With little news, market conditions are calmer compared to recent conditions. Global rates have pushed higher and US equities are modestly weaker. The USD is broadly weaker since this time yesterday, with near 1% gains for the NZD and AUD to around 0.6250 and 0.67 respectively.
US banking regulators faced a grilling in front of lawmakers but nothing particularly market moving came out of hearing. Fed vice-Chair for Supervision Barr said that the Fed would look at strengthening capital and liquidity rules in line with the Basel III international standards and might consider a long-term debt requirement that would provide an additional cushion.
In economic news, US consumer confidence as measured by the Conference Board unexpectedly rose slightly in March to 104.2, driven by the expectations component. The data showed no ill effect from the initial stages of the turmoil in the banking system, although it is still early days and we know that banking lending standards are currently tightening, imparting a negative force on the economy. The goods trade deficit rose slightly to $91.6b in March, with the figures for Q1 overall suggesting little contribution from net exports on Q1 GDP.
The lack of news overnight sees calmer market conditions. With no further evident stress on the banking system, the market has pared back expected Fed easing through the second half, pushing up Treasury yields. The 2-year rate has sustained a lift up through 4% and is currently at 4.03%, down from a 4.07% high. The 10-year rate is up just 2bps to 3.55%. In comparison to recent daily movements, these are insignificant moves. Rates across Europe are also higher, with 2 and 10-year German bunds up 6bps.
As a sign of better fixed income market conditions, there has been a steady flow of new US investment grade bond issues so far this week and the US high yield bond market saw it first new launch in three weeks.
The S&P500 has traded a narrow range, mainly in negative territory and currently shows a modest fall, with tech stocks dragging the chain, evident in a larger 1% fall for the Nasdaq index. A further lift in oil prices, with Brent crude up over 1% to USD79 per barrel following yesterday’s 4.2% gain, has supported energy stocks.
In currency markets the USD has been broadly weaker, with the dollar indices down 0.4% on the day. Much of the weakness was during NZ hours, with a further push in that direction overnight. The NZD is trading close to 0.6250, up nearly 1% from this time yesterday. The AUD showed a similar move, up nearly 1% to just over 0.67. Apart from a flat NZD/AUD cross at 0.9320, NZD crosses are modestly higher, recovering losses seen during the previous day.
Yesterday, NZ rates were pushed higher by global forces, but with some more cross market outperformance, with a more muted lift compared to that seen in the US and Australia. The 10-year NZGB rose just 5bps to 4.08%. Swap rates were up 2-4bps across the curve.
In the day ahead, the calendar is light with monthly Australian CPI of some interest and where annual inflation is expected to dip to 7.2% y/y.
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