It has been a typically quiet start to the week, more so given the lack of data and ahead of some key risk events this week, including the US CPI tonight. A weaker yen has been the only market movement of note; other currencies show only small changes, US equities are flat and US Treasury yields are modestly higher.
In the lead-up to Christmas, the week ahead is full of key data releases and central bank meetings, before markets will go into snooze mode for a few weeks. Ahead of the Fed, ECB and BoE meetings, the US CPI report, and other key economic releases, market movements have been small.
The key market move has been a much weaker yen after Bloomberg reported that BoJ officials “see little need to rush into scrapping the world’s last negative interest rate this month as they have yet to see enough evidence of wage growth that would support sustainable inflation”. The BoJ meets next Tuesday. Recall that last week’s hawkish comments from the Governor and Deputy Governor led to a sharp lift in rates and the yen, after the market brought forward rate hike expectations. Bloomberg’s report suggests that December is too soon for a rate change. Following the report, USD/JPY sharply rose from 145.50 to around 146.50, the yen extending its loss since last week’s close to 1%. NZD/JPY is up nearly 1% to 89.5.
Other currency moves have been small. The AUD has been the worst of the key majors we closely follow, down 0.3% to 0.6560 and attributed by some to the weaker China inflation data over the weekend, adding to the sense of a weak Chinese economy facing disinflationary pressures. The NZD has been less affected and is little changed from last week’s close near 0.6120, after testing 0.6105 last night. NZD/AUD is slightly higher at 0.9325.
US Treasury yields have pushed higher ahead of some heavy supply this week. The auction of $50b of 3-year notes showed a tail amidst lower-than-average bid-cover, despite rates heading higher into the event. Just after we go to print, the market will have to absorb $37b of 10-year notes. Rates are currently up 4-5bps across the curve, with the 10-year rate at 4.28%.
US equities are consolidating near recent highs, the S&P500 maintaining the 4,600 level and flat for the day.
Yesterday, the domestic rates market showed some cross-market outperformance, with a more modest lift in rates compared to US and Australian markets. NZGB yields were up 2-3bps across most of the curve. The 2-year swap rate rose 1bp to 5.22% while the 10-year rate rose 2bps to 4.75%. Domestic data this week include Q3 current account and GDP, ahead of next week’s half-year economic and fiscal update.
Of interest for those who close follow local authorities because of LGFA exposure, BusinessDesk published a neat article this morning headed “a stampede of local government asset sale proposals”. BoP regional council is investigating the sale of a chunk of its majority stake in Port of Tauranga, Christchurch city council is looking to partially privatise a number of its businesses, with Auckland and Wellington councils also hinting at asset sale plans. All this reflecting high debt levels and crippling increases in rates as far as the eye can see.
In the day ahead, NZ card spending data and net migration are released. While the data on the latter are ropey and prone to significant revision, the RBNZ’s recent hawkish pivot, related to strength in net migration, now makes this release more important for the market. RBA Governor Bullock speaks at the Australian Payments Network, and something might come out of the Q&A than the topic of discussion.
Tonight, there will be keen interest in the US CPI release, where any deviation from the consensus could cause an outsized market reaction. The consensus sees the core CPI at 0.3% m/m, which would leave the annual increase at 4.0% y/y.
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