There is little to report today, with modest market movements after yesterday’s price action. Yesterday, the S&P500 ended the day down 1.2%, its largest fall since Trump was elected and in the end recording the most days without a fall of more than 1% in 22 years. That statistic highlights how low volatility has been over recent months. The VIX index “fear” gauge is still considered historically low around the 12.6 mark.
The lack of support for Trump’s health bill was a clear driver of that fall and today we read of further reports of Trump scrambling to get the numbers ahead of tomorrow’s vote. He’s not there yet. If Trump doesn’t get the numbers to repeal Obamacare then the vote won’t take place tomorrow and it’ll highlight the lack of ability of Trump to achieve what he wants going forward, including tax reform. In that case, expect a further unwind of the Trump rally, meaning lower equities, a lower USD and lower US Treasury yields.
So the market awaits developments on that front. The S&P500 is unchanged as we write, the USD is a touch softer and US Treasury yields are a touch lower.
The yen remains the biggest beneficiary of falling global yield environment, which has seen USD/JPY dip below 111. NZD/JPY is down to 78.4, probing levels not seen since late-November.
The NZD itself is holding up, trading in a tight range of circa 0.7020-0.7070 over the last 24 hours and at the top of the range ahead of the RBNZ OCR review this morning. That ought to be a non-event, with the Bank likely unwilling to drop its neutral policy stance despite most folk outside the Bank believing overwhelmingly that the next move is much more likely to be a hike than a cut.
Let’s see if the Bank acknowledges that inflation is tracking higher than it previously forecast. A recent development has been a significant fall in oil prices, which will give the Bank some breathing space on inflation. Brent crude fell below $50 a barrel for the first time since late November as surging US inventories dim optimism that OPEC and its partners will curb output enough to rebalance the market.
Softer oil prices and other hard commodities see the AUD slip further. We’ve been puzzled by AUD strength recently and it has been well overdue for some underperformance. AUD/USD is down to 0.7680, helping NZD/AUD push up through 0.92, well up from last week’s low of 0.9074 but still well down from the 0.96 level seen as recently as last month. The better GDT dairy auction yesterday has improved sentiment for the NZD. The NZX whole milk powder April contract ended up 10.8% higher yesterday, following the surprisingly strong GDT auction, closing the day at $2880.
GBP is flat at 1.2480, seeing only a temporary blip as reports of a suspected terror attack with one dead came through early this morning. EUR is also flat at 1.0810.
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