NAB Morning Call

Tuesday 26th July 2022From Wednesday one of two operating turbines on the Nordstream pipeline will be switched off, effectively halving the existing supply, taking gas provision to Europe down to 20 percent of full capacity. There’s no clear evidence that Europe has a coordinated plan to deal with reduced supplies, as EU member nations argue over the equality of calls for reduced consumption. NAB’s Ray Attrill says the threat of the full blown weaponization of gas supplies later in the year is still very much a live issue. Meanwhile, markets are treading water ahead of the FOMC meeting middle of the week, the US GDP read after that and Aussie inflation numbers tomorrow. There’s also a slew of major earnings results over the next few days.

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Monday 25th July 2022PMI numbers were much weaker than expected on Friday, particularly for US services, which fell quickly into a contractionary read of 47.1. The composite read for Europe also fell below 50. Will this mean central banks ease off the rate-hike pedal a little? The opposite is expected in Australia. Rodrigo Catril explains how NAB believes the lower-than-expected unemployment rate last week cannot be ignored, and it’s likely the RBA will move faster over the next couple of meetings. Vladimir Putin continues to hold a strong grip on energy and food supplies, offering a re-opened gas pipeline with constrained supply, and reopened grain delivery routes, offset by attacks on their principal port of departure. It’s a busy week ahead, including the Fed meeting, and more inflation numbers.

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Friday 22nd July 2022As we predicted the ECB lifted interest rates by 50 basis points yesterday, up to zero percent. NAB’s Ken Crompton says this was more than markets had expected and explains there was a short-lived reaction on the bond markets. There was also disappointment in the central bank’s anti-fragmentation tool, which now has a name and a new acronym! Right now it’s light on detail and will countries like Italy be able to meet the criteria being set for its use, even though, with rising spreads with German bunds, they are the ones who really need it. In the US weaker jobs claims gave job that the labour market might be easing. Coupled with weaker than expected manufacturing data, there’s always the hope that the Fed won’t need to be so aggressive. PMI data today will give a further indication of how services and manufacturing are travelling, in the US, UK and Europe.

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Thursday 21st July 2022There’s some confidence in the markets this morning, despite what seems to be a compendium of bad news for Europe. NAB’s Gavin Friend says gas prices have fallen because Vladimir Putin has indicated that they will meet the reopening deadline for the Nordstream pipeline, but it’ll be at only 20 percent of its capacity. As discussed on today’s podcast, that might be enough to meet short term demand, but won’t allow Europe to build up stocks for winter. The ECB meets today and will outline plans for its anti-fragmentation tool. If markets aren’t impressed, it could bolster Italian bond yields, which have already pushed higher on growing uncertainty over Draghi’s tenure in the Italian parliament. We also look at what Philip Lowe said yesterday, ahead of August’s RBA meeting.

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Wednesday 20th July 2022Markets are preparing for a big rate rise by the ECB tomorrow. NAB’s Rodrigo Catril says they are hiking when the expectation is that the Nordstream pipeline won’t fully reopen for some time, if at all. “No energy means no growth”, he says, with the likelihood that Europe is heading for a major recession. Is the central bank prepared for that? Politically, can Europe cope with it all? Also today, we look at what the Bank of England’s Andrew Bailey had to say about UK rate expectations, ahead of inflation numbers later today. Plus, is the RBA preparing the market for a 75bps hike? And those flicking the off switch on Netflix - not as bad as expected.

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Tuesday 19th July 2022The resumption in gas supplies to Europe could well be delayed, but perhaps Russia has a legitimate reason. A bigger move this morning has been the rise in the price of oil which NAB’s Ray Attrill will in part be down to Saudi Arabia’s refusal to increase supplies. Equities have fallen slightly, in part because of reports that Apple are downgrading their hiring and growth plans. US housing continues to be under pressure, with more data today. We also hear from the RBA’s Michelle Bullock today, who might give away some indication of rate expectation, perhaps.

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Monday 18th July 2022US equities rallied on Friday as data releases showed some resilience in the economy, but is it enough to stave off recession? Probably not, says NAB’s Tapas Strickland on today’s podcast, but it will be enough to put to bed any ideas of a 100 basis point rate rise by the Fed this month. Also today, China’s fall in GDP was worse than expected, with continuing lockdowns making the official forecast for the year completely out of reach. The focus this week will be on Europe: what if the Nordstream pipeline doesn’t reopen? And, with so much uncertainty, NAB is predicting the US dollar will remain stronger for longer, which is likely to keep the Aussie dollar below 70 US cents for some time to come. Hear more about that in today’s podcast too.

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Friday 15th July 2022In a week of surprises (US CPI and labour market data, Canada’s interest rate rise, China’s lockdowns and the US$-Euro parity), yesterday saw a sharp fall in Australia’s unemployment rate. ‘It was our turn to surprise’, says NAB’s Taylor Nugent on this morning’s podcast. Unemployment has now fallen to a level below what the RBA was forecasting for next year, so does this mean we should expect a much larger hike at the start of next month? The big news this morning is the attempted resignation of Italian Prime Minister Mario Draghi, adding to the turmoil in Europe and adding to the US dollar strength. Next week is shaping up to be a turbulent week for the ECB, particularly if Vladimir Putin doesn’t turn on gas supplies as scheduled. Rising US PPI numbers added to the inflation story overnight. Today, US retail sales numbers are out, and the University of Michigan inflation expectations survey, which last month convinced the Fed to move rates higher.

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Thursday 14th July 2022US inflation has picked up more than expected, rising 9.1% in the year to June. The Fed’s Raphael Bostic said later that “everything was in play” when it came to a July rate rise. NAB’s David de Garis says, it doesn’t take a genius to figure out what he meant. The Bank of Canada (BoC) had just raised rates by 100 basis points, more than had been expected, so had that paved the way for the Fed? It certainly makes the RBNZ’s 50 basis point hike seem a little constrained. The UK GDP growth was, unusually, helped by trips to the doctor, rather than to restaurants. Locally, Australian labour market data will be studied closely. Can the jobs market tighten any more and add to the pressure for faster hikes from the RBA?

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Wednesday 13th July 2022There’s no let-up when it comes to the downward expectations around the health of the global economy. US bond yields inverted further, suggesting a heightening of recession expectations. Oil prices fell sharply lower, suggesting demand is expected to fall further. US small business owners who expect conditions to improve in the next six months fell to minus 54%, the lowest in half a century. The confidence in the German ZEW survey hit a 10-year low yesterday. The NAB business survey also showed business optimism falling sharply. And NAB’s Gavin Friend reckons the prospect of an energy crisis in Europe is the real danger that is not yet fully reflected in market pricing. What will turn all this around? Central banks think a race to higher rates will fix the problem, with the Bank of Canada and RBNZ trying to outdo each other today on who can rate the fastest. So, imagine the reaction if US CPI numbers come out higher than expected today.

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