US Treasury yields show further upside, lifting 8-9bps. Most major currencies show little net movement against the USD; NZD and AUD outperform. Fed Senior Loan Officer Survey shows further tightening in lending standards and softer business credit demand

It has been an uneventful start to the week, with flat US equities, a flat USD but higher US Treasury yields. The NZD has outperformed for no obvious reason, seeing it trade up 0.9% to 0.6350.

The economic calendar for the week ahead is light by recent standards, with the US CPI and BoE meeting later in the week two of the few likely market-moving events. The much-anticipated Fed Senior Loan Officer Survey released this morning showed banks reporting tighter standards and weaker demand for commercial and industrial loans in Q1, extending a trend that began before the recent banking sector turmoil. The data are consistent with a weaker economy, but don’t (yet) provide the evidence of a major credit crunch.

After Friday’s strong bounce, US equities are trading flat. Banks started the day on a strong note, adding to Friday’s recovery, with the KBW regional banking index up nearly 2% on the open but gains quickly faded and the index is now down 1½%. Gains also faded for the larger KBW bank index, but it has managed to stay in positive territory. The largest meat producer in the US, Tyson Foods, fell 16% on a weak profit result and reduced sales guidance, with the company experiencing challenging market conditions across all three of its core protein categories, a combination of rising costs and consumers trading down to cheaper foods.

US Treasuries have traded heavy with a lot of corporate bond issuance expected this week, front-loaded ahead of the US CPI release on Wednesday night. Some 15 companies are expected to issue $30-$30b of new debt alongside $96b in Treasury supply. Yields are up 8-9bps for the day, see the 2-year trade with a 4% handle and 10-year rate up through 3.5%, with a further paring of rate cut expectations for the second half of the year.

In the NY Fed’s latest survey of consumer expectations, median CPI inflation expectations declined 0.3pps to 4.4% at the one-year-ahead horizon but increased 0.1pp to 2.9% and 2.6%, respectively, at the three- and five-year-ahead horizons. Perceptions of current credit access and expectations of future availability of credit were mostly unchanged.

German industrial production slumped 3.4% m/m in March, led by the auto sector, following the strong gains in the first two months of the year. A weak run of data for March raises the chance of downward revisions to the early estimate of GDP (which was flat q/q) and may mean the economy didn’t in fact escape recession over Q4/Q1.  Furthermore, the weak end to the quarter sets up a weak base effect for Q2.

The USD continues to trade near the bottom of its recent range, with the DXY at 101.3, within spitting distance of the 100.8 mid-April low, a support level on the radar. A clear break of that would set up further downside pressure. Net changes for JPY, EUR, GBP and CAD have all been small. For no obvious reason, the NZD has been the best performing of the majors, currently trading up 0.9% to 0.6350, with a smaller 0.5% gain for the AUD to 0.6785. This sees NZD/AUD up modestly to 0.9355, and close to 1% gains against EUR, GBP, JPY and CAD.

Yesterday, the pressure on domestic rates was higher from the open, reflecting the rise in global rates on Friday night. For swaps, it was a mostly parallel move across the curve, with rates up 5-6bps, the 2-year rate closing at 5.08%. For NZGBs, there was a modest flattening bias, with yields up 8-9bps at the shorter end, the 10-year rate up 6bps to 4.14%, and the ultra-long bonds up 3-4bps. There will be further upside pressure in rates from the open, given the sell-off overnight in Treasuries and with the Australian 10-yer bond future up 8bps in yield terms since the NZ close.

In the day ahead, NZ card spending data have been volatile of late, reducing their information content, but odds favour a fall in April after the 3.1% m/m surge in March. The Australian Budget is released tonight, with media reports of a likely surplus for FY23, but higher deficits in later years. A $14.6b cost-of-living package has already been pre-announced.  Chinese trade data and the US NFIB small business survey are the key global economic releases.