NAB Morning Call

Friday 29th September 2023

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The races is on to meet the 2050 NetZero target, and the 2030 target of 82% renewable energy. Australia isn’t the only country racing for the same finish line. Virginia Christie says the demand for inputs to build the infrastructure, and the expertise needed to manage it, will be inflationary, in the same way the mining boom was. Virginia is a governing body member of WA’s Economic Regulation Authority and, before that, spent many years at the Treasury and the RBA. Both of those bodies face a challenge about how, not only to meet the 2050 target but how to navigate through the unavoidable high inflation environment that precedes it. It’s a thought-provoking episode that’s definitely worth a listen.

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Friday 29th September 2023

US confidence seems to be building, whilst Europe is still in the doldrums. US equities have risen, perhaps helped by the hopes of a visit by President Xi later this year. Europe could have made more of falling inflation in Germany, but is perhaps more concerned about rising debt in Italy. NAB’s Ray Attrill talks through the differences, which has also seen an increasing spread in yields across the Atlantic. The imminent government shutdown could have a lot to do with it. It’s a busy day for data, including US PCE deflators and, over the weekend, China’s Caixin PMIs. 

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Thursday 28th September 2023

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It’s It’s the same story again today – equities hurting, the US dollar higher and bond yields reaching 16 hear highs. What’s changed today is a sharp rise in oil prices. NAB’s Tapas Strickland says there’s a great deal of nervousness that supplies in the US have been destocked too far, down to levels last seen in 2014. Meanwhile, bond yields continue to push higher with little to dissuade investors away from the high for longer mantra. Hence, a town-hall session with Jerome Powell today will attract a lot of interest. Meanwhile, sticky services inflation in Australia yesterday added to the likelihood of an RBA hike in November.

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Wednesday 27th September 2023

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Markets are still a little directionless, with no substantial or surprising data to evoke any substantial moves in any asset classes. The only real movement is in equities, which continue to fall now the higher for longer message has sunk in. NAB’s Gavin Friend describes it as a wall of worry. But will we see a shift in direction from today through, as the rest of the week is filled with inflation data, starting with Australia. Could the services CPI be enough to force the RBA to make a move? Not just yet, reckons Gavin. Later in the week European CPI will add to the global picture about whether or not we are over the worst of it, before the US core-PCE, the Fed’s preferred measure of inflation. 

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Tuesday 26th September 2023

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There were big moves higher in bond yields overnight, particularly at the long end. It’s been significant bear steepening, says NAB’s Skye Masters, pointing to the hawkish statements from central banks indicating rates will remain at restrictive levels for quite some time.  That’s happening despite more indicators suggesting there is growing weakness in the global economy, but bank boards will want to see reductions in inflation before they change that stance. If the bond markets seem a little directionless right now, maybe inflation numbers later this week will help them see the light. 

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Monday 25th September 2023

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The path of central banks does seem to be having as many twists and turns as a Dickensian novel. NAB’s Ray Attrill says the path of bond yields at the end of the week showed how the UK is taking a divergent path from the US, where central bank speakers are still suggesting there will be more hike(s) to come. PMIs on Friday continued to show that the US economy seems to be faring better than Europe. But the US soft landing rhetoric is being challenged, with equity markets taking a hit, the automotive workers strike