Another day, another high for the S&P500, against a backdrop of strong economic data and a good earnings season. US Treasury yields are slightly higher, with a fresh eight-year high in the 10-year break-even inflation rate. The USD is a touch stronger, so the NZD shows a small fall to the 0.7245 mark.
The S&P500 opened on a strong note in the aftermath of much better than expected earnings results by Apple and Facebook after yesterday’s close and some solid US economic data and soon touched a fresh record high. The index fell back to slightly lower for the day before rising again to be currently up 0.6%. The global shortage of semiconductors is getting more attention which has morphed from an auto-sector problem into other sectors. Apple and Samsung have joined the list of companies saying that the shortage is likely to result in production cuts and reduced revenue. The shortage is expected to last all year, which is likely to take the edge of what is looking like a very strong global economy recovery this year, and push some growth into next year.
US Q1 GDP surged by an annualised 6.4%, close to market expectations, fuelled by stimulus cheques to households, and with another cheque delivered subsequently likely to boost the Q2 figure even higher, with some seeing a double-digit increase. The key core PCE deflator was an annualised 2.3%, with the increase seen by the Fed to only be transitory. Initial jobless claims hit a fresh pandemic low of 553k, reinforcing the downward trend has been evident over recent months and supporting the view for stronger employment growth as the economy reopens.
These sorts of figures aren’t enough to sway the Fed to even thinking about tapering its bond purchases, with Chair Powell yesterday noting that a string of positive data was required and that “it will take some time before we see substantial further progress.”
Euro area economic sentiment – a mix of business and consumer confidence – blasted up through expectations to reach its highest level since late 2018. While Q1 GDP figures for the region due tonight are likely to show an economic contraction, the sharp uplift in sentiment bodes well for the recovery setting in from Q2. German CPI inflation broke up through the 2% mark, but that is widely seen to be temporary, driven by one-off effects and core inflation is running much lower than that.
The US 10-year rate rose to its highest level in a fortnight just shy of 1.69% soon after the US GDP release, but it has since retreated to 1.64%, up slightly from the NZ close. The 10-year break even inflation rate stretched to almost 2.46%, a fresh eight-year high.
Copper stretched higher and broke up through the $10,000 per tonne mark before this drew out the sellers and the price fell back to $9,850. Oil prices are higher, with Brent Crude almost reaching the $69 mark again, before paring gains.
In currency markets the USD has showed some small gains. The higher global rates backdrop sees JPY underperforming, with USD/JPY back trading close to 109, but the NZD and AUD have shown small overnight falls as well. A rally up through 0.7285 mid afternoon yesterday proved to be temporary and the currency is now trading down around 0.7245. Month-end flows could be kicking currencies around for no fundamental reason. Once again, the AUD found it hard to sustain a move above 0.78 and it has fallen back to 0.7775, with the USD in the driving seat. EUR and GBP have traded tight ranges and show little movement against the dollar.
The ANZ NZ business outlook survey showed a modest uplift in the own-activity indicator from the flash estimate to a net 22% but more interestingly the selling price intentions indicator rose to a fresh record high of a net 56%, indicative of extreme cost pressures that businesses will be forced to pass on. How transitory the inflationary impulse will be remains an open question. Employment intentions pushed further above average levels, adding more support to our view that the labour market is tracking better than RBNZ’s forecasts.
Once again, the domestic rates market showed little movement in yields. Rates across the bond and swaps curve fell around 1bp. Hot on the heels of the World Bank’s 7-year $1b Kauri issue, Kommunalbanken launched a 2-year Kauri and will print a minimum $250m.
The economic calendar in the day ahead is full. Highlights are the Chinese PMI indicators this afternoon and tonight’s serving of European GDP and CPI indicators. Also of some interest will be the monthly breakdown of US spending and the PCE deflators (already incorporated into the Q1 measures last night) and the Q1 employment cost index.
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