Business Research & Insights

It’s the same story again today – equities hurting, the US dollar higher and bond yields reaching 16 hear highs. What’s changed today is a sharp rise in oil prices. NAB’s Tapas Strickland says there’s a great deal of nervousness that supplies in the US have been destocked too far, down to levels last seen in 2014

US equity and FX markets have for once pushed the bond market vigilantes out of the spotlight, albeit the weakness in stocks and strength in the USD doubtless owes something to the lagged impact of the earlier run up in Treasury yields to post 2007 highs

The bond selloff continued overnight in what was a very quiet night for newsflow. The US 10yr hit a 16yr high of 4.55%, now 4.53%, and up some 11.2bps over the past 24 hours.

The path of central banks does seem to be having as many twists and turns as a Dickensian novel. NAB’s Ray Attrill says the path of bond yields at the end of the week showed how the UK is taking a divergent path from the US, where central bank speakers are still suggesting there will be more hike(s) to come.

Bond markets are a little feisty ahead of the FOMC meeting tomorrow. NAB’s Taylor Nugent says a hold is still expected tomorrow but there are more signs that inflation isn’t beaten yet.

The Fed isn’t the only central bank making a call this week. There’s also that expected hike from the Bank of England, plus the central banks of Japan, Switzerland, Sweden and Norway.

US equities closed the week little changed with the S&P 500 in consolidation mode ahead of a new week that includes the FOMC meeting and a busy earnings calendar. UST were little changed and the USD continued its recovery.

Positive soundbites from Biden and McCarthy give hope a debt deal can be reached.

A flurry of global economic data but relatively modest market movements.

The Bank of England raised rates by 25bp as expected, while softer data out of China and the US weighed on risk sentiment

Markets are showing relief that the key US CPI release overnight was not higher than expected

Markets are treading water as we await the outcome from the Biden-McCarthy debt ceiling meeting and the US CPI data release tonight. US and EU equities have ended the day lower while core yields have edged a little bit higher. Fiscal updates revealed contrasting AU and NZ fortunes while cautiousness in the air has favoured the USD.

US and EU equities have closed with modest gains while core yields extended Friday’s rise. The Fed Senior Loan Officer revealed a modest deterioration in lending standards alongside a drop in demand for loans, so no evidence of an imminent credit crunch. The USD is little changed with NZD leading a modest outperformance by pro-growth currencies.

Payrolls more than solid enough, challenging views of imminent rate cuts

There were no major surprises in Friday’s US NFP report, unlike the prior days weekly jobless claims data.

Softer US data saw recession concerns to the fore, with yields lower over the day but some safe-haven dynamics supporting the USD.

President Biden visited Ukraine, where he pledged ‘unwavering support’ for the country as the Russia’s invasion nears the one-year mark.

It was mostly quiet on Friday and on the weekend, with an initial push higher in yields and sell-off in equities largely reversing later in the session.

US retail sales soared in January jumping 3% well above the consensus, 2.0% and Sales ex-autos jumped by 2.3%, more than double the consensus, 0.9%.

As for the data itself, US CPI was ever so slightly above consensus.

The main takeaway being that Americans anticipate income growth to slow and inflation to stay elevated.

Headlines of impending Ueda nomination for BoJ Governor see volatile yen..

NY Fed’s Williams stressing importance of financial conditions in policy reaction function..

NY Fed’s Williams stressing importance of financial conditions in policy reaction function..

Powell then also noted how the strength in the labour market underscores why the Fed thinks it could take time to bring inflation down.

The RBA this afternoon and Powell interview in Washington tonight are today’s main draw cards.

Fed pricing has shot back up following Payrolls and the ISM to almost fully pricing a 25bps March hike and then a follow up May hike (there is now 40bps priced across the two meetings, up from 30bps the day prior).

Big moves overnight with the BoE and ECB feeding the market narrative that the end of the tightening phase may be nearing.

Fed hikes by 25bps, signals ‘ongoing rate increases’ will be appropriate..

First to US wage data overnight. The Employment Cost Index (ECI) is closely watched by the Fed as it compositionally adjusts wages growth..

Market pricing for ECB meetings increased, helping European yields higher across the curve.

The S&P 500 Index closed 0.25% higher on Friday, finishing the week 2.5% higher.