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Subdued moves overnight. Broad-based increase in the USD. NZD underperforms as Governor Orr says negative rates haven’t been ruled out in the future

Currencies
Subdued moves overnight. Broad-based increase in the USD. NZD underperforms as Governor Orr says negative rates haven’t been ruled out in the future

Market movements have been a bit more subdued overnight.  The S&P500 and NASDAQ have made modest gains while bond yields have continued to grind lower.  Economic data remains abysmal but this has been overlooked by markets.  The USD has increased strongly for the second day running, taking the NZD down to around 0.5950. 

Equity markets have been choppy but most indices have shown small gains overnight.  The S&P500 has recovered from an early session fall to sit up around 0.1% while the NASDAQ has risen 0.9%.  The market’s perceived winners and losers from the Covid crisis are clear to see, with Amazon and Netflix hitting new highs overnight and the Health Care sector leading gains on the S&P500.  In contrast, the Financials, Industrials and Energy sectors have experienced losses between 1.5% to 4% overnight. 

In terms of Covid, there has been a pick-up in new cases in a Spain (the most in a week) and Italy (the most in four days), which may be partly related to greater testing after the Easter break.  The trend in new cases still appears down, although the true test will be when these countries start to come out of lockdown.  In the UK, the government has extended its lockdown for at least another three weeks. 

Trump is expected to make an announcement today on his plan for reopening the economy, providing Federal guidelines to the states.  While Trump appears eager to get economic activity going again, some states and cities have already pushed back, with New York extending the date of its lockdown to May 15th.  New York has reportedly hired consultants to advise it on its reopening strategy, with the Guardian reporting an advisor to New Jersey Governor Phil Murphy as saying the goal was to make the plan “Trump-proof.” 

We’re still waiting on more fiscal stimulus from the US, amidst a stand-off between House Democrats and Republicans over an extension of the Paycheck Protection Programme (PPP).  The $350b scheme, which is designed to help small businesses, has already been fully used up, less than two weeks after it was opened. 

Global bond yields continue to grind lower, with curves flattening.  The 10-year Treasury yield is 3bps lower, at 0.60%, while the 30-year yield is 6bps lower.  CDS credit indices are marginally wider on the day. 

There has been little market reaction to what has been more terrible, but hardly surprising, US economic data.  Weekly jobless claims data showed another 5.2 million Americans sought unemployment insurance, bringing the cumulative total over the past four weeks to 22 million.  To put that number in context, the US economy added a net 22.4 million jobs in the decade that followed November 2009 (i.e. post-GFC), which has been almost wiped out in the space of a month.  The increase in claims was lower than the previous week, although the total number receiving unemployment benefits is now very high.  The Philly Fed Business survey fell to its lowest level since 1980, with all key components falling heavily (although there was a puzzling increase to future expectations).  US housing data was mixed, but forward indicators (like the NAHB survey) point to a collapse in activity in the coming months.  

In FX markets, the theme of the overnight session has been USD strength.  The BBDXY has risen 0.5%, following on from its 0.9% rise yesterday.  It is currently trading around the middle of its range over the past three weeks. 

Commodity currencies have generally outperformed overnight (Brent crude oil has managed a 3% rise overnight), although not the NZD.  In fact, the NZD is the worst-performing of the G10 currencies over the past 24 hours, down 0.6%, to around 0.5950.  The underperformance in the NZD appears related to RBNZ Governor Orr’s comments at yesterday’s parliamentary hearing in which he said the RBNZ hadn’t ruled out negative rates (once the next 12 months is up) and was prepared to upsize its QE programme if required.  We didn’t see anything particularly new in the comments, but the net result was an immediate fall in the NZD and small decline in NZ rates.  The 2-year swap ended yesterday’s session down another 3bps at a new record low of 0.39%. 

In NZ, the Prime Minister yesterday provided the long-awaited outline of what Covid Level 3 would look like.  Unsurprisingly, it keeps heavy restrictions in place, although certain businesses can reopen (including manufacturers, forestry workers and builders).  Employees are encouraged to work from home if they can and children stay at home rather than school.  Social distancing will remain the norm for the time being.  We now await the cabinet’s decision on April 20th on when the country will come down from Covid Level 4.  The fall in the number of new Covid cases means that should happen soon (although not before the 23rd April, and there is a chance Level 4 is kept in place over ANZAC weekend to discourage travel).

On the NZ data front, job ads on SEEK, the online portal, were down 29.4% in March, similar to Australia's rate of fall for the month.  If Australia is anything to go by, we should expect a further sharp fall in April (Australia's SEEK jobs ads in the first week of April were down 65% y/y).

The RBNZ releases its buyback schedule for government and local government (LGFA) bonds this afternoon at 2pm.  We expect the RBNZ to dial down its government bond purchases following three uncovered buybacks over the past fortnight, from the current $1.8b to maybe something like $1.35b (the same amount as they bought in their second week of the operation). 

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Source: CoinDesk

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