NAB Morning Call

Friday 27th May 2022US equities rose sharply again today as more retailers gave positive outlooks, despite the earlier surprise form Walmart and Target. The optimism wasn’t impacted by another set of weaker data from the US. That presumably means there’s potential for damage if today’s consumption numbers surprise on the downside, or the PCI-deflator shows higher than expected inflation levels. As NAB’s Gavin Friend points out, the bond markets have not reacted the same way, positioned as they are for a series of rate hikes from the Fed and the question mark over a recession. The UK Chancellor Rishi Sunak tried to head off recession with the announcement of a large round of fiscal stimulus, funded by a one-off windfall tax on energy companies. But is it enough? And what happens next year?

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Thursday 26th May 2022The increasing belief amongst central bankers – particularly in New Zealand and the US – is that faster rate hikes will have a more marked impact on fighting inflation, giving more flexibility on how to handle the issue later in the year. NAB’s Rodrigo Catril isn’t sure that a couple more 50 basis point hikes from the FOMC will be enough. Supply chain issues remain for goods, and consumers need to be torn away from their rising consumption of services. Today, Australia’s Q1 Capex numbers are worth looking out for. Also today, if the world seems a worrying place right now (particularly if you’ve been listening to George Soros), calm yourself down with a picture of a fluffy cat. It worked for our host.

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Wednesday 25th May 2022Yesterday’s upbeat sentiment was very short-lived, with a sharp fall in equities and bond yields today. A statement from Snap! about a worsening environment hitting revenue projections sent shares down across the board, but particularly advertising reliant tech stocks. That wasn’t the only bad news of the day. As NAB’s Tapas Strickland outlines in today’s podcast, there’s been a plunge in new home sales in the US, and a sharp fall in service PMIs in the UK. On the back of all of this, markets are expecting central banks to move a little slower on rate hikes, with the Fed’s Raphael Bostic warning policy makers to ‘proceed carefully’. We also look at the RBNZ decision today and Australia’s construction numbers this morning.

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Tuesday 24th May 2022A bounce back in equities and a better-than-expected IFO read from Germany. For today at least we’re seeing the return of some risk sentiment, as money piles into equities and bonds are sold off, pushing yields higher. NAB’s Taylor Nugent says there wasn’t anything obvious to prompt this risk turnaround, except perhaps some positive words from Joe Biden about the potential easing of tariffs with China. That might paint a happier long-term picture, but supplies from China remain an issue, with Beijing seeing an increase in COVID cases. Oil continues to be pulled in all directions, even as it becomes clear that Russian oil sanctions are having little effect. It’s PMI day today – perhaps we’ll see some upside surprises to add to the upbeat sentiment.

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Monday 23rd May 2022Will a new government have any market impact? NAB’s Skye Masters has been looking at how markets behaved, relatively speaking, in the first few months of a new government. Irrespective of history ,the reality is, of course, that global concerns are far greater this time round, with markets pulled between inflation concerns and recession fears. The Fed’s James Bullard doesn’t think a recession is the on the cards for the US and thinks inflation can be beaten by next year if they push rates fast enough this year. The UK demonstrated that, despite price pressures and very low consumer sentiment, people are still shopping. It shows the importance of data right now, as we all try to grapple with the direction of economies the world over.

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Friday 20th May 2022There was no bounce in equities today after the big falls we saw yesterday. NAB’s Taylor Nugent says its growing concerns about the US growth outlook, driven by earnings results and no uptick in economic data. Cisco has been the latest to downgrade their forecasts, blaming supply chains from the war and China’s lockdowns. But equity markets can normally see through short-term impacts, but not right now. Is the concern of over-reach by central banks part of the concern? And what does yesterday’s Australian employment data mean for inflation and the response from the RBA? There’s also a look at the minutes form the latest ECB meeting which ,again, highlighted the divide within the board about the need to act on inflation versus the impact on economic growth. Very much the question of the day.

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Thursday 19th May 2022We’ve seen big falls in US shares as major retailers issue profit warnings, based on inflation and supply chain worries. Investors responded quickly. Had they forgotten that inflation was a thing? It was a timely reminder, says NAB’s Ray Attrill, that headline inflation hits consumer spending, so consumer staples and discretionaries will feel the pinch. The UK’s CPI hit 9 percent, but was in line with expectations. Canada’s inflation number was higher than anticipated, however. Australia’s wage growth remains relatively subdued, but the RBA’s focus will be on today’s labour market data.

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Wednesday 18th May 2022Equity markets have rallied today, buoyed by positive retail numbers for the US. But NAB’s Rodrigo Catril says the sentiment really improved in APAC yesterday on news that Shanghai will reopen after three days of zero COVID infections. Markets turned when the Fed’s Jerome Powell spoke about pushing beyond neutral to curb inflation, but shares rebounded soon after. Britain’s job numbers would look fantastic at any other time but now – instead, lower unemployment and rising vacancies spells out further inflation risks which will encourage the BoE to move faster, perhaps. Even the cautious ECB has one member talking about a 50-basis point rate hike. Today Australia’s wage price index will be watched keenly because it could be influential in the RBA’s next move up in rates.

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Tuesday 17th May 2022There’s been a fair bit of volatility in equity and bond markets overnight. Stocks are generally down after swings back and forth through the session. NAB’s Ken Crompton says there’s a continuing tension between the Fed talking up rate rises and whether that will prompt a recession. The data flow hasn’t offered anything encouraging. China’s retail sales were well down the NY State Manufacturing Index was pulled down by a fall in new orders, and the European Commission, understandably, lowered their growth forecasts and upped their inflation expectations. Meanwhile oil pushed higher and wheat prices ha e been hit by an export ban from India. Today US retail sales will show whether inflation is hitting demand yet and Christine Lagarde will have a chance to talk-up a July rate hike in Europe. Plus the minutes of the last RBA meeting.

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Monday 16th May 2022There was a slight reversal in sentiment on Friday, with the US dollar losing ground, equities climbing and bond yields rising. NAB’s Tapas Strickland says news of the easing of lockdowns in Shanghai this week might have provided an excuse for this switch around, but news over the weekend could make this change in direction very short lived, with China relinquishing its staging of the 2023 Asia Cup (soccer). In Europe, Sweden and Finland have both announced they intend to join NATO. If that wasn’t enough to upset Putin, Ukraine won the Eurovision Song Contest. Today, eye swill be on China’s fixed asset investments, industrial production numbers and retail sales, and on the continuing debate about whether the Fed (or any central bank) can deliver a soft landing from the inflation battle without forcing a recession.

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