Despite a plethora of economic data and US earnings results, market movements remain well contained, with US equities flat and little net movement in US Treasuries. The USD is broadly weaker, with a modest reversal from the previous day’s strength. The NZD is trading back just over 0.62 and shows only small movements on the crosses.
US equities show little net movement for the day across the main indices, and with no great variation in sector performance. Goldman Sachs reported earnings down 18% y/y, dragged down by dealmaking and its trading business. Bank of America’s earnings rose 15% y/y, a beneficiary of the higher rates environment, consistent with the strong results reported by the other large trading banks at the end of last week.
Treasury yields show a small flattening bias, with flat 2-year rates, just under 4.2% and slightly lower 10-year rates, at 3.57%. In economic news, US housing starts and building permits showed upside and downside surprises respectively. Looking through the volatility, the data were consistent with some stabilisation in activity after the deep downturn through last year.
Atlanta Fed President Bostic told CNBC there is “more work to be done” on policy but he favoured just one more rate hike before holding rates at that level for some time. He also offered some positive anecdotes of the banking situation in his district. St Louis Fed President Bullard showed off his hawkish credentials in a Reuters interview, favouring three more rate hikes and a bias for rates to be “higher for longer”. He discounted the prevailing view that the US economy was heading for recession or a possible banking crisis, and noted the reversal of financial stress as measured by the St Louis Fed Financial Stress Index.
Canadian CPI data showed the expected further signs of moderation, with both headline and core measures falling, to 4.3% and 4.5% (average of trimmed mean and weighted median) respectively. During testimony to lawmakers, Governor Macklem said that he was encouraged by the CPI figures but the Bank “can’t rule out that interest rates may need to go higher”, after recently pressing pause on the hiking cycle. The rates market only prices in a small chance of one more rate hike this cycle.
UK labour market data showed ongoing signs of a tight labour market, with much stronger than expected employment growth and wage inflation in February, employment rising 169k (50k expected) and with weekly earnings ex bonuses up 6.6% y/y. The data saw pricing for another 25bps hike increase further (23bps priced), which looks likely unless CPI data due tonight shows a notable downside miss. Against a backdrop of small movements in US and European rates, the UK shows some chunkier moves, with the 2-year rate up 8bps and the 10-year rate up 6bps.
Yesterday, China GDP was stronger than expected in Q1, rising by 4.5% y/y, rebounding after the end of the zero-COVID policy. The monthly data dump showed particular strength in retail sales, up 10.6% y/y. The yuan strengthened on the report, but the move wasn’t sustained.
The minutes of the RBA’s early-April policy meeting, where the Bank held policy unchanged after a string of ten consecutive rate hikes, said that the purpose of the pause was “to allow time to gather more information” and it was “clear that monetary policy may need to be tightened at subsequent meetings”. The tone of the minutes was more hawkish than expected and suggested that the May meeting was “live”, for which the Bank would have more data on inflation, the labour market, household spending and business conditions, and a full set of updated forecasts. Australian rates pushed higher after the release.
Despite all the various economic data, the key move in currency markets has been modest broad-based weakness in the USD, reversing some of the prior day’s strength. Since this time yesterday, the key majors are up around 0.4-0.5%, with JPY and CAD slightly lagging. The NZD is currently just over 0.62, after trading up to about 0.6225 overnight. AUD is trading around 0.6730, with NZD/AUD showing little net change over the past 24 hours at 0.9225, after touching as low as 0.92 early evening. Other NZD crosses are flat for the day, although the relatively softer CAD sees NZD/CAD back above 0.83.
The GDT dairy auction showed a 3.2% lift in pricing, breaking a very weak run and leaving prices still over 30% below year-ago levels. All product prices rose, with whole milk powder up 1% and skim milk powder up 7%. It’s probably too early to declare that the downturn in pricing is over, but the better auction gives some hope that the market is better balanced at current prices.
Domestic rates were much higher yesterday, following the sell-off of US Treasuries and higher Australian rates after the RBA minutes thrown into the mix. Swap rates were up 9-10bps, while there was a deeper sell-off in NZGBs as they reversed the previous session’s outperformance. NZGB rates rose a chunky 15-17 bps, seeing the 10-year rate close at 4.25%. Earlier in the day, REINZ housing market data weren’t as poor as they have been recently, with the number of house sales down “only” 15% y/y in March (albeit still the weakest March in twelve years) and the house price index down “only” 0.8%, or down 16.8% from the November 2021 peak.
In the day ahead, the calendar is quiet, with UK CPI data the only key release, where the market expected some moderation in annual headline and core inflation, the latter to 6.0%.
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