Equity markets slightly lower; UST yields slightly higher. NZD and AUD flat. US CPI tonight to be closely watched

As expected, it’s been a slow start to a busy week. After a strong run to new record highs, equity markets are slightly weaker, while bond markets continue to consolidate. Only small changes in currencies are evident, with the NZD flat around 0.7030.

Ahead of a busy week for corporate earnings and some top-tier economic releases, including US CPI and retail sales, US equities are slightly weaker after closing Friday at a fresh record high. The S&P500 has spent much of the overnight session in negative territory and is currently down 0.2%, following a 0.5% fall in the Euro Stoxx 600 index.

Headlines on COVID19 show a mix of positive and negative reports. On the negative side, further research on China’s Sinovac vaccine being used in Brazil suggested an efficacy result of just above 50%, raising some alarm bells in China and across a number of countries using the vaccine. This can only suggest a longer period ahead to bring the virus under control across much of the developing world. The weekly death toll in the US rose for the first time since February and the infection rate climbed for a fourth straight week. Infection and death rates across India continue to rise at an alarming rate. India’s key sharemarket index saw its gains for the year wiped out yesterday with a 3½% fall, on concerns about India’s economic outlook.

On the positive side there are reports that the vaccination programme across Europe has stepped up a gear in an attempt to get the rollout back on track. Meanwhile another round of easing in lockdown restrictions in the UK began at the start of the week, with non-essential retailers allowed to reopen.

Global economic data released have been second-tier in nature but were all on the positive side. Chinese loan growth remained strong in March, with little evidence of a substantial slowing in lending following reports that in February the PBoC asked banks to curb loan growth over coming months.

Eurozone retail sales rebounded by 3% in February, continuing the run of stronger-than-expected activity data for the region. A Bank of Canada business survey showed confidence rising to a near-record high in Q1 with firms reporting less uncertainty related to COVID19. The data can only support the view that the Bank of Canada will announce a tapering of its asset purchase programme at its policy meeting next week. A UK CFO survey showed business leader optimism at a record high, as lockdown restrictions ease.

Bond markets don’t show much movement and continue to consolidate. The US 10-year Treasury yield has traded a 1.64-1.68% range overnight, currently towards the top end of that range and up 2bps from the NZ close. The $38b 10-year auction went off without any drama, at a rate of 1.68% and demand slightly lower from last month’s auction.

Currency markets have started the week on a quiet note, with all key majors plus or minus 0.25% from last week’s close. The NZD and AUD are both flat at 0.7030 and 0.7620 respectively. GBP and JPY are on the positive side of the ledger, both up about 0.25%, the former trying to claw back some of last week’s underperformance. EUR is barely higher at just over 1.19.

The domestic rates market was pushed around by global forces, the net result being small upward pressure across much of the curve, with 10-year NZGB and swap rates up 2bps to 1.73% and 3bps to 1.85% respectively. The short end of the curve was little changed ahead of Wednesday’s Monetary Policy Review, widely seen as a bit of a non-event with little change expected to the RBNZ’s policy guidance.

Hopefully we see a little more price action for the rest of the week. US CPI data for March are released tonight and will be closely watched for evidence of rising inflationary pressure. Annual figures will jump higher, owing to base effects. The monthly gauges will be more important, following a series of soft readings, but market reaction to any positive surprise should be contained to the extent that the Fed isn’t going to react to a “transitory” lift in inflation. Ahead of that, electronic card transactions for NZ and China trade data are the pick of the second-tier releases.