September 30, 2021

Markets Today: Markets calmer, but US budget deadline looms

Equities made an unconvincing “buy the dip” bounce as yields consolidated their recent moves.

Todays podcast

Overview No Tears Left to Cry

  • Yields consolidate (US 10yr -1.2bps to 1.53%), transitory inflation seen to be around longer
  • Equities make an unconvincing “buy the dip” bounce, S&P500 +0.2% as tech trails
  • USD tells the story, up again with BBDXY +0.7% and leaving most pairs in its wake
  • US shutdown looms if a continuing resolution funding measure is not passed (it should pass)
  • Coming up today: AU Building Approvals, CH PMIs, US funding/debt ceiling, Fed’s Powell

“Right now, I’m in a state of mind; I wanna be in like all the time; Ain’t got no tears left to cry; So I’m pickin’ it up, pickin’ it up (Oh, yeah); I’m lovin’, I’m livin’, I’m pickin’ it up”, Ariana Grande 2018

Equities made an unconvincing “buy the dip” bounce as yields consolidated their recent moves. The S&P500 closed up 0.2% with tech stocks notably trailing the rebound (NASDAQ -0.2%). Yields have taken a breather, with the US 10yr consolidating around 1.50-1.55% (overnight -1.5bps to 1.52%). The USD tells the better story with the broad BBDXY +0.7% and now at its highest levels since November 2020. Since last week’s FOMC meeting the USD has risen by an impressive 1.3%, meaning many key support levels are breaking for major pairs. The Yen slipped to its lowest level since February 2020 (USD/Yen +0.5% to 111.99), GBP lowest since December 2020 (GBP -0.8% to 1.3425) and EUR lowest since July 2020 (EUR -0.7% to 1.1596). The ECB’s Sintra conference overnight emphasised the divergence between the Fed and the BoE which is contemplating hikes in 2022, against the ECB and BoJ which remain more dovish. The AUD (‑0.8%) and NZD (-1.2%) while weaker overnight have not broken new ground given their sell-offs in August. The AUD/NZD cross though has lifted with virus cases in NZ casting doubt on an easing of lockdown restrictions.

As for whether the US can avoid a government shutdown, no progress was made overnight. Focus today will be on Congress passing a continuing resolution before the end of Thursday to fund the government thru to December 3 – both sides think this will pass. The debate around the infrastructure bills continues (the $1 trillion bi-partisan, and the $3.5 trillion social infrastructure) as is the debt ceiling debate. The debt ceiling itself is not as pressing given Treasury Secretary Yellen’s date of October 18 of when the US would run out of room if the debt ceiling is not raised. Democrats so far have resisted going it alone and using reconciliation to raise the debt ceiling given Republican opposition, though that could be tested if Republicans continue to blankly oppose raising the ceiling. (see WSJ: Democrats Aim to Keep Government Funded as Talks Continue on $3.5 Trillion Bill and Politico: Congress primed to avert shutdown despite remaining conflicts).

There was little market reaction to Fed speak overnight. The Fed’s Harker added to the view of the US hiking rates in 2022 or early 2023, noting “after we taper our asset purchases, we can begin to think about raisin g the federal funds rate…But I wouldn’t expect any hikes to interest rates until late next year or early 2023.” The Fed’s Daly in contrast was more dovish saying she didn’t see a case for a 2022 rate hike (“If we should get there [to maximum employment] in the time frame of next year that would be a tremendous win for the economy,“, but “I don’t expect that to be the case.”). There was also little reaction to economic data which was sparse . US pending home sales unexpectedly rose by 8.1% against 1.4% expected and is now at a seven-month high. Meanwhile across the pond the euro area’s economic confidence series, a mix of business and consumer confidence, nudged higher to remain close to historical highs. This is of some relief considering the backdrop of surging energy prices.

It appears while central banks are still buying the transitory narrative, the transitory impact is expected to be longer than expected with the Fed and the BoE, relatively speaking, the most willing to raise rates. At the ECB’s Sintra Conference, central bank heads were asked about their biggest worries – for Fed Chair Powell it was the tension between faster inflation and slack in parts of the labour market, while for BoJ’s Kuroda it was the economic recovery and for the ECB’s Lagarde the massive unvaccinated population. The difference in worries is thus pretty clear in terms of the potential for policy to respond to inflation in 2022. Although not elaborated on, the notion of transitory inflation remaining high for longer was noted by Powell who said it was “ frustrating to see the bottlenecks and supply chain problems not getting better, in fact at the margins apparently getting a little bit worse. We see that continuing into next year probably, and holding up inflation longer than we had thought.”.

