NAB Morning Call

Friday 24th March 2023

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Three more hikes in a day. Even though we reckoned yesterday that the Bank of England wouldn’t do it, overnight they did lift rates. NAB’s Rodrigo Catril says there is no hiding from a rising inflation rate, even if it proves to be a temporary blip in a more gradual move down, it’s still very high. He suggests it could serve as a reminder that the RBA also has to keep its eye on the ball. Only significant signs of a weakening economy will change the attitude of central banks, who have separated out their monetary goals from banking pressures. Todays PMIs will give a snapshot of how some of the leading economies are faring.

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Thursday 23rd March 2023

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As envisaged, the FOMC meeting has agreed to a 25bp rate hike in the US, with Jerome Powell indicating there is more to come. But, as discussed with NAB’s Gavin Friend, the Fed chair has suggested that it’s possible that credit tightening from banks, after the recent turmoil, will do some of the work for them. Next, it’s the Bank of England. It seemed likely that there would be no move but could that change with a surprise increase in UK inflation announced yesterday.

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Wednesday 22nd March 2023

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Markets seem to have cast off concerns about banking risk contagion. NAB’s Skye Masters says market confidence has been helped by reassurances from Janet Yellen that the US federal government is “resolutely committed” to mitigating financial stability risks. Authorities are also investigating ways to remove the upper cap on deposits covered by FDIC insurance. That’s all helped to boost equities and drive strong increases in bond yields. The question remains, has there been any lasting impact on the speed and destination for central banks? A 25 basis point hike is well-priced for the FOMC tomorrow, but the revised dot-plots will be of more interest. Catch all the news on that in tomorrow morning’s podcast.

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Tuesday 21st March 2023

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Markets were relatively calm on the first day after the announcement of the Credit Suisse-UBS deal. One risk of contagion was in the AT1 (addition tier one) bond markets, as Credit Suisse wrote their $17 billion value down to zero, leaving bondholders with nothing. NAB’s Taylor Nugent says there seems to be some acceptance that this is a Swiss-only story, and AT1 bondholders would count before equities in the pecking order in the case of other banking right downs. So, now, as markets seem to be accepting that the banking crisis is contained, does that mean central banks – like the Fed this week – can push higher on rates?

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Monday 20th March 2023

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A deal was struck over the weekend that sees UBS buying Credit Suisse for US$2billion, a fraction of it’s value at Friday’s close. NAB’s Ray Attrill talks about the consequences of this arrangement and the ongoing uncertainty in the US regional banking sector. Could this mean we see bond yields falling further and watered down expectations for central bank hikes, including the BoE and Fed this week? How can central banks tread the path between fuelling more banking uncertainty and pursuing their path for controlling inflation? The first central banker to face such difficult questions could be the RBA’s Christopher Kent, first thing today.

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Friday 17th March 2023

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Whilst money is being poured in to solve liquidity issues at Credit Suisse, the ECB has been keen to stay on track with a 50bp rate hike yesterday. It’s been suggested that anything less would have been seen as a sign of bigger troubles and spread panic in a nervous market. Hence, bond yields and equities have come bouncing back overnight. But NAB’s Ray Attrill says markets are less sure of a rate hike from the RBA next month, even though Australia reported a strong increase in employment yesterday and an unexpected fall in the unemployment rate.

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Thursday 16th March 2023

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Another day, another banking crisis. This time it’s Credit Suisse causing problems, somewhat bigger than SVB, but it’s hard to understand the fundamental reason for the concern, other than blind panic and a bank that has seen massive capital outflows last year. NAB’s Ken Crompton says it’s unlikely to stop the ECB from pushing ahead with a rate rise later today, but banking uncertainty has certainly switched attitudes in the US on where the Fed is heading, with growing expectations that they will start cutting rates in the second half of the year, possibly up to 100bp before Christmas. The Fed’s job has been made a little easier with softer data overnight, including a flat PPI read for February. Locally, New Zealand’s Q4 GDP is the focus today whilst elsewhere the question is, what happens next?

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Wednesday 15th December 2023

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Is it crisis over. As CPI numbers came out in the US showing the Fed still had more work to do, it seems the focus shifting back onto rate hikes and away from major concerns about bank stability. JBWere’s Sally Auld says it’s not a total retreat. After yesterday’s CPI and last week’s US payrolls there would have been every reason to expect a 50bp hike next week, but markets seem more set on 25bp. Today’s retail numbers will play into that decision. Sally says the RBA is lucky that it’s next meeting is not so imminent, but yesterday’s NAB business survey showed labour costs picking up a little, which is a concern.

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Tuesday 14th March 2023

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Just after Janet Yellen said there would be no bailout for SVB the US financial regulators stepped in promising that no depositor would be out of pocket. Good news for companies left exposed, but its done little to calm the markets with bond yields falling further and some analysts predicting an end to rises, at least for now, from the Fed. NAB’s Rodrigo Catril says its likely they will push ahead with their fight against inflation, but on a slower path. It’s still possible that the ECB will lift rates by 50bp this week. But what if the US inflation read today comes in stronger than expected? How do markets react then?

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Monday 13th March 2023

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The collapse of SVB on Friday created turmoil in the markets. Bond yields fell across the board, but particularly at the front end of the yield curve. Equities were also hit and the US dollar took a hit, with the uncertainty meaning the Aussie didn’t benefit from the fall. So how does the Fed respond to this shock to the system, which has been facilitated in part by rising bond yields. NAB’S Tapas Strickland reckons the Fed will be more cautious with future hikes and a 50bp hike next week is looking less likely. The collapse overtook any interest in Friday’s non-farm payrolls, which showed an upside surprise in employment numbers but a rise in the unemployment rate. The surprise from the Bank of Japan was no surprise, with Kuroda leaving quietly with no change in policy. Meanwhile, the PBoC is sticking with Governor Yi at the helm, but possibly only fore a few months. There’s a bit of uncertainty to be navigated through, it seems. 

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