NAB Morning Call

Monday 3rd October 2022

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The lasting effect from the UK’s mini-budget kerfuffle has not been the weakness in the pound – that’s bounced back for now – but the rise in bond yields. They are, of course, rising everywhere as central banks find it increasingly hard to fight inflation. The pound might feel some pressure today, though, as S&P put the UK’s credit rating on a “negative outlook”. NAB’s Taylor Nugent says it doesn’t mean a downgrade is going to happen, but it adds to the uncertainty the UK is facing right now. Meanwhile, inflation remains strong, with the Euro area reporting 10% and the US Core PCE read on Friday also on the rise. Oil prices are likely to rise as well as OPEC+ meets this week, with a large cut in production likely. Locally, the RBA meets tomorrow. We look at what to expect.

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Friday 30th September 2022

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Things are calmer in the UK because the Prime Minister has agreed to get the numbers to support last week’s budget. Whilst that’s helped the pound a little, yields continue to rise. NAB’s Tapas Strickland says the volatility is far from over in the UK. Elsewhere there’s rising concern over inflation, which is showing little signs of easing, with central banks (the Fed and ECB in particular) continuing their hawkish tilt. That’s hit US stocks hard today. Also on today’s podcast a look at yesterday’s monthly CPI umbers for Australia and a look ahead to European inflation data today.

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Thursday 29th September 2022

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It’s been quite a session in the UK, with the IMF reprimanding the government over it’s budget, and the Bank of England suspending its quantitative tightening, instead switching to buying longer end bonds in a move to protect pension funds. What’s all this doing to the UK’s credibility? NAB’s David de Garis talks through the events from London. In the US equities have bounced back, even though central banks show no sign of stepping back on their hawkish stance. The war in Ukraine is showing signs of escalation, with Russia now accused of sabotaging gas pipelines in the Baltic and the EU promising more sanctions this Friday. But Australia, for now, is avoiding the worst of the declines, with retail sales holding up, at least in terms of money spent. Today inflation and jobs vacancies for Australia will be keenly watched. 

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Wednesday 28th September 2022

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A rising US dollar, yields pushing higher, equities being sold off, central bankers talking up rates – that’s been business as usual lately. NAB’s Skye Masters says resilience in economic data, particularly for the US, isn’t making the job any easier for central banks, who expect rates to be higher for longer than markets envisage. In the UK the terminal rate for the Bank of England has risen markedly, of course, with Huw Pill, the chief economist, warning that the response to the government’s budget will require a significant monetary policy response, but not till November. Presumably that means they continue with their quantitative tightening.

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Tuesday 27th September 2022

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The pound fell to an all-time low overnight before picking up a little, but still well down on the day as markets react badly to the new UK Chancellor’s mini-budget last week. NAB’s Taylor Nugent talks through the response, which is being driven largely by uncertainty. Gilt yields have pushed up markedly and the unease has spread to other markets, with bond yields also rising sharply in the US. There has been some expectation that the Bank of England will call an emergency meeting, whilst the Chancellor has said he will provide a fully costed proposal in two months’ time. Will markets settle down without reassurance that the government has its finances under control? Meanwhile, data releases globally were largely softer, including sizeable downgrades to growth forecasts in the latest OECD economic outlook. On the speakers circuit later on, Huw Pill, the Bank of England’s chief economist – perhaps not the easiest gig this time round.

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Monday 26th September 2022

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The UK budget that wasn’t a real budget, turned out to be more far reaching than most budgets and certainly had far more market impact. On today’s podcast Phil asks NAB’s Ray Attrill whether the sharp fall in the pound will be retraced this week, particularly as the UK’s government debt is still far less than many other European nations. Italy’s election results will be released shortly, but the lurch to the right has already been well signalled. On the data front, PMIs on Friday showed further weakness in Europe and the UK, with some gains in the US, but the picture is not pretty anywhere. Today data includes Germany’s IFO and the OECD’s interim economic outlook. More importantly, there are a few inflation indicators later in the week for the US, the Eurozone, China and Australia.

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Friday 23rd September 2022

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Bond yields continued to rise in the US one day on rom the FOMC meeting. NAB’s Ken Crompton says normally you’d expect to see a bit of a rebound, so this is a sign that the market has accepted that the Fed are determined to keep going, evidenced by the elevated dot plots yesterday. Meanwhile the Bank of England lifted rates 50bp – it probably would have been higher if the UK government hadn’t stepped in with a cap on energy prices, although their mini budget today will include tax cuts that could go against the bank’s objectives. The Bank of Japan didn’t move at all and a very dovish speech by Gov Kuroda sent the Yen spiralling lower, forcing the Ministry of Finance to intervene. Lots of PMIs today to provide evidence of which economies are softening and which, like the US perhaps, are holding up.

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Thursday 22nd September 2022

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No surprise, the Fed has lifted rates by 75 basis points. NAB’s Gav Friend says the response in the bond markets was a reaction to the dot plots, which suggest rates will be at 4.4% by the end of the year, 4.6% next year and 3.8% in mid-2024. They all represent a considerable increase in the numbers given back in June. The Bank of England meets later and, although markets are expecting a 75-basis point hike there too, its unlikely to happen as inflation could well be tamed by a high level of government support for fuel costs. In other news, Putin has called up 300 thousand reserves and threatened the use of all resources, even nuclear, if the west attacks territories deemed by referendums to be part of Russia. No bluff, he said. We look at what impact this will have on market sentiment.

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Wednesday 21st September 2022

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Bond yields have pushed higher in the US and the UK ahead of the Fed and the Bank of England meetings tomorrow. NAB’s Taylor Nugent says the expectation is still for a 75 bp hike, although that was the assumption for the Riksbank too, but they lifted rates by 100 yesterday. But as Taylor points out, they are starting from a lower base. But are there signs that inflation is easing. Oil is down, China is reopening, Hong Kong has eased restrictions and Taiwan is busy responding to demands for new iPhones. Is life starting to get back to normal and could easing of supply pressures bring prices down? Or simply create yet more demand? Ukraine presents further risk today, with Russia planning sham referendums in captured territories, which has the potential to escalate the war. 

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Tuesday 20th September 2022

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It was a quiet session overnight with the UK on holiday and a fair bit of attention on a funeral service in London. Nonetheless bond yields continued to push higher. JBWere’s Sally Auld says markets have priced in rate rises this week of 80 basis points in both the UK and US, meaning there’s some chance the hike will be more than 75. ‘Keeping at it’ was the title of Paul Volcker’s book and that seems to be the Fed’s philosophy right now – and for other central banks, Japan and China excluded. Canada's inflation numbers today will give us a good indication of whether going hard and going early helps contain inflation any quicker. 

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