NAB Morning Call

Tuesday 20th October 2020Markets are waiting to see the outcome of two on again off again decisions, both with sizeable economic consequences. Boris Johnson declared that Brexit talks were over, but NAB’s Ray Attrill says the markets clearly don’t believe him, with the pound one of the strongest currencies today. Stateside, equities are subdued as the deadline for a pre-election stimulus deal draws closer. Meanwhile the Aussie, which should be benefiting from a falling US dollar and a stronger Yuan, refuses to budge as markets come to terms with the next moves from the RBA.

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Monday 19th October 2020After a fairly volatile week markets were calmer on Friday on the back of positive retail numbers from the US. NAB’s Rodrigo Catril says Republicans could use it as an excuse not to support further stimulus measures. There was little market reaction to Boris Johnson’s threats to walk away from Brexit negotiations, perhaps because ‘walking away’ has been shown to mean ‘keep talking’. Jacinda Ardern’s election victory is unlikely to see a market response because it too was entirely expected. Today’s GDP numbers from China will show how their economic recovery continues, whilst any volatility this week is likely to be driven by rising COVID-19 numbers, news of related government restrictions, Brexit talks and the US election circus.

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Friday 16th October 2020There’s a strong risk off mood in the air, which has pushed the US dollar higher and hit stocks. Phil Dobbie asks NAB’s Gavin Friend whether markets are now accepting that COVID-19 cases are rising and that will stall attempts at an economic recovery. It certainly seems to be the case in Europe, with more stringent controls being introduced in Paris and London and cases rising in Germany too. Weekly jobless numbers pointed to a further slowdown in the US. At home, a very dovish Philip Lowe signalled where the RBA is heading in November – lower rates and more bond buying seems likely. NZ goes to the polls at the weekend, but it’s unlikely Jacinda Ardern has called the removalists.

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Thursday 15th October 2020Philip Lowe, the Governor of the RBA, is talking this morning. NAB’s David de Garis tells us what to expect in terms of signalling for future stimulus measures. Stimulus is off the cards for now in the US, but listening to President Trump speaking at the Economic Society of new York you’d have to wonder why they need it. They’ve had the smallest economic contraction and fastest recovery of any major western nation, he said. He left out China, of course, because their economy really has had a V-shaped recovery, demonstrated further by increased loans reported yesterday and, hence, a larger money supply, that should boost their GDP further. In Europe, rising infection rates and lockdown fears continue to cause uncertainty, whilst Brexit talks will continue beyond the EU meeting this week. The pound continues to be highly volatile to it all, choosing today to rise in the side of optimism.

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Wednesday 14th October 2020The Aussie dollar has taken a hit twice in the last twenty-four hours. NAB’s Rodrigo Catril says the first hit came on reports that China was to stop importing Australian coal, a significant worsening of trade relations. The second hit came as the US dollar rose and equities fell as the last vestiges of hope for a stimulus deal seemed to disappear. There’s also caution around earnings results, with banks so far producing good results but not much optimism looking ahead. The pound has had a worse night though, as Brexit talks continue to produce no results, unemployment numbers were worse than expected, COVID cases have risen further and the opposition leader is calling for another full national lockdown.

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Tuesday 13th October 2020The US senate is seemingly preoccupied with pushing through Amy Coney Barrett as Supreme Court nominee, casting aside any bandwidth for fiscal stimulus talks. Yet US equities have bounced higher today. NAB’s Ray Attrill says there’s no clear logic for enthusiasm amongst share investors, except for the hopes that a Biden win will see more fiscal stimulus; but it would also mean more regulation for tech companies, and they’ve been leading the charge overnight. Equally as curious, the pound has risen despite rising COVID cases, more lockdown measures and no Brexit progress. It’s perhaps easier to explain the fall in the Aussie and NZ dollars, pulled down with the PBoC’s measures to reduce the value of the Renminbi.

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Monday 12th October 2020The US dollar hit a two and a half year low on Friday, whilst the Chinese Yuan showed big gains. NAB’s Tapas Strickland said the dollar fell on expectations of a Biden victory, which could see increase government spending to tackle the economic impacts of COVIDS-19. The Yuan gained ground as the Caixin Services PMI came in strong. This week was to be the week when a Brexit deal would finally be agreed, but why rush into these things? Talks are likely to continue into November. This week Australian investors will be looking to RBA’s Philip Lowe’s speech on Thursday for suggestions about the easing policy that is likely to be introduced in the November meeting.

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Friday 9th October 2020Donald Trump continues to talk about a stimulus deal, even though he said it had been shelved. But NAB’s David de Garis reckons its highly unlikely anything will be done before the election, an election with Joe Biden stands an increasing chance of winning. The minutes of the September ECB meeting showed concern over the EUR exchange rate, which could present “a risk to both growth and inflation”. Today’s GDP numbers for the UK are likely to show some growth in August as the hospitality industry kicked back into gear, but pubs and restaurants are facing more closures now as infection numbers rise. And the NZ dollar has been losing ground as the RBNZ Assistant Governor raised expectations for negative interest rates next year.

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Thursday 8th October 2020There’s been a market rebound on the hope that some sort of stimulus deal in the US is still possible before the election, but will it really happen? Phil Dobbie asks NAB’s Tapas Strickland whether the rising likelihood of a Biden victory is also an influence. The FOMC minutes haven’t shifted markets much this morning, so was there anything surprising in there? There’s also discussion in today’s podcast on last night’s Australian Federal Budget. There’s plenty of stimulus, but has the government got it right on growth forecasts?

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Wednesday 7th October 2020There’s been a strong reaction in the equity and currency markets to Donald Trump’s sudden decision to stop talks about a fiscal stimulus, even though he tweeted about the need for it whilst in hospital over the weekend. NAB’s Rodrigo Catril wonders whether he’s serious, or is it a last minute bargaining tactic? It comes after the Fed’s Jerome Powell warned that too little fiscal support would lead America to a weak recovery. All this at a time when Biden seems to be pulling away in the polls. Meanwhile, the RBA and Australia government are more in-tune on the need for stimulus to create and retain jobs, whilst the ECB is sounding more dovish. And Brexit talks – the reports are mixed. Deadlines are getting pushed back.

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