NAB Morning Call

Friday 8th December 2023

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It’s been fifty years since the UK signed an agreement with the European Economic Community. That had a profound impact on Australian exports. We’ve built a far more diverse export base since then, of course, but now, since Brexit, with a new free trade agreement (FTA) in place, there’s a chance to redevelop our trading relationship with the UK. 

Elisabeth Bowes, Australia’s Deputy High Commissioner to the UK, was deeply involved in negotiating the UK Australia FTA. She said, it made her proud as a Queenslander to see, back in September, the first tariff free shipment of sugar in fifty years to arrive in the UK. 

On this edition of The Weekend Edition Elisabeth outlines how Australian businesses can benefit from the agreement, whether its exporting goods, procuring UK government business, establishing a foothold within Europe, or recruiting expertise from Britain.

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Friday 8th December 2023

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Probably not, is the answer to our headline, but NAB’s Ken Crompton says markets are pricing in a heightened expectation of the BoJ moving from negative rates sometime soon. The sharp rise in Japanese government bond yields yesterday and overnight almost wiped out the falls over the last month, but yields remain well below early November, when they almost touched 1%. Elsewhere, Australia’s trade surplus increased but it was largely due to a fall in capital goods imports, reversing the recent rise. Europe showed more signs of a slowdown, with German industrial production down and Q3 GDP revised lower. The focus now is now on non-farm payrolls. Ken says there’s more upside potential for bond yields if we assume markets have been too optimistic in their pricing of rate cuts next year.

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Thursday 7th December 2023

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Falling inflation and lowering interest rates is definitely the consensus view now. It comes at the cost of weaker demand, evidenced by the continued drop in oil prices. NAB’s Ray Attrill says falling fuel costs are no doubt helping European equities, which finished higher today whilst US share indices struggled to get traction. Markets are now pricing in 150bp in cuts from the ECB next year, although Ray suggests that’s overly optimistic. Australia’s GDP growth was much slower than expected last quarter, but there’s not been a strong response to it on currency and bond markets. The consumer is still finding money to keep spending and productivity isn’t making the gains the RBA would like to see. Now the focus is on jobs, with the weekly US jobless claims tonight ahead of the monthly non-farm payrolls tomorrow.

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Wednesday 6th December 2023

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The RBA kept rates on hold, didn’t change too much in their statement, but Australian bonds still rallied. JBWere’s Sally Auld says it was a curious reaction, but just about every market wants to avoid contemplating that rates could go higher even if that might still be the case here. Globally the mood is being driven by weaker CPI data. The OECD revealed that it has fallen to the slowest pace since October 2021 in its member countries. And ECB hawk Isabel Schnabel has completely changed direction, suggesting rates there will fall next year. In the US the Services ISM rose a little and the jobs market eased a bit, helping contain wage price concerns. In short, it was generally a good news day. Although equities are still mixed and oil continues to head south.

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Tuesday 5th December 2023

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With shares falling and bond yields rising, markets might have taken a step too far when it comes to anticipating the timing of rate cuts next year, but NAB’s Tapas Strickland says cuts are still expected. They have just priced in a little more risk ahead of a series of key data releases this week, including payrolls (Friday) and services ISM (today). The RBA meets today and the accompanying statement could be a little dovish, given weaker inflation data, but there’s resilience in consumer and housing data that makes NAB believe a February hike is still likely. As well as the US Services ISM tonight, there’s also the JOLTs numbers (job openings and quits) which has had the power to move markets recently.

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Monday 4th December 2023

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When it comes to predicting rate cuts by the Fed, will the chair Jerome Powell be the last one to shift his position? During his ‘fireside chat’ on Friday he said it would be premature to assume they have achieved a sufficiently restrictive stance. As NAB’s Taylor Nugent points out, markets clearly aren’t paying too much attention, with yields falling sharply lower at the end of the week. Although there were two words in Powell’s talk that could support the idea of cuts sooner rather than later. Meanwhile two central banks are expected to keep rates on hold – the RBA tomorrow and the Bank of Canada later in the week. And focus now switches to employment numbers, with US non-farm payrolls data out on Friday.

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Friday 1st December 2023

Please note this communication is not a research report and has not been prepared by NAB Research analysts. Read the full disclaimer here.

On The Weekend Edition NAB CEO Ross McEwan says his focus next year is on keeping customers safe from cybercrime, fraud and scams. Phil Dobbie also asks him about the role of AI to help counter cybercrime as well as help in the day-to-day operation of the bank. In a wide-ranging discussion, they also look at the economic outlook for 2024, fixing Australia’s housing affordability and getting people back into the workplace.

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Friday 1st December 2023

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European inflation fells a little faster than expected. It’s knocked the Euro a little today, but JBWere’s Sally Auld says for the Euro to really see some gains it’ll take a combination of US rate cuts alongside strong growth outside the US, to help drive down the dollar. Meanwhile, the dollar ticked up a little today, with no surprises in the Core PCE numbers, and some unsurprising high-for-longer sentiment from Fed speakers. Jerome Powell will no doubt follow the same script in his fireside-chat later today. Aussie yields rose quite a bit higher overnight, perhaps because data is showing some resilience, particularly in housing. China’s PMI’s yesterday though, showed just how fragile their recovery is.

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Thursday 30th November 2023

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Australian inflation was lower than expected yesterday. It was the same in Germany. And US quarterly PCE prices were revised lower. All signs that seem to be indicating price growth is slowing and central banks will be pushing rates lower. But there are some caveats to all that. NAB’s Gavin Friend reminds us that the monthly CPI numbers in Australia are heavily influenced by the sample rotation, which will have underplayed services inflation, so it’s too early to take NAB’s prediction of another hike off the table. In New Zealand, even though the RBNZ kept rates on hold yesterday, higher demand from immigration could force another move higher. Today’s US monthly core PCE deflator and the inflation numbers for the whole of the Eurozone will give a clearer picture. For now though, bond markets are enjoying the ride.

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Wednesday 29th November 2023

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Bond yields pushed lower as markets continue to expect rate cuts by the Fed next year. Tapas Strickland says NAB’s own modelling based on recent data supports significant cuts next year. The Fed’s Chris Waller, who had previously flagged concern about the pace of growth saying “something’s gotta give”. Now he’s saying it’s the pace of the economy that is giving and the Fed is in a good place to return inflation to 2%, eventually. Comments like that have helped push bond yields lower. Today the focus is on the first bits of CPI data from Europe, and Australia’s monthly CPI read.

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