It has been a quiet start to the week in the run-up to Easter with little newsflow to drive markets. US equities have spent much of the session in negative territory and are currently slightly lower, US Treasuries have traded in a narrow range and the NZD and AUD are little changed from where they began the week.
Markets don’t have much to trade on, with the key economic releases this week beginning from Wednesday. The US reporting season is underway, with the market not liking Goldman Sachs’ report showing a 21% slump in earnings, while Citigroup’s earnings were relatively better but with modest earnings growth of just 2%. The S&P500 was down as much as 0.4%, but has pared much of that loss as we head into the close. In second-tier economic news, the Empire state survey based on manufacturers in the New York region bounced off a 2-year low, rising 6.4 points to 10.1 but the expectations component was very weak, falling 17.2 points to 12.4, a 3-year low.
Chicago Fed President Evans told CNBC that he was concerned that inflation had fallen back below 2% and was happy to be data-dependent to see how things play out. “Inflation is a little weaker than I’d like to see…I can see the funds rate being unchanged into the fall of 2020”. The US 10-year Treasury rate has traded a narrow 2.55-2.57% range for the day. Since late-March the market has been paring back expectations of Fed easing, with the Fed Funds curve currently showing “only” 12bps of easing priced in by the end of the year, compared to a full 25bps easing priced at the beginning of the month.
Currency moves have been fairly modest, but of note USD/CAD is up 0.4% to 1.3380. The Bank of Canada business outlook survey showed business confidence turning negative, falling to a 4-year low, with the report including softer sales expectations and a sharp decline in the number of companies reporting labour shortages. BoC Governor Poloz apparently puts a lot of weight on the survey, so the weak result triggered a weaker CAD.
The NZD sits this morning at 0.6760, close to where it began the week. It was well bid during the NZ session, breaking 0.6780, but faded after the local close, with the USD making some broadly based, albeit small, gains. Our short-term fair value model estimate has been on a rising trend this year, fuelled by higher risk appetite and NZ commodity prices. Fair value currently sits just over the 0.69 mark. The AUD has tracked sideways in a tight range around 0.7175 and is also flat for the day. There has been little pulse in the other major currencies.
NZ rates were higher yesterday, following the rise in US rates on Friday night. There was a modest steepening of the swap curve, with the 2-year rate up 3bps to 1.72% and the 10-year rate up 5bps to 2.31%.
It should be another quiet day ahead, although the economic calendar becomes slightly more interesting. RBA minutes of its April meeting are released this afternoon. The Statement saw a change to the policy outlook language for the first time in years, opening the door to considering a rate cut. The market will be trying to glean the rationale for this. In tonight’s GDT dairy auction we expect to see a modest increase in pricing, extending the streak of positive auctions to ten.
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