Most market moves were again reasonably modest overnight, US stocks inching ahead to new highs once more, as markets await the Fed meeting tomorrow morning and US CPI. The NZD has risen a little further against most major currencies again overnight, but on no discernible news. The AUD has been supported by news of M&A activity.
The NZD has maintained its shift to the upper end of the 0.68 – 0.70 trading range against the USD since Adrian Orr was announced as the new RBNZ Governor. Overnight, the NZD met some resistance near 0.6950 and has drifted a little lower since. The NZD is higher against all the major crosses overnight with the exception of the AUD.
The AUD strengthened overnight, brushing off yesterday’s fall in the NAB Business Survey, on news of a takeover bid for Australian-owned shopping mall operator, Westfield. Unibail-Rodamco, a European owner of shopping malls, has agreed to buy Westfield for A$32.7bn, of which around 35% will be paid in cash. While the deal won’t likely be closed until mid-2018, the FX market has moved to anticipate the associated hedging of the cash proceeds back to AUD. In addition to the Westfield deal, Zurich Life yesterday announced that they would buy ANZ’s Australian life insurance business for A$2.85bn. The AUD is up around 0.2% since this time yesterday while the NZDAUD is down slightly, a bit below 0.92. In isolation, the NAB survey was a bit of a disappointment, with Business Conditions falling sharply from last month, although our Australian economists point out that most components remain at reasonably healthy levels.
The USD strengthened a bit against the major currencies overnight and US yields edged up a few basis points ahead of the all-important CPI release and Fed meeting tomorrow morning. The US PPIs – both headline and core – were a little higher than expected overnight, although there has historically been little read-across to CPI so we wouldn’t read too much into it. Press reports suggest House and Senate Republicans are on track to agree a final wording of the tax reform bill this week, although this seems very well anticipated. Both the USD and US yields remain within recent trading ranges. The VIX remains stuck below 10, reflecting the subdued volatility across most markets at the moment.
UK headline CPI was slightly higher than expected at 3.1% which will mean the BoE Governor will need to write to the Chancellor explaining the deviation from the 2% target at the February MPC meeting. More importantly, core CPI was unchanged at 2.7%, on expectations, and market expectations of the next BoE hike haven’t shifted from the end of 2018. NZD/GBP has pushed above 0.52 overnight although we retain our bias for that cross to move lower next year as we expect the markets will focus on the prospect of a transitional deal between the UK and the EU for after March 2019. EU leaders meet later this week with the (leaked) draft wording showing that discussions on a future trade deal with the UK will start in March. Discussions between January and March will focus on agreeing the conditions for the transition period, with the EU likely to insist the UK respects EU rules during this time. If the EU’s negotiating strategy with Greece a few years ago is any guide, the UK shouldn’t expect many concessions through the process.
There wasn’t much to focus on domestically yesterday with no data released. New Zealand swap rates were mostly unchanged, with the 2 year swap still stuck in its 2.10% - 2.20% range. Local rates markets will look to the important US events over the next day as well as the Half-Year Economic and Fiscal Update (HYEFU) for direction. We will be looking at the government’s spending plans and accompanying Budget Policy Statement on Thursday for their implications for both our economic forecasts and market outlook.
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