NAB Morning Call

Tuesday 12th April 2022US bond yields continue to career higher. ‘IT was another blistering night’ says NAB’s Tapas Strickland, with 10-year Treasury yields reaching a three-year high. With no new news, he says, it’s a continued reaction to the hawkish Fed agenda. But could it all backfire? The Fed has never had successive 50 basis point rises. There are still concerns that they could spark a recession if they move too quickly, particularly as supply chain difficulties won’t be resolved by monetary policy. And the rising COIVD cases in China suggest there will be more supply constraints to come. With inflation front and centre of everyone’s attention right now, US CPI figures are obviously the numbers to watch for.

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Monday 11th April 2022Although there’s clearly volatility in markets, NAB’s Ray Attrill says the common thread is that yields are still rising. Even if the inversion in the curve has dissipated, the fact remains 10-year yields are at multi-year highs as inflation fears grow and central banks respond. Food prices have risen almost 13 percent in one month, even worse if you cook with vegetable oil. This might be reflected in China’s CPI numbers today, and for the US mid-week. The war will have a strong influence on this, and there are no signs it will dissipate anytime soon. Meanwhile several central banks meet this week, including the ECB. Markets are priced for a 50-basis point rate hike by the Bank of Canada.

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Friday 8th April 2022As bond yields continue to rise, particularly in the US, it seems there’s not much impact from all the hike talk on consumer spending just yet. Consumer credit numbers in the US shot up in February, much of it revolving credit. Will that just add to the Fed’s concerns and the accelerated rate of hikes, which has seen bond yields push ever higher. Ken Crompton says NAB’s forecast is for 10 yields to reach 3 percent by the end of the year, but there is still considerable room for movement. Yesterday’s Australian balance of trade numbers were a surprise, with much higher imports pushing February’s surplus down by $4.5 billion from the month before. Whilst the ECB minutes overnight reflect a more hawkish approach, but a bank still heavily divided on the road to take.

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Thursday 7th April 2022Bond markets have reacted sharply and briefly to the FOMC minutes this morning, which suggested the Fed might start slashing its balance sheet sooner rather than later. This added to the sentiment expressed by Lael Brainard earlier in the week, which saw the yield curve steepening a little. Phil Dobbie asks NAB’s Gavin Friend what these moves are telling us, and why the impact has cut short the strengthening of the Aussie dollar. Maybe strong trade numbers today will turn it around again. There’s also discussion about German factory orders and tonight’s ECB minutes.

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Wednesday 6th April 2022The RBA has lost its patience and wants to move fast, but how fast and how far? On today’s podcast NAB’s Ivan Colhoun says it’s unlikely we’ll reach the 3% terminal rate that markets are anticipating, or at least with the expected rapidity. Taylor Nugent – new to the Morning Call – looks at the market response to words from the Fed’s Lael Brainard overnight, who talked about balance sheet reduction, possibly as soon as next month, at a faster pace than before. The Fed minutes today might add more substance to interest rate expectations, whilst two members of the RBA front a senate hearing today, where questions will not doubt be asked about the sudden pivot in policy signalling.

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Tuesday 5th April 2022The hope of peace in Ukraine is slipping away as more evidence of war crimes emerges, suggesting diplomacy could take some time. The Euro fell as expectations rose for more sanctions against Russia, which also pushed oil higher. NAB’s Tapas Strickland says negotiations are continuing though and we shouldn’t underestimate the chance for some sort of truce to be found. Meanwhile, inflation remains a global concern, particularly in the US. The inverted yield curve is also a cause for consternation. Tapas suggests the FOMC should have moved sooner on rates and speculates that the RBA will be watching and learning. Will the word ‘patience’ disappear from today’s RBA statement?

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Monday 4th April 2022Non-farm payrolls gave the hawks at the Fed the ammunition they wanted, and bond yields have responded. NAB’s Rodrigo Catril says the data on Friday has cemented in the expectation of a 50bp rate hike at their next meeting. The ECB is still reticent to talk about bringing their schedule forward, even though Friday’s Eurozone inflation numbers were a lot higher than expectations. Today we get to hear how the BoE’s Andrew Bailey expects to balance rising inflation against an economy that has already slowed (possibly to zero). And what of the RBA? Will tomorrow bring a signalling of a faster path to a rate hike? Also today, has oil fallen too far? The situation in Ukraine looks like it won’t end soon, yet oil is less than 10% higher than before the invasion.

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Friday 1st April 2022There’s a hefty emphasis on oil and gas this morning. Putin is demanding payment in Roubles from today, but there seems to be some caveats and so the impact isn’t as pronounced as you might expect. More significantly, President Biden has announced a six-month commitment to a daily draw down from the US strategic oil reserves. Will it be enough to make a difference? NAB’s Ken Crompton says the markets seem to think so, with a significant fall in the WTI price this morning. Also today, we look at China’s PMIs, which are firmly in contraction territory as they pursue their zero-COVID policy. And tonight, non-farm payrolls, where the focus might be more on wage inflation than the jobs numbers themselves.

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Thursday 31st March 2022There was hope in market pricing earlier in the week that some sort of resolution over Ukraine could be sought soon. But those hopes faded when Russia started bombing regions it had indicated it would pull back from. Today, oil prices are back up and US equities have been hit hard. It’s not all down to Ukraine though. Inflation rates in Germany and Spain are through the roof. As NAB’s David de Garis points out, they have risen more in a month than Australia has seen in a year. That presents a special challenge for the ECB, who have to control inflation in an environment where consumers will be facing a cost-of-living squeeze.

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Wednesday 30th March 2022Markets have responded perhaps a little too favourably to peace negotiations between Russia and Ukraine in Turkey overnight. There wasn’t a concrete outcome, yet the Euro is riding high, stocks have risen sharply and bund yields are up. NAB’s Ray Attrill says even if some sort of resolution is found soon, sanctions will remain for some time to come. Meanwhile, front end yields continue to rise in the US as more Fed speakers talk-up the prospect of a 50 basis point hike at the next FOMC meeting. We saw a brief 5-10 year yield inversion, but blink and you missed it. Also today, NAB’s Ivan Colhoun talks through Josh Frydenberg’s pre-election budget.

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