NAB Morning Call

Monday 12th December 2022

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It’s a big week for central banks – the Fed, the BoE and the ECB amongst them. Plus US inflation numbers. There’s some hope that the US will head off a hard landing, with inflation expectations falling in the Michigan Consumer Sentiment survey on Friday, although producer prices showed a different story, adding to the US risk-off sentiment at the end of the week. So we can expect another volatile few days, but who will be the winners and the losers? NAB’s Tapas Strickland provides valuable insights to guide you into this busy week.

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Friday 9th December 2022

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There was a bit more of a risk-on attitude in the US overnight, with equities rising for the first time in five days. Part of the reason could be a rise in jobless claims. But NAB’s David de Garis says you’d be clutching at straws to assume that means lower inflation and a less aggressive Fed. It’s just part and parcel of the volatility ahead of a bumper week next week, with US CPI, the FOMC meeting and the ECB. The last blast before Christmas. Equally as unexplained is the slow glide down in oil, when there’s every reason for it to be heading the other way. An oil leak on the Keystone pipeline saw WTI prices rise for a while, but they didn’t hold for long. 

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Thursday 8th December 2022

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US bond yields fell further overnight as US wages data showed slower growth than anticipated, adding to hopes that the Fed won’t be as aggressive as they’ve been letting on when it comes to future hikes. NAB’s Gavin Friend says that does seem to be the mood of the moment. Whilst the Bank of Canada raised rates by 50 basis points – when many had considered 25 was likely – it was a dovish rise, with suggestions that they won’t be doing too much more. The RBA is moving in smaller increments, and whilst a pause is not on the cards for the next few months, it could be that they too won’t move far beyond March, with Australia potentially leading the way in bounceback-ability, says Gavin. Further reopening news from China helped with this sentiment. 

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Wednesday 7th December 2022

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US and European equities have taken another hit. NAB’s Ken Crompton says markets continue to respond to the strong jobs data from the US on Friday and what that means for terminal Fed rates. There were no surprises from the RBA yesterday, with NAB’s Ivan Colhoun saying the central bank is very cognisant of lags in monetary policy, so it’s too early to expect any pause in the first part of next year. It’s a different story for the Bank of Canada tonight – who front-loaded hikes and the question is how close are they to reaching the end of their tightening cycle?

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Tuesday 6th December 2022

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If you believe the ISM numbers this morning, the US services sector is growing faster than anticipated. Yet the PMI measure, supposedly monitoring exactly the same activity, showed the sector is slowing. So, who do you believe? NAB’s Tapas Strickland says markets were taking a more cautious approach before the ISM number after a WSJ article suggested the Fed might indicate a higher terminal rate at their meeting next week. A 25bps rise is expected from the RBA today even as indicators suggest private sector labour costs are rising.

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Monday 5th December 2022

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The US non-farms payrolls numbers on Friday were an upside surprise for the number of jobs created and the increase in wages – both factors the Fed has been trying to control. Is the policy working? NAB’s Taylor Nugent says markets have responded with the expectation of a deepening recession as the Fed pushes harder.

Canadian employment numbers were also stronger than expected on Friday, so how does that impact the Bank of Canada’s rate decision this week? And, before that, the RBA – what’s their plan? Just because you’ve started opening your advent calendar don’t assume the action is slowing down for Christmas.

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Friday 2nd December 2022

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Markets have not significantly retraced their moves after Jerome Powell’s speech yesterday. Equities have rebounded only slightly and bond yields have continued to fall. On today’s podcast NAB’s Tapas Strickland outlines why his speech created a more positive risk outlook. There was good news in amongst the data released overnight too, with ISM manufacturing showing a fall in prices paid. Abd China’s lockdowns could be easing further, with home detention now replacing quarantine centres for low-risk cases in Beijing. The focus tonight, of course, will be on US non-farm payrolls, in particular the average hourly earnings. 

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Thursday 1st December 2022

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It’s been a busy session, with NAB’s Taylor Nugent claiming Jerome Powell’s speech this morning was slightly less hawkish than markets were expecting. But the Fed chair still talked about there being a way to go to fight inflation and the need for sustained evidence of falling inflation before the battle is won. Signs of easing inflation in Australia should also be treated with caution, with yesterday’s new monthly data susceptible to the volatility we don’t see in the quarterly numbers. In Europe though markets have reacted favourably to falling inflation with the expectation that a 75 bps hike at the next ECB is now much less likely.

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Wednesday 30th November 2022

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The Aussie dollar has benefited from a reversal in concerns over China. NAB’s Ray Attrill says an announcement of a more intense vaccination program for older people has markets assuming a recovery in the Chinese economy early next year. Germany’s inflation numbers came out lower than anticipated with the assumption that we will see a Europe-wide slowdown in data released data. It’s a different story for Australia though (although obviously from a lower base) with inflation expected to rise today, with NAB forecasting a greater rise than the consensus. Then the focus is on US jobs, with job openings and ADP employment numbers today, ahead of non-farm payrolls on Friday.

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Tuesday 29th November 2022

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China is losing out on two fronts. It can’t keep its COVID numbers down and now its facing protests in major cities, which could add to the slowdown in the Chinese economy and, as JBWere’s Sally Auld suggests, it could delay the speed of the global recovery. We’ve already had two Fed speakers overnight suggesting rates might be higher for longer than markets are expecting. In Europe Christine Lagarde continues to take a hawkish stance (just ahead of Euro area inflation numbers), whilst the RBA’s Philip Lowe has been forced to apologise for misleading Australians on the speed and size of rate hikes from the central bank. It’s unlikely yesterday’s drop in retail sales will have any impact on the current path from the RBA – after all, it’s just one month and there are several factors influencing that number. 

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