Today’s podcast

https://soundcloud.com/user-291029717/powells-slow-road-biden-plays-it-cool-with-china?in=user-291029717/sets/the-morning-call

Overview: The ox

• Start of LNY holidays and limited news flow sum to quiet markets
• US weekly jobless claims slip back a little, but level of claims still alarmingly high
• AUD looking more comfortable above 0.77 and best performing G10 currency Thursday
• BNZ/Business NZ manufacturing PMI, UK Q4 GDP and US Consumer sentiment due today

According to Songacts, this instrumental studio jam at the end of the My Generation album was titled for The Who’s bass player, John Entwistle, who was nicknamed “The Ox” for his strong constitution and ability to out-eat and out-drink the other band members.  Doubtless the inspiration for some of my colleagues.

Coming into the last hour of NYSE trade

The S&P 500 is down 0.15% and the NASDAQ +0.1%.

US Treasury yields have recouped all of the ground they lost on Wednesday afternoon (10s currently up 3.5bps to 1.15%) while a mixed performance in currencies sees the AUD at the top of the G10 scoreboard, +0.3% and following slight slippage in oil prices – albeit Brent crude is holding above $61 for the third day running – NOK at the bottom (-0.3%) with GBP also giving back a little of its recent strong gain (-0.2%).

The main piece of economic news overnight

Was for weekly US initial jobless claims, which fell to 793K from an upwardly-revised 812K, above the consensus, 760K.  The four-week moving average level of initial claims has dropped to a five-week low of 823K, and should fall further as restrictions are slowly eased across many parts of the country.

This should mean

We won’t see January’s drop in US non-fam payrolls repeated in February and beyond.

At the same time, the current level of claims remains a long way above the worst single reading during the GFC of 655K and, as Fed chair Jay Powell noted this time yesterday morning, the level of employment last month was nearly 10 million below February 2020 levels, such that, “Achieving and sustaining maximum employment will require more than supportive monetary policy”.

No signs of concern here at the proposed $1.9tn additional covid-relief on top of the $900bn agreed at the end of last year.

Meanwhile on the virus front

We see declining infection trends in most countries – in the US currently averaging around 100,000 new cases a day down from 250,000 at their turn-of-the-year peak, and too hospitalization rates, with particularly sharp falls in infection rates in Spain and, interestingly giving the concerns about the efficacy of at least one of the vaccines vis-à-vis the South African strain, South Africa itself.

Vaccination roll-outs are proceeding apace, with the number of doses administered in the UK now exceeding the equivalent of 20% of the population (though bear in mind these numbers include those now getting their second jab) and in the US comfortably in double digits, while the EU average looks to be nearer 4%.

All encouraging, but not sufficient to allow markets to price in much full economic re-openings in H2 2021 (ex-cross border travel) than they already are.

In this respect

The Winter economic forecasts released by the European Commission overnight have the Euro area growing by 3.8% this year and next.

That masks what is expected to be a contraction this quarter, before lockdown restrictions/containment measures see growth pick up through Q2 and more so through the second half, including as the vaccine programs are rolled out.

The EC now sees risks as more balanced, both from what’s expected to be a sustainable easing of containment and as the Next Generation EU recovery fund kicks in.

Compared to the Autumn forecasts

The EC have downgraded growth for this year (continuing restrictions into this quarter) from 4.2% to 3.8% but pushed some of that foregone growth from this year into 2022, upgrading the growth expectation from 3.0% to 3.8%.

The new EC forecasts are on the conservative side compared to the consensus 4.3% for 2021 and 4.0% for 2022. In its December economic projections, the ECB was forecasting growth of 3.9% for 2021 and 4.2% for 2022, those forecasts prepared before a large swath of vaccine news and lockdowns. Even so, the differences in forecasts are not particularly stark.

An hour ahead of the close

The biggest sector changes are a 0.7% rise in IT (hence NASDAQ outperforming the S&P) and a 2.2% decline in Energy, the latter given 1%+ falls in crude oil. Other commodities are mixed, with iron ore futures up 1% but copper down and aluminium flat.

Earlier

The Eurostoxx 50 finished the day +0.6%.

Not much to note in bonds, save that yields in New Zealand fell sharply yesterday following a very well received set of bond auctions, for the 20-year tenor in particular and following which its yield dropped by 12bps.

Finally in FX

Little overall movement in the USD with DXY +0.04% and BBDXY -0.1%, with AUD very comfortably outperforming all other G10 currencies, +0.4% to just above 0.7750 versus the next best performing NZD +0.14% at 0.7225.

The shift down in NZ-AU yield differentials yesterday looks to be a factor behind the further rise in AUD/NZD, which if it finishes in NY near its current 1.0730 level will be the highest close of the year to date.

Coming up

• China, Hong Kong and Singapore are among the Asian nations closed for the LNY holiday (Hong Kong is also out on Monday and China until next Thursday).
• BNZ/Business NZ Jan Manufacturing PMI (last at 48.7) and Jan food prices (08:30 and 08:45 AEDT respectively)
• UK Q4 GDP (consensus 0.5% Q/Q, -8.1% Y/Y up from -8.6% in Q3); UK Dec Industrial Production, Visible Trade
• US Feb prelim. University of Michigan Consumer Sentiment (seen 80.8 from 79.0)

Market prices

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets