NAB Morning Call

Monday 17th October 2022

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US Treasury yields rose higher still on Friday as markets absorbed Thursday’s inflation print and the expectation of faster hikes and a higher terminal rate from the Fed. Despite the hikes so far, there’s few signs of a slowdown, with NAB’s Rodrigo Catril pointing to Friday’s retail numbers which showed yet more resilience in spending from US consumers. We look at how this is all playing into the weakness of the Australian dollar. And then there’s the UK! Will they have a change of Prime Minister, will a complete reversal in policies be enough to stop the BoE picking up its pace of increase, and if it is, what does that mean for the pound. Plus, the China People’s Congress, the fall in oil prices and much more besides. It’s a busy start to the week.

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Friday 14th October 2022

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It’s been a stormy night, with violent swings in bond yields and US equities. As NAB’s Skye Masters explains, shares plummeting as the higher than expected CPI read but then staged a massive rebound later I the session, fishing markedly higher towards the close. Bond markets responded more predictably, pricing in a more aggressive path of rate hikes from the Fed – maybe 150bp before Christmas. Meanwhile, massive swings on UK bonds with reports that the Truss government might be ready to stage another u-turn on their unfunded tax cuts, although the Chancellor Kwasi Kwarteng has denied this. Today, US retail numbers will have less influence than the CPI, but a strong read will indicate a more resilient economy which would suggest rates will stay higher for longer. 

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Thursday 13th October 2022

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The BoE has been buying up more bonds to protect pension funds from the volatility of an economy still struggling with the budget presented by the Truss government. But when Andrew Bailey says the help stops on Friday does he really mean it, or will they be back buying bonds next week? Meanwhile the latest GDP numbers show the UK could well be in a recession, or at least the economy is looking very off colour. Meanwhile, the latest FOMC minutes show the US central bank is determined to continue to tackle inflation, and rate rises won’t stop until the labour market starts to rescind. The number that will drive markets today – US CPI. Whether its higher or lower than expected, we can still expect a reaction.

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Tuesday 12th October 2022

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The Bank of England has been buying up more government bonds as it fights uncertainty in UK markets. NAB’s Ken Crompton says it’s no surprise that they have had to target 30 year inflation-linked bonds, as they constitute a large proportion of the stock held by the pension funds the bank is trying to protect. But, with devastating opinion polls and a rebuff of their budget plans by the IMF, expect more UK uncertainty in the weeks ahead. Meanwhile, in Australia the gap between consumer and business expectations has widened further, we look at why that is. 

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Tuesday 11th October 2022

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The latest title from to the IMF’s World Economic Outlook is ‘Gloomy and More Uncertain’. That certainly reflects the mood this morning, with risk driven by an escalating war in Ukraine, question marks over whether the UK Chancellor’s budget will pass muster with the markets, and the China slowdown, now added to by President Biden cracking down on the export of advanced semiconductors. NAB’s Rodrigo Catril says the timing of the US Presidents restriction is impeccable, just ahead of the Party Congress and the expected announcement of President Xi winning another term in office. Is that why the Aussie dollar is so weak today, falling more than any other major currency? And will we see a continued division between negative consumer sentiment in Australia, offset by more a positive business sector?

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Monday 10th October 2022

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There was a strong market reaction to non-farm payrolls on Friday, which suggested the US labour market remains tight, with the unemployment rate falling. NAB’s Tapas Strickland says it was another of those ‘good news is bad news’ moments, likely to keep the Fed on its hawkish path for some time yet. That could be reinforced if CPI data this week remains strong. The question is, how will any central bank know when it has overshot its target? There could be some caution today as the world waits for Putin’s response to the Crime bridge explosion. 

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Friday 7th October 2022

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Markets are still nervous. This morning NAB’s Gavin Friend says hopes of a pivot from the Fed have more or less disappeared, following on from the softer manufacturing numbers earlier in the week. The Fed’s Neal Kashkari said we are quite a way away from a pause in their path of rate hikes. A lot rests on today’s non-farm payrolls, with the markets ready to pounce on anything that could suggest a slow down from the Fed. Today’s episode, out a little earlier than normal, comes from the Australian Embassy in Paris, where NAB has been talking to investors about opportunities in Aussie infrastructure and energy projects. Gillian Bird, the Australian Ambassador to France, joins us on the podcast.

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Thursday 6th October 2022

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Yesterday’s vain hope of a pivot by the Fed, to slow down rate rises after the weaker job openings numbers, were destroyed today by a stronger than expected non-manufacturing ISM read. Not only was the main number higher than anticipated, at 56.7, new orders were strong too. It was another of those good news is bad news moments, because its unlikely the Fed will consider any slow down in their path of rate hikes when the economy is showing strong growth against a tight labour market. On that, the ADP employment numbers reported wages growing at 7.6 percent in September. This could be an unfortunate precursor to the non-farm payrolls numbers on Friday. The day’s other big news is the OPEC+ decision to cut oil by two million barrels a day – a move which could add to inflation pressures.

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Wednesday 5th October 2022

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There’s plenty of talk of a Fed pivot according to JBWere’s Sally Auld, but is it an overreaction? The drivers have been the smaller than expected rise by the RBA yesterday and one million less jobs being advertised in the US. Bond yields have fallen and the equity markets are lapping it up. So, today, will the RBNZ follow in the RBA’s footsteps? Markets are expecting a 50 basis point rise in New Zealand, but that’s what they said about Australia.

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Tuesday 4th October 2022

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There’s been a swift change of direction in markets, with bond yields falling and big rises in equities in the US and Europe. NAB’s Tapas Strickland says there are several reasons for this reversal in fortune. Part of it is a partial u-turn by the UK chancellor over unfunded tax cuts, suggesting the new government is not as cavalier as some had feared. Second, the US ISM numbers came in weaker than expected, showing a fall in demand, rising inventories and a drop in manufacturing prices. Locally, the RBA is expected to lift rates by 50bp today, and tonight the US job openings numbers will be viewed to see if there is any easing in the labour market. 

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