Market moves have been modest overnight. Treasury yields have eased back slightly while the S&P500 is broadly flat. News that more European countries had suspended use of AstraZeneca’s Covid-29 vaccine had limited impact. The NZD has outperformed over the past 24 hours and trades this morning just under 72 cents.
There haven’t been any major developments overnight to shake markets. The main news is that France, Italy and Germany have joined other European countries in suspending use of AstraZeneca/Oxford University’s Covid-19 vaccine over concerns around blood clotting. The vaccine makers rebutted the concerns and said there was no evidence of increased instances of blood clotting while Europe’s drug regulator reiterated that the benefits outweighed the risks. The AstraZeneca suspension compounds the slow vaccine rollout in Europe and reinforces the market’s belief that the European recovery will be slower to get going than the US and UK, which have been far quicker in rolling out vaccines. Italy went back into lockdown today amidst a resurgence in new cases.
After their big move higher on Friday, US Treasury yields have drifted a little lower overnight. The US 10-year yield is trading this morning at 1.61%, 2bps lower than its Friday night close. The rates market awaits the FOMC meeting on Thursday morning, at which the Fed will refresh its interest rate projections and Chair Powell will likely be pressed again on a possible response to the rise in bond yields.
Like bonds, equity markets have gone broadly sideways overnight. The S&P500, which set a new all-time high on a closing basis on Friday night, is up around 0.1%, while the NASDAQ is 0.4% higher. Equities hit their lows of the day shortly after headlines hit the screens that Italy and France were suspending use of the AstraZeneca vaccine, but the market quickly recovered. The US tax agency started distributing the $1,400 stimulus cheques on the weekend and market participants expect at least a portion to be parked in the equity market. This has helped maintain positive sentiment.
The USD is broadly stronger to start the week, but the moves have been small (BBDXY +0.15%). All the G10 currencies (bar the Scandinavians) are +/-0.3% from their closing levels at the end of last week.
The EUR and GBP are down about 0.2%, with the AstraZeneca news slightly weighing on both currencies (AstraZeneca has been the main source of vaccines in the UK). Bank of England Governor Bailey was the latest central banker to look at the rise in bond yields with a ‘glass half full’ lens, telling the BBC that the increase in yields was “consistent with the change in the economic outlook.” The BoE’s monetary policy meeting is later this week.
After underperforming for no obvious reason last week, the NZD has started this week on a more positive note. The NZD is up 0.3%, despite a broadly stronger USD, and has nudged up towards 72 cents. The NZD/AUD cross has recovered from the low-end of its recent trading range, bouncing 0.5% to just below 93 cents.
In economic data, the monthly batch of Chinese activity data was a mixed bag, with weaker-than-expected fixed asset investment (as the authorities clamp down on property developers) and stronger-than-expected retail sales. The headline year-on-year numbers in all cases were flattered by base effects from the lockdown 12-months ago. China’s CSI300 equity market fell 2% yesterday, bringing its cumulative decline from its recent peak to 13%. In US economic data, the New York Fed’s Empire manufacturing survey was slightly stronger than expected, with the prices paid component reaching its highest level since 2011 (testament to recent commodity price increases). Goldman Sachs upgraded its US 2021 GDP forecast over the weekend, on the back of the Biden stimulus, and now sees 8% GDP growth and the unemployment rate falling to 4% by the end of the year.
In domestic news, NZ wholesale rates opened sharply higher yesterday morning, playing catchup to the overseas moves on Friday night. The 2-year swap rate ended 2bps higher, at 0.55%, while the 10-year swap rate increased 12bps, to back above 2%. NZ long-term wholesale rates remain highly correlated to moves in the US, which is the usual historical pattern when the Federal Reserve has its cash rate on hold.
Yesterday’s PSI (the services equivalent of the PMI) showed the NZ services sector remained in contraction for the fourth month in a row, albeit slightly less so than in February. The Auckland lockdown in February and the ongoing lack of global tourists were almost certainly contributing factors. The broader picture is one in which NZ economy appears to have flattened out in the last two quarters after the huge rebound in Q3. The domestic rates market looked through the data and continues to price the first hike by the RBNZ by mid-2022 (a similar timeframe to market pricing for the Bank of Canada).
The RBA minutes are released today but, given Governor Lowe’s extensive speech last week where he pushed back against market pricing, we don’t expect any new insights. In the US, markets are looking for a small positive gain in retail sales in February after the strong (stimulus-cheque fuelled) gains in January.
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