US earnings season off to a strong start. UST yields push higher; Oil prices up 4-5%. No market reaction to as-expected RBNZ MPR.

US and European equity markets have hovered near record highs, while other assets are consistent with higher risk appetite, with US Treasury yields drifting higher and the NZD and AUD heading the leaderboard, with gains of more than 1% over the past 24 hours.

In COVID19 news, Denmark became the first country to completely stop using the AstraZeneca vaccine, with the country’s health authority noting the “real risk of severe side-effects” associated with its use. The EU unveiled plans to massively increase its supply of the Pfizer vaccine, signalling a move away from the AstraZeneca jab as well.

The US earnings season, expected to be a ripper, got off to a strong start with banks reporting strong earnings. JP Morgan posted a record quarter, supported by a boom in investment banking, strong trading profits and $5.2b of credit reserve releases. However, its share price fell as it warned that loan demand was challenging, with higher interest rates weighing on mortgage finance applications. Goldman Sachs reported strong trading profits on similar themes and its share price was up 3%. Wells Fargo also reported strong profitability and the bank provided an upbeat outlook for net-interest income and further loan-loss reserve releases, with the share price up around 5% on that.

Coinbase which runs the largest bitcoin exchange in the US listed on the Nasdaq and soared on the open (did anyone expect anything else?) putting its valuation up around $100b, before reversing course. The listing coincided with a record price for Bitcoin, which rose to just under $65k.

There has been little other news. Euro-area industrial production fell by 1% in February, not helped by supply bottlenecks. There were no fresh insights from Fed Chair Powell’s speech hosted by the Economic Club of Washington. He continued to convey patience on maintaining aggressive policy support, even as the economic recovery picked up speed.

Oil prices are up in the order of 4-5% after the EIA reported a much greater than expected reduction in crude oil stocks. Fuel consumption rose by more than 1m barrels a day to more than 20m barrels, getting close to the pre-pandemic level.

The lift in oil prices and positive risk backdrop have helped push US 10-year Treasury rates higher, up to nearly 1.65% overnight and currently 1.635%, up a couple of bps from the NZ close.

The NZD and AUD head the currency leaderboard, with lagging performance overnight from the usual safe-havens, the USD, CHF and JPY. The NZD hit a high of 0.7150 overnight while the AUD pulled back just shy of 0.7740. Technical factors have possibly encouraged the outsized move, with both currencies making decisive upside breaks from a downward trend. In our recent NZD reports we have been noting that the NZD was looking a little cheap after its late-March selloff against a backdrop of improving risk appetite and NZ commodity prices, driving our short-term fair value model estimate up through 0.7250.

While much of the NZD appreciation has occurred post the RBNZ’s Monetary Policy Review, we don’t see that as the trigger, other than removing a risk-event out of the equation. NZD/AUD is barely higher post the MPR, sitting at 0.9240. Other NZD crosses are up in the order of 1%, with only small moves in EUR, GBP and JPY against the USD.

The RBNZ’s MPR was widely anticipated to be market-neutral, with the Bank likely to convey the same message as in February. That proved to be the case. The committee judged the medium outlook for growth as broadly similar to its February projections and thereby kept policy guidance the same – the committee continuing to expect a “prolonged period of time to pass” for the conditions to be met to remove current stimulatory monetary settings. As in February, the committee was prepared to lower the OCR if required.

There was absolutely no reaction in the rates market to the release, with the moves for the day already embedded before the release. The prior night’s rally in global rates, supported a move down in domestic rates, led by the long end. The 10-year NZGB fell by 6bps to 1.69% while the 10-year swap rate fell by 4bps to 1.84%. Nobody’s monetary policy outlook would have changed as a result of the MPR. The 2bps fall in the 2-year swap rate to 0.44% preceded the MPR.

In the day ahead, REINZ housing market data for March will only partly capture the government’s market-moving housing policy announcement that month, so indicators should remain very strong. Australian employment data have been on a strong run of late and expectations are for another solid report for March. US retail sales is the pick of tonight’s releases, expected to show a massive increase as Biden’s handouts were likely put to work.