April 8, 2016

Markets Today: Send in the Clowns

Sorry, I couldn’t resist the title seeing as how Janet Yellen, Ben Bernanke, Alan Greenspan and Paul Volcker are all about to jump up on stage together.

Sorry, I couldn’t resist the title seeing as how Janet Yellen, Ben Bernanke, Alan Greenspan and Paul Volcker are all about to jump up on stage together. And on the topic of song titles, ABC radio have just been stealing my thunder, playing the Clash’s ‘Should I stay or should I go’ at 5am just after a segment on Brexit and in which the presenter made the observation that ‘The Australian dollar doesn’t ever move against the pound, does it?’ Hmm. Me thinks he should stick to reading the news.  AUD/GBP is already up 13% from its early January lows.

It’s been a distinctly ‘risk-off’ night with US stock indices closing 1% or more lower (Dow -1.0%, S&P -1.2% and the NASDAQ -1.5%).  Though oil has given back a little of Wednesday’s (EIA inventories data-driven) bounce, it is financial stocks that have taken the worse beating overnight with the S&P banks sub-index off 2.76%. Increased dissolution about what central policies will continue to do to financial sector profitability may be a factor here, as too investors bracing for the Q1 earnings season (that kicks off in earnest on Monday courtesy of Alcoa) and where the banks are anticipated to reveal a truly rotten start to the year.

The risk-off tone sees US Treasuries smartly low, 10s down 6.4bps to 1.69% and their lowest since 25 February, with a similar story for the 2-year note, off 4bps.  Earlier Thursday, 10-year Bunds lost 3bps and UK gilts more than 5bps.

In currencies the big story continues to be the relentless strengthening in the Japanese Yen. From around ¥108.80 when Sydney went home last night, the pair dropped to as low as ¥107.67 overnight before a small bounce into the New York close.  In fact the biggest mover in terms of G10 currency pairs has been AUD/JPY, down over 2.5% in the past 24 hours. From around 0.76 when we went home, AUD/USD quickly lost a cent (low 0f 0.7492) at the same time that the yen was moving the other way.  A glance at the VIX, now back on a 16 handle having been 13 at one point last Friday, tells you much of what you need trop know here.  A sea of red in industrial metals prices (the LMEX index is off 2%) is also relevant. Our short term fair value estimate for AUD/USD currently sits around 0.7550.

Coming Up

It’s another blank canvas as far as local data or events are concerned. The next points of focus in this respect look like being next Tuesday’s NAB business survey then Thursday’s March labour force survey. The latter and then the Q1 CPI report – not until 27 April – are the key domestic events that will shape the RBA’s May rates decision.

Just about to start (07:30 AEDT) in New York is a discussion,  for the very first time, between the four living Fed chairs –  Janet Yellen, Ben Bernanke, Alan Greenspan and Paul Volcker, hosted by International House.  We doubt there will be anything than friendly fire exchanged between the four of them – in the tradition of past Fed chairs pointedly refusing to offer advice to their successors.  If it proves early on to be a particularly sycophantic affair, many of us may be inclined to reach for the ‘off’ button.

We do get Japanese March balance of payments data this morning (09:50 AEDT) which are of slightly more than passing interest with some pointing to Japan’s rapidly rising  current account surplus as one source of the yen’s current appreciation (see Chart of the Day in the attached pdf).

Offshore tonight, data includes UK industrial production and trade figures, US housing starts, Canadian employment data and a speech from NY Fed president and FOMC vice chair Bull Dudley – one of the three Fed officials whose opinions do count for more than the rest.


On global stock markets, the S&P 500 was -1.20%. Bond markets saw US 10-years -6.95bp to 1.69%. On commodity markets, Brent crude oil -0.60% to $39.6, gold+1.6% to $1,242, iron ore -0.3% to $54.57. AUD is at 0.7506 and the 24-hour range has been 0.7492 to 0.7637.

The 2016 Euromoney FX poll is now open for voting and may be accessed at www.euromoney.com/FX2016

For full analysis, download report

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