A further slowing in growth
The market opened yesterday in the Asia session where it closed on Friday with the USD and Treasury yields in retreat.
Overnight, it’s been something of a variation on a theme with the USD listless but not really losing further ground overall – the Pound and the Euro have both retreated – while US Treasury yields have eased lower. Equities have been flat in Europe and in the US, the S&P 500 and the Nasdaq down smalls, the Dow up just 10 points into the last hour. Aussie and Kiwi are higher this morning.
Traded industrial commodity prices are mostly lower, oil lower and most base metals down on the LME, the LMEX composite by 0.55% (aluminium was the exception), as have been iron ore, met and steaming coal. This hasn’t seemingly dented appetite for a little more Aussie and Kiwi in a sideways pattern for the USD, the AUD/USD sitting this morning at around 0.7730.
The big news, though not really “news” in the sense of a surprise, was the announcement from UK PM May that a letter will be sent to the EC next Wednesday, 29 May, triggering the two years of talks in the lead up to Brexit. EC President Juncker has been talking tough, saying in an interview with German newspaper Bild am Sonntag that half memberships and cherry picking aren’t possible and that in Europe you eat what’s at the table or don’t sit at the table, comments treated with not unexpected derision in the UK press.
Notwithstanding that this Article 50 trigger was always coming by the end of next week, the Pound still underperformed overnight, down 0.5%, GBP/USD sitting this morning at 1.2355/50, having been above 1.24 before the trigger news. And so the clock will start ticking next week. BoE Chief Andy Haldane has been speaking overnight and sticking to the much less sensitive issue for markets of low productivity and the need for less reliance on monetary policy, more reliance on structural policy.
There have been two Fed speakers overnight, Charles Evans and Patrick Harker. Evans said he supports two or three rate hikes this year and that inflation at 2.5% for a period of time is consistent the Fed’s inflation goal. Patrick Harker appeared on CNBC saying that the inflation target is not a ceiling and that neither has he factored fiscal policy into his calculations. Evans noted that it would be a challenging time for the economy to get a fiscal boost now given the economy is close to full employment. Both spoke of normalising the Fed’s balance sheet, not suggesting a start is imminent but as a topic for consideration. Harker suggested normalisation once Fed funds is “well north” of 1%.
In a light week for data, we have ABS House Prices for Q4 today. It’s largely of historical interest given that the alternative CoreLogic hedonic prices are now available up to the third week of this month. NZ has net migration and credit card spending data today.
Of much more interest today will be the RBA Minutes of this month’s Board meeting and the focus on the still quite vibrant nature of Eastern residential property market, especially the investor market in Sydney and Melbourne. Officials in the past 24 hours, including the Treasurer, have been offering strong hints that further measures to cool the market appear to be imminent. We already know that in the March RBA post-Board Media Release, the Governor dialled up the level of concern over the whether lending standards have in fact been sufficiently strengthened to alleviate concerns over household leverage and house prices.
The Release then noted: “Supervisory measures have contributed to some strengthening (our emphasis) of lending standards”. In February, the Release noted that “supervisory measures have strengthened lending standards”, a more comfortable assessment that policy was adequate. Of course, the RBA does not wish to increase the official cash rate given higher than target unemployment and lower than target inflation.
The market has taken increased speculation of further official measures in its stride. There’s been little to no spill-over evident for local rates markets, nor the dollar, the AUD/USD getting support today from a soggy big dollar.
Tonight, Sterling watchers will be casting an eye over tonight’s CPI inflation release for February with headline inflation expected to push up from 1.8 to 1% and core from 1.6 to 1.7%. Upstream (PPI) prices for February after also due together with UK house prices, the monthly public finance report and the CBI Trends survey.
There are two more Fed speeches due, both from monetary policy hawks, Loretta Mester and Esther George, neither voters this year on the FOMC. It could well be one of those nights where there is more interest north of the border with interest in the January Canadian retail sales report and BOC Deputy Governor Schembri speaking ahead of the Canadian Budget tomorrow night.
Of more interest tonight for local markets, specifically the Kiwi dollar, will be the Global Dairy auction, the Kiwi taking some heat last time when prices fell 6.3%.
On global stock markets, the S&P 500 was -0.20%. Bond markets saw US 10-years -3.79bp to 2.46%. In commodities, Brent crude oil -0.23% to $51.64, gold+0.3% to $1,234, iron ore -0.9% to $91.49, steam coal -0.5% to $80.90, met. coal -0.5% to $157.50. AUD is at 0.7733 and the range since yesterday 5pm Sydney time is 0.7686 to 0.7748.
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