NAB Morning Call

Thursdsay 16th November 2023

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Goldilocks continues to deliver what America wants, with softer producer prices and only a slight move down in retail sales. Equity markets continue to enjoy the party, although bond yields are back on the rise. Hardly surprising given the scale of the moves this week, says NAB’s Tayor Nugent. A fall in oil should also not be over-interpreted, given the recent moves. Has the Goldilocks effect also moved to the UK. Okay, the economy isn’t as strong, but CPI has come down faster than expected, adding to the belief that the BoE has probably done all it need to do. The same isn’t being said about the RBA. Will they be influenced by today’s employment numbers?

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Wednesdsay 15th November 2023

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US inflation fell further than most expected – although NAB had predicted a downward surprise. NAB’s Gavin Friend talks about the market response, which has been felt in equities, bonds and the dollar. It follows two big drops in Eurozone inflation, adding to the view that the worst is over and central banks can start focus on dropping rates rather than lifting. The US CPI comes in the thick of a range of critical data, including UK employment, Australian wages data, UK CPI, Japan’s CPI and a plethora of China numbers too. No wonder the markets are busy, and keen to party.

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Tuesday 14th November 2023

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The NY Fed’s consumer inflation survey overnight had expectations fall a little over last month, in contrast to the University of Michigan survey last week, which had inflation expectations rising. So who do you believe? You believe the hard numbers, says NAB’s Ray Attrill, which are out tonight (Australia time). Market moves have been fairly restrained in the build up to the US CPI release, but the response could be quite marked. Ray says it’s worth looking to the second decimal place to get a real handle of the speed of travel. Locally the NAB Business Survey is out today along with the latest consumer sentiment read. The UK has employment numbers, the NFB small business survey is out and the ZEW survey for Germany. A busy day. 

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Monday 13th November 2023

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It seems the more dovish sentiment in the US has been reversed by Jerome Powell suggesting the Fed might have more to do to keep inflation in check. NAB’s Skye Masters says the weak 30-year auction on Thursday has also seen yields push lower, along with upward pressure on inflation expectations. Moody’s also moved the US outlook from rating from stable to negative, which might have impacted yields at the margin. In Australia the Statement on Monetary Policy provided revised forecasts for Australia, which could be used as an argument for more rate hikes. Yet the language of the Statement was quite dovish. No wonder markets are confused. The key release this week, is US CPI tomorrow.

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Friday November 10th 2023

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With the risk of interest rates going even higher, and a slug of the Australian population yet to move onto variable loans, are we about to see a sudden change in consumer spending as more households step off the fixed rate cliff. This week Sonia Straumann, NAB’s Executive, Credit Risk, says households have already modified their behaviour in readiness. But how much of their spending now is dependent on eating into cash reserves built up during the pandemic? And how will small businesses cope with a sustained period of lower consumption. Sonia says that’s one of the big risk factors, alongside commercial real estate, construction and farming. What else is keeping her awake at night?

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Friday 10th November 2023

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Bond yields kicked higher in the US after a $24 billion 30 year auction attracted less interest than expected. NAB’s Tapas Strickland says the auction yields were 5 basis points higher than pre-sales. We discuss why interest in long duration bonds is falling. Markets are also preparing for words from Jerome Powell later today, following fairly dovish talk from other Fed speakers. Today the RBA releases forecasts in the Statement of Monetary Policy. So, what will Tapas be looking out for?

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Thursday 9th November 2023

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It looks like there’s heightening expectations of a global slowdown, evidenced by further significant falls in oil prices today and an end to the equities rally in the US. NAB’s Ray Attrill says one former ECB Governor has added to the melancholic tone by suggesting Europe is heading for a recession next year, whilst inflation expectations one year out have risen by half a percent in one month. But generally, today, a few non definitive words from central bankers, otherwise, it’s been slim pickings.

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Wednesday 8th November 2023

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The RBA lifted rates, as expected, yesterday, with the possibility of another hike to come. JBWere’s Sally Auld says the central bank had always assumed it was different to others, with the flexibility of a longer runway to bring inflation down without damaging the economy. That premise is being challenged now as inflation itself is taking longer to come down, so the RBA could still be lifting rates just as other central banks start to acknowledge market expectations for rate cuts next year. So late to the party, and last to leave?

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Tuesday 7th November 2023

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NAB still firmly expects the RBA to lift interest rates today. As Talor Nugent observes, in a Bloomberg survey, 29 of 32 economists are expecting a hike. It’s a safer punt than anything on the Melbourne Cup today, although markets are still pricing a 30% chance that the RBA will keep rates on hold. We also get a sneak peak at the RBA’s forecasts today, with the detail provided in Friday’s Monetary Policy Statement. Meanwhile, markets have turned a little, after last week’s bond and equity rally, built on the growing belief that the Fed will drop rates starting mid-2024. Elsewhere, the BoJ Governor has reiterated a lift in rates this year is very unlikely – hardly a surprise given its November – and Robert Holzmann has said the ECB could still raise rates, if necessary.

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Monday 6th November 2023

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Softer ISM data and weaker than expected jobs data in the US on Friday has seen a rally on bonds, pushing yields down and taking the US dollar down with it. As NAB’s Rodrigo Catril points out, not only have markets reduced their expectations for future hikes, but an increasing number of investors are expecting rate cuts by the middle of next year. It’s a different story for Australia though. The RBA is likely to show the job isn’t done with a rate hike tomorrow, with the possibility of another to follow.

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