NAB Morning Call

Thursday 29th August 2019

UK politics has turned even more toxic with Prime Minister Boris Johnson suspending parliament from September 12th, for five weeks. As Phil Dobbie discusses with NAB’s Gavin Friend in London, the pound had a sharp reaction but bounced back half-way, perhaps because of hope that the PM will reach a deal with the EU, or that rebel MPs will move swiftly to stop Boris in his tracks. All this makes Italian politics seem a little more stable, with a government likely to be formed. They also discuss the implications of yesterday’s weak construction data in Australia, the reasons behind the rising oil price, and German unemployment and CPI numbers today.

Wednesday 28th August 2019

Markets have taken a hit as much of yesterday’s optimism subsides. As Phil Dobbie discusses with NAB’s Rodrigo Catril, when President Trump said at the G7 that China were ready to cut back to the negotiating table, it appears that was news to China. That’s raised tensions still higher, resulting in falls in equities and significant drops in bond yields. We’ve also seen a return of the inversion in 2yr – 10 year yields. There is some positive news around today though; MPs of various political colours met in the UK to plan how to stop a no-deal Brexit, and it looks likely that an election will be averted in Italy, with a Five Star – Democratic Party government expected to be formed tomorrow. At home, Q2 construction work are the numbers to watch for.

Tuesday 27th August 2019

The markets have done a complete u-turn overnight on the back of positive news on the US China trade talks and some wins from the G7 summit, including proposals to reform WTO rules and a potential US Iran meeting. NAB’s Tapas Strickland talks through the headlines that have driven increases in US equities and the US dollar. Phil Dobbie asks him whether it could all backfire it the US President changes his mood once he’s off European soil. Certainly, markets are being driven by headlines more than data although German IFO numbers highlighted the extent of the slowdown in their economy.

Monday 26th August 2019

China’s official response to President Trump’s latest round of import tariffs sent markets into a spin on Friday. That was before the US President responded, pushes their tariffs up higher still. Phil Dobbie asks NAB’s Ray Attrill what sort of reaction we will see this morning. At Jackson Hole Fed Chair Jerome Powell diplomatically suggested the trade situation made the work of central banks difficult, saying there are no recent precedents to guide any policy response to the current situation. Does this mean we can expect less, or more, in the way of rate cuts this year? Philip Lowe gave a similar response at Jackson Hole, whilst Boris Johnson, at a fiery G7 summit, didn’t make much headway on Brexit, admitting to the BBC that a deal was ‘touch and go’.

Friday 23rd August 2019

Markit PMIs show US manufacturing has contracted, whilst in Europe it remains in a slump but hasn’t fallen as far as anticipated. The pound has enjoyed some renewed vigour on hopes that a Brexit deal will be reached. That sentiment could change rapidly, of course. But, as Phil Dobbie discusses with NAB’s Alex Stanley, all eyes will be on Jackson Hole tonight, when Jerome Powell speaks. Will he give any clear direction, given the divisions within the Fed about what to do next?

Thursday 22nd August 2019

The FOMC minutes released today highlight the divisions in the Fed at their last meeting. Phil Dobbie asks NAB’s David de Garis what this means for the next meeting. They also discuss the growing budget deficit in the US and further calls from the President for deeper rate cuts. Meanwhile, a 30-year bond sale in Germany fell short of expectations, whilst markets in Italy responded positively to the prospect of a new coalition government without another election. Also in Europe, British PM Boris Johnson has been meeting with Angela Merkel, who suggested he come up with a backstop alternative in 30 days – he accepted the ‘blistering timetable’ but it didn’t engender positive sentiment in the pound. Today PMIs for Europe will be the numbers to watch and whatever comes out of Jackson Hole - White House Chief of Staff Mick Mulvaney has already made headlines at the get-together suggesting the US might go into recession in 2020, albeit it slight and short.

Wednesday 21st August 2019

The markets retreated from yesterday’s optimism, with shares and bond yields falling, the US dollar losing against the Yen and gold back on the rise. Phil Dobbie asks NAB’s David de Garis why this reversal of fortune, and how come the Aussie dollar managed to ride the storm. Part of the downturn today relates to the disastrous state of Italian politics, with the Prime Minister resigning and no clear idea of who will control government. The pound suffered a fall as Boris Johnson hit a logjam with the EU, but recovered on more conciliatory words from the German Chancellor. Meanwhile, it’s the FOMC minutes that will be the focus of the next 24 hours.

Tuesday 20th August 2019

A wave of positivity seems to have hit the markets – the US dollar is up, other safe haven currencies are down, bond yields are rising and oil is on the up. It’s as though there’s been some positive news behind all this action, but what? Phil Dobbie asks NAB’s Rodrigo Catril to explain – it’s a bit of the German government’s talk of a fiscal stimulus, a bit to do with the Huawei extension and perhaps a little to do with hopes that trade talks will improve. But none of this was particularly unexpected. Meanwhile, Brexit uncertainty continues but could be reaching a head soon, and it’s possible the Italian Prime Minister will resign today.

Monday 19th August 2019

The surprise news on Friday were reports that the German government might relax some of its spending rules to splash out and prevent a recession. Phil Dobbie talks to NAB’s Tapas Strickland about the market reaction. It was a grim day for data, however, with US sentiment falling further and NZ manufacturing contracting for the first time in seven years. Today is also the date that Huawei’s temporary licence to deal with US companies – the reprieve issued in May – is due to expire, but an extension is expected. Boris Johnson will tell the Europeans that parliament can’t block a no-deal Brexit, when he visits later in the week. And all eyes will be on what Jerome Powell has to say at the Jackson Hole summit at the end of the week, with a rate cut fully priced in for the next Fed meeting.

Friday 16th August 2019

A member of the ECB Governing Council suggested that the markets hadn’t priced in the extent of the stimulus measures coming next month. ‘ECB Has Big Bazooka Primed for September’ was the headline in the Wall Street Journal. As Phil Dobbie discusses with NAB’s Gavin Friend, that comment, along with China’s latest response to extra tariffs from the US, many of which still kick in next month, has been enough to drive the rally in bond yields still further. Yields are breaking into even lower territories around the world, particularly in Europe, the UK and the US. And there’s hope that a no-deal Brexit might be off the table, but don’t hold your breath.