on yields.

Todays podcast

On a holiday, far away, Let’s go today – Weezer

  • Quiet start to the week with US out celebrating Labor Day
  • Core global yields edge higher.10y Bunds +3bps to 2.58%
  • European equities end unchanged, unable to extend positive China vibes
  • European FX edges a tad higher. AUD unchanged
  • Coming Up: AU Q2 partials, CH Caixin Services, RBA, ECB speakers

Events Round-Up

NZ: Terms of trade, q/q%: Q2: 0.4 vs. -1.5 prev.

It has been a quiet start to the week in Europe and the US with the latter out celebrating Labor Day. US equity futures closed little changed while US Treasury futures pointing to some small upside pressure on yields. After opening higher, following positive vibes coming from Chinese equities, European equity indices closed little changed while European bonds edge a little bit higher. European FX also edged a tad higher while the AUD is essentially unchanged at 0.6461.

Chinese equities were the big movers during our trading time yesterday with the CSI 300 index closing 1.5% higher while the Hang Seng index rose 2.5%. Notably too, property developers indices in both markets jumped close to 8%.  Late last week policy makers in Beijing announced some relaxation of mortgage rules, lowering the required down payments and increasing access to lower mortgage rates. Sentiment was boosted following weekend reports of a strong pick up in property sales activity in Beijing and Shanghai. One report noted in Shanghai the same number of transactions in one day as for the entire month of August. Existing home sales on Saturday in Beijing were double the previous Saturday, while there were 1800 units of new homes sold that day, more than half the 3100 units sold throughout August.

The positive Asian vibes boosted European equity indices at the open, but the move proved short lived with early gains eroding over the reminder of the day. Light trading conditions were a feature given the US holiday absence.  Europe’s Stoxx 600 gauge closed little changed after rising as much as 0.8% earlier. On a holiday shortened session, US equity futures closed little changed with the S&P 500 min down 0.06% while the NASDAQ 100 mini was 0.04%.

European yields ticked higher with Bund yields climbing for a second day in a row. The 10y rate gained 3bps to 2.58% while 10y Gilts gained 3.5bps to 4.463%. Meanwhile with the UST market closed, Treasury futures point to some small upside pressure on yields, with the implied 10-year rate up about 2bps.

Speaking in London, ECB President Lagarde didn’t give much away in terms of policy guidance ahead of the Bank’s meeting next week. The President noted that “We have increased our policy rates by a cumulative total of 425 basis points in the space of 12 months — a record pace in record time. And we will achieve a timely return of inflation to our 2% medium-term target.”, adding that “Actions speak louder than words,”. Money markets are placing around one-in-four odds on the ECB raising rates a quarter-point to 4% next week. That compares to as much as a 60% chance before economic data showed core inflation in the euro area slowed.

Unsurprisingly currency moves have also been subdued. European pairs have edged a little bit higher with GBP at the top of the leader board, up 0.3% to 1.2633 while the euro is +0.15% to 1.0796. The AUD (+0.06% to 0.6461) and NZD (-0.08% to 0.594) are little changed, both antipodean pairs traded in narrow ranges overnight (~30pips) and start the new day around the middle of the overnight range. Of note, CNY was unable to enjoy any lift from the positive vibes evident in the Chinese equity market. Indeed, CNY closed 0.11% weaker at 7.27 . For now, supportive PBoC measures (strong fixes and lower FX deposit ratio) are seemingly helping slowdown but not necessarily reverse the currency weakness.

Oil and iron prices also ticked a little bit higher over the past 24 hours (+0.5%). Last week il prices gained on the back of news that Russia will extend export curbs. Saudi Arabia —the other big OPEC+ influencer –  is widely expected to follow Moscow by extending its voluntary curbs into October.

Finally on LNG, Chevron has begun mediation discussions with workers at facilities in Western Australia . Bloomberg notes the two facilities operated by Chevron – Gorgon and Wheatstone – made up roughly 7% of global LNG supply last year. Employees at the two plants last week voted down the company’s pay package proposal. The unions will begin partial strikes from Sept. 7 and will ramp up to full days from Sept. 14, according to people with knowledge of the matter

Coming Up

  • Ahead of the Q2 GDP release tomorrow morning, this morning Australia gets balance of payments data as well as trade data for Q2 plus public finances. We have pencilled in a flat outcome from public spending but after the inventories miss yesterday, we are mindful of any additional downward surprises skewing our 0.5% Q2 GDP expectations.
  • Also this morning, China releases the Caixin Services and Composite PMIs.  The market is looking for the Services PMI to ease towards 53.5 from 54.1.
  • RBA Governor Lowe’s final Board meeting this afternoon is widely expected to come and go without incident. The data flow since August, when the Board saw a credible path back to the inflation target with the cash rate staying at its current level, shouldn’t force a re-assessment, and if anything has been somewhat encouraging on balance (credible path is perhaps more credible with unemployment ticking up last month -albeit school holiday adjusted and monthly CPI better than expected- though also goods heavy and August CPI less positive). Still, the guidance that ‘some further tightening of monetary policy may be required’ is likely to remain, and we think risks remain that the inflation data over the next couple of months could see the RBA act on that tightening bias
  • Later today the Eurozone releases PPI figures for July while France and Italy print final version of their respective Services and Composite PMIs.
  • The US gets factory and goods orders.
  • ECB ECB’s Lagarde, Schnabel, Visco and Guindos speak.

Market Prices


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