NAB Morning Call

Tuesday 16th June 2020

Globally equities have been dampened by fears of a second wave of COVID-19 and the attest activity data from China, which showed a slower than expected recovery. So why are equities back on the rise in the US – a question Phil Dobbie puts to NAB’s Ray Attrill in today’s Morning Call podcast. The answer lies with the Fed, which is pushing beyond buying government bonds to fuel the economy. There’s also discussion on Australia-China relations and today’s RBA minutes.

Monday 15th June 2020

The market lost a chunk of optimism last week. Jerome Powell’s pessimistic outlook didn’t help and probably destroyed hopes for those still set on a V-shaped recovery. Some exuberance returned on Friday, but Phil Dobbie asks NAB’s Rodrigo Catril whether that can continue, given increasing concerns of second waves – highlighted by a lockdown in Beijing and Seoul - and the question of whether opening up shops is enough to get people shopping. Activity readings from China might bring some relief, if the news is good, of course – but is it as simple as applying the rate of China’s recovery to the rest of the world?

Friday 12th June 2020

There’s been a swift move to bonds and safe haven currencies since the Fed’s message yesterday that it would take a couple of years at least for life to return to normal. Fears of a second wave of the virus in the US has added to concerns and weekly job numbers in the US suggest there isn’t exactly a rush back to work. The result has been a big drop in global equities. Phil Dobbie asks Ray Attrill how the rally had gone so far, and why Australia, which is relatively COVID-19 free, is suffering more than most. With oil, we’re back to worrying about over-supply and under-demand.

Thursday 11th June 2020

The US Fed has reiterated that they will do whatever it takes to protect the US economy, with inflation expected to remain below 2 percent through to 2022. Chair Jerome Powell painted a bleak picture and suggested that more action will be needed by Congress and, possibly, by the Fed. This comes on a day that the OECD has released forecasts for a six percent contraction in the global economy. Still, another good day for equities, with the NASDAQ reaching a new high – low interest rates for a long time won’t eactly hinder that growth, will it?

Wednesday 10th June 2020

The rally in equities has stalled for now – except for the NASDAQ. Phil Dobbie asks NAB’s Tapass Strickland whether caution is growing or just a bit of short-term profiteering. The cautionary air could relate to concerns about a second wave of infections. In Australia there are more grounds for optimism, but the Aussie dollar is weaker, even though the Treasury has revised down peak unemployment, from 10% to 8%. No new virus cases add to Australia’s good news, although China’s warning for students to stay away offsets some of that positivity. Tomorrow morning all eyes will be on the Fed, with the FOMC meeting wrapping up with a press conference just ahead of tomorrow’s Morning Call podcast.

Tuesday 9th June 2020

Equity markets continue to rise and the US dollar continues to weaken with increasing risk-on sentiment, helped along by the surprising rise in jobs in the US in Friday’s non-farms payroll data. NAB’s Gavin Friend says the numbers raise the question as to whether the US economy will bounce back sooner than expected. The Australian and Kiwi dollars are beneficiaries for now, largely through the fall in the US dollar, but also the rise in iron ore prices and the fact that New Zealand is now COVID-19 free. Phil Dobbie asks whether the US job numbers will impact the Fed’s decision later in the week. There’s also discussion about the NAB Business survey, out this morning.

Friday 5th June 2020

The ECB announced that it will extend its bond buying program by a further €600b, with forecasts not expecting inflation to pick up for the next few years. NAB’s David de Garis says the pessimistic forecasts from the central bank assume no further fiscal stimulus from the ECB, which might be a realistic assumption given further resistance to an EU fiscal stimulus, with Finland now joining the frugal four. The strength of the Europe on the back of the ECB news has helped the Aussie dollar rise again, helped by job ads adding to hopes of a fairly rapid recovery. The non-farm payrolls umbers will give a clearer picture of unemployment in the US later on.

Thursday 4th June 2020

Australia has entered a recession but, as Josh Frydenberg was quick to point out yesterday, the Q1 fall in GDP was miniscule compared to most of the rest of the world. Market focus, meanwhile, is what comes next. NAB’s Gavin Friend talks to Phil Dobbie about the continued optimism that is perpetuating the rally in equities, the sharp rise in bond yields today and a fall in gold. The Aussie dollar continues to gain on the back of a weakening US dollar. The pound, whilst up against the US dollar, is faring less well – if Brexit talks collapse this week that won’t help. Plus, the ECB meets today – do they really need to extend their bond purchase program? Gavin suggests it could do more harm than good.

Wednesday 3rd June 2020

Equities continue to rise on hopes of a global rebound as COVID-19 infections start to lessen, ignoring the riot sin the US, Hong Kong unrest and Donald Trump’s response to it, and Brexit talks. It’s all good news as far as the markets are concerned, pushing the Aussie dollar even higher, with the RBA’s Philip Lowe reiterating yesterday that things aren’t as bad as anticipated. So, what could possibly go wrong? Phil Dobbie asks NAB’s Rodrigo Catril who suggests historically markets don’t tend to be phased by events of civil unrest in the US. Today all eyes will be on Australian GDP for Q1 and the Caixin Services PMI from China.

Tuesday 2nd June 2020

The Australian dollar has climbed even higher this morning, reaching 68 US cents. NAB’s Ray Attrill discusses the factors that have come together to boost the currency. It’s not all down to weakness in the US dollar, but that’s part of it. Riots, the virus and China relations are playing on the US currency, even if equity traders continue to look beyond those inconveniences to focus on – as Phil Dobbie puts it – the “sunny uplands that await them”. There’s also discussion on what to expect from the RBA today and what GDP partials that will give a clearer picture of what Australian growth was in Q1. There’s a slim chance that the economy actually staved off a slight decline. Could we weather the COVID-19 storm without entering a technical recession? Doubtful, but imagine!