Markets Today: Motor’s too fast

The RBNZ this morning has left rates on hold at 1.75% but the language has spurred some Kiwi buying.

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Despite policy remaining “accommodative for a considerable period”, the RBNZ has brought forward the first expected tightening, increased its inflation forecasts, and incorporated some stimulatory impacts from the new Government’s policies.  It’s a clear tightening bias. They seem to have gotten rid of the notion of rate cuts in what looks to be a first step toward beginning the normalisation of rates. The NZD initially spiked to 0.6960 from 0.6920, now at 50, the AUD/NZD at 1.1057.

Elsewhere, it’s been another quiet night for markets.  The AUD/USD tilted back up yesterday toward the higher end of its recent trading range, possibly getting a tailwind from still solid Chinese trade growth and commodity demand.  Iron ore imports are up 6.3% ytd to October, Australia enjoying a bilateral merchandise trade surplus at over 4% of GDP for the same period.

In the US, there’s been more wire chatter about Republicans debating their tax bill, and the news arising from discussions doesn’t look hopeful for an early resolution.  Yesterday the Washington Post reported that Senate Republican leaders are considering a one-year delay in the implementation of a major corporate tax cut, saving $100bn. Another report suggests that Senate Republicans are considering fully repealing individual federal tax deductions for state and local taxes – including property taxes – and preserving the estate tax, both proposals likely to get political pushback from within the party.

Meanwhile, in two state Governor elections, the Democrats beat the Republicans, an unsettling heads up for Republicans ahead of the mid-term elections next year, a reminder they need to go to the mid terms with political achievements including promises of tax reform in a voter-friendly approach.  The USD has been largely unmoved overnight with again very tight 1-2bps ranges for Treasuries.  Equities have been hovering in an

Expectations of the tax reform bill being passed in its current form are so low, that bad news for a deal has barely stirred the market.  The USD is down slightly, in the order of 0.1%, and has tracked sideways in a very tight range for more than a week now.

Coming up

With the RBNZ now out of the way, it’s a quiet calendar for events in Asia with AU Housing Finance and China’s CPI/PPI for October.

Housing finance approvals for September are released this morning, this release somewhat sidelined by the earlier release of RBA Credit for the same month showing steady overall growth (rounded to one tenth) in Housing Credit including a slight downshift in monthly growth of Owner-occupier and Investor Housing credit, both still within recent ranges of monthly growth.  NAB looks for the headline growth in the number of Owner-occupier loan approvals to have risen 3.4%, interest also in Investor finance that’s been showing a measure of growth stability of late, rising 4.3% in August.

President Trump continues his trip through Asia with more meetings and discussions in China today.  So far, it’s been a largely uneventful trip as far as market geopolitical risk is concerned.

There are several European events to keep one eye on tonight including the ECB’s Nuoy testifying to the European Parliament, the EC updating their economic forecasts and the ECB’s Coeure speaking.  (Reportedly, he was pushing back on the open-ended QE last month.)  There’s a flurry of other ECB speakers too including Mersch, Constancio, Villeroy de Galhau, and Lautenschlaeger, the last two also pushing back.

For Sterling watchers, the BoE’s Executive Director for Markets Chris Salmon is speaking in Singapore later this afternoon (19.15 AEDT).  Note that the UK-EU Brexit negotiations are due to kick off tonight with a sense of urgency to speed up negotiations evident from both sides.  Just in the last hour, there’s been news that UK International Development Secretary Pritti Patel has had to resign from the UK Cabinet after revelations she had undisclosed meetings with Israelis.  There’s no Sterling impact evident from that.  It’s very light for data with Germany’s trade/current account balance for September and US weekly Jobless claims.

Overnight

On global stock markets, the S&P 500 was +0.13%. Bond markets saw US 10-years +1.26bp to 2.33%. In commodities, Brent crude oil -0.42% to $63.42, gold+0.5% to $1,283, iron ore -0.6% to $62.26, steam coal -0.5% to $98.00, met. coal +2.2% to $186.75. AUD is at 0.7679 and the range since yesterday 5pm Sydney time is 0.7667 to 0.7685.

Good luck.

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