Developments in China remain a concern for the global growth picture. Widespread power cuts in China have prompted the government to consider raising power prices, which are currently heavily regulated. Some of reason for the power cuts is that the regulated prices are too low relative to the increased cost of generation. Higher prices would incentivise more generation and less consumption. There is also the potential for Evergrande to weigh on the wider construction sector, while delta outbreaks amid China’s zero-COVID policy is also providing to be problematic. We get an update on how activity is faring against these developments in today’s PMIs.

Finally in Australia, The Council of Financial Regulators (the RBA, APRA, ASIC, and Treasury) have formally discussed a potential tightening in macro-prudential policy with APRA set to unveil an “information paper on its framework for implementing macroprudential policy” in the next couple of months. APRA will consult with the Council on the implementation of particular measures. The main concern of the Council does not stem from any deterioration in lending standards – which “remain sound ” – but rather the medium-term risks to the economy should credit growth continue to materially outpace growth in household income (i.e. debt to income ratios rising materially). The RBA has consistently ruled out the option of using interest rates to tackle house prices or other housing market developments. Debt to income ratios appear to be the tool regulators are contemplating using.

Coming up today:

A busy day domestically with Building Approvals, Credit and Job Vacancies. Offshore most focus will be on the China PMIs to see what impact recent events are having on activity, while in the US focus will remain on Congress and whether they can pass a standalone funding measure and thereby avoid a temporary shutdown after Thursday. Details below:

  • AU: Building Approvals/Credit/Job Vacancies: A lot of second tier data today which is unlikely to be market moving. Freedom Day is getting closer, which is rendering most second tier data to the rear vision mirror. NABs latest analysis is 70% adult vaccination in NSW could be reached by October 5 with NSW flagging October 11 as Freedom Day (NSW first doses are running at 86.7%, while full vaccination is currently 62.9%). Victoria will also reach the 70% hurdle around October 20. As for the data, Building Approvals are expected to decline -5% m/m, Credit is expected to rise by 0.5%, and there is no consensus available for Job Vacancies.
  • NZ: ANZ Business Survey/Housing Permits: NZ’s ANZ Business Survey will provide an update on how the economy is faring in lockdown. There is no consensus available. Latest virus counts also likely means the country will not ease up on lockdown restrictions (termed alert levels) with 45 new cases in the community, the highest level by far since September 2. My BNZ colleagues also note that the first dose vaccination rate is starting to slow, which suggests a struggle to get 90% of the over 12 years population fully vaccinated this side of Christmas.
  • JN: Industrial Production and Retail Sales: the consensus sees both lower with Industrial Production -0.5% m/m and Retail Sales -1.7% m/m.
  • CH: PMIs: The PMIs today are expected to remain very soft with non-manufacturing remaining in contraction at 49.8 (albeit up from last month’s 47.5) and manufacturing on the cusp at 50.0. Q3 and Q4 are shaping up to be very weak quarters given delta outbreaks, Evergrande’s woes also have the potential to spillover over to construction activity, as well as more recently blue skies policies ahead of national holidays along with reports of power shortages. Note National Day/Golden Week Holidays are from Friday October 1.
  • EZ: Flash CPIs: Germany has its preliminary CPI read for September with the EU harmonised measure expected to rise 0.2% m/m to 4.0% y/y. France also has their preliminary CPI read with consensus at -0.1% m/m and 2.8% y/y. The wider Euro area measure is on Friday so Germany and France may give some indication to where that may print.
  • UK: Q2 GDP – final read: A final read on Q2 GDP is expected to be unrevised at 4.8% q/q.
  • US: Chicago PMI/Jobless Claims: The Chicago PMI is expected to fall slightly to a still very elevated 65.0 from 66.8. Jobless Claims are expected to fall to 330k after last week’s surprising rise to 351k. Also out is a final read on Q2 GDP which is expected to be unrevised at 6.6% q/q. Fed speak continues with Chair Powell along with Treasury Secretary Yellen giving testimony to the House Finance Panel after the fiery testimony to the Senate on Tuesday. There are also a number of other Fed speakers including Williams, Harker, Bullard, Evans and Bostic. In politics focus will be on Congress and whether they can pass a standalone funding measure to fund the government past Thursday.

Market Prices

For further FX, Interest rate and Commodities information visit

Read our NAB Markets Research disclaimer