Financial markets are quiet and prices are largely tracking sideways, with little newsflow. GBP is softer as hope fades for an end to the fog of uncertainty over Brexit.
A lack of newsflow and little data to speak of sees a lack of price action in financial markets. As we reported yesterday, it will be a quiet start to the week, with the key policy meetings and data from Thursday onwards. Until we hear from the FOMC on Thursday morning, markets are likely to continue to track sideways.
The only thing of note to report is a modestly weaker GBP, which has tracked lower from the European open to be down 0.5% to 1.3225. The Speaker of the House of Commons warned PM May that she will not be able to put her Brexit deal for a third time to another parliamentary vote unless there are substantial changes to it. In our view, this would require a meaningful change to the Irish backstop, which is a key point of contention. Given the EU’s stand that negotiations have finished on the Withdrawal Agreement and time is almost up, it seems that the odds of May’s soft Brexit plan being approved have fallen dramatically. Earlier, there was talk of May not getting the required support of the DUP anyway, feeding a weaker GBP. Media report that May will ask the EU for a 9-month extension, which means several months of more uncertainty about the endgame for Brexit. A PM leadership challenge, fresh elections, a second referendum on Brexit, and revoking article 50 all still remain in the mix.
Both the NZD and AUD have followed a similar path, moving higher late yesterday afternoon on the back of a weaker USD and then retreating from the European open. For the NZD, the range has been around 30pips, and it is trading back down towards 0.6845, where it opened the week. Last night, Chinese company Yili Industrial made a bid of up to $246m for dairy co-op Westland Dairy. Consumer confidence data are released this morning, while in tonight’s GDT dairy auction we expect a further gain in the weighted price index, in the order of 2-3%, reinforced by Fonterra’s recently downgrading of its supply forecasts. That would take the recovery in dairy prices from November up through the 25% mark.
With little movement in currencies, NZD crosses are flat, apart from a 0.5% lift in NZD/GBP to 0.5175.
NZ rates were little changed yesterday against a backdrop of lower UST yields on Friday night. Overnight, the US 10-year rate has traded a tight range and has nudged up a basis point to 2.60%. The market is priced for a dovish FOMC statement on Thursday, with 9bps of easing priced into the Fed Funds curve this year and a full rate cut priced over the next 18 months. RBA minutes of the March meeting are released today, but shouldn’t see any market reaction, with focus directed towards Thursday’s labour market report.
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