June 23, 2017

Markets Today: You’re the voice, try and understand it

Norway’s central bank removed its explicit easing bias at its meeting overnight, stating “the balance of risks suggest that the key policy rate will remain at today’s level in the period ahead”.

You’re The Voice is Australia’s quintessential song at any watering hole for late night revellers. The lyrics also seem an apt description of the seemingly co-ordinated action by central banks to remove expectations of further policy easing and get the market thinking about the possibility of central banks following the Fed in removing accommodation in the future. So it was again overnight with Norway’s central bank (more on that below).

In terms of market moves it was a quiet night with only minor changes in currencies (USD flat), equities (S&P500 ‑0.1%) and bond yields (USTs -1.8bps). The biggest moves occurred in the Canadian dollar, (+0.7%) Norwegian Krone (+0.5%) and Kiwi (+0.5%) – mostly on the back of central bank commentary and a move higher in oil prices.

Norway’s central bank removed its explicit easing bias at its meeting overnight, stating “the balance of risks suggest that the key policy rate will remain at today’s level in the period ahead”. It also revised its path for the key policy rate higher in 2017 and 2018 and importantly the path is gradually rising from 2019. Echoing comments from the Bank of Canada and from our own RBA Governor, the statement said there were “signs of impending reversal in the decline in petroleum investment” with the prospect of a modest rise in the near term.

It is clear that there has been a shift in central bank policy amongst the advanced commodity countries, who are seeing the drag from the mining/oil downturn bottoming and possibly becoming a tailwind in the near future. The missing ingredient of course remains inflation and the Norges Bank forecasts inflation will hold below its target of 2.5% through at least 2020 (note core inflation is currently 1.6%).

The RBNZ too has seemingly joined the party with a mostly unchanged post meeting statement against a whisper expectation that the statement would be more dovish given the rise in the Kiwi and a disappointing Q1 GDP figure. This was not the case with no reference of the Kiwi being overvalued and currency markets took this as a green light with the Kiwi finishing up 0.5% overnight. Our NZ colleagues suggest it is unlikely the RBNZ will lift rates until 2018 and there was little reaction in the rates market.

In the US, politics continues to play in the background, but with little impact on markets overall. Senate Republicans unveiled their Healthcare Bill to repeal Obamacare in draft form and a formal bill is likely to be brought to the floor next week or the week after. For the bill to pass, Republicans need 50 votes, meaning they can only afford to have two Republicans oppose it. While headlines suggest five Republican Senators are likely to oppose it, they have expressed a willingness to negotiate. US equity markets are hopeful with Health Care stocks up 1.1% overnight. However, a fall in other sectors saw US equities finish unchanged on the day.

The WTI oil price rose 0.6% overnight to $42.77, while moves in Brent were stronger (+1.0% to $45.25. There is not much to report on in terms of new developments, though the support for oil likely came on news of Cyclone Cindy hitting the Gulf of Mexico and Saudi Arabia continuing to target a price of $65 a barrel.

The rise in oil did support the CAD, which rose 0.7%. Also supporting the CAD was much stronger than expected retail sales. Headline retail sales rose 0.8% m/m, more than double the market consensus, along with the core measure which rose 1.5% m/m. That overall bodes well for Q2 GDP in Canada and plays into the vein of growth picking up in the Canadian economy and the likelihood of the Bank of Canada removing policy accommodation.

As we go to print, UK PM Theresa May has further indicated the likelihood of a soft Brexit by making concessions to EU citizens already living in the UK. PM say said those who were already in the UK would be given an opportunity to build up five years’ worth of residence which would than confer on them “settled status” and give them the same rights as British citizens to work, pensions and other public services.

Coming Up

It’s a quiet day ahead domestically with nothing of note scheduled for release.

Internationally focus will be on the slew of PMIs being released. Japan’s Nikkei Manufacturing PMI is out at 10.30am (AEST), followed by Eurozone PMIs at 6.00pm (AEST), and wrapping up with the US. The pick of the data is likely to be the Eurozone PMIs.

Fed speak also continues with Bullard, Mester and Powell all due to speak.


On global stock markets, the S&P 500 was -0.05%. Bond markets saw US 10-years -1.57bp to 2.15%. In commodities, Brent crude oil +0.96% to $45.25, gold+0.3% to $1,248, iron ore -0.5% to $56.53, steam coal -0.1% to $80.60, met. coal +0.0% to $145.00. AUD is at 0.7541 and the range since yesterday 5pm Sydney time is 0.7535 to 0.7576.

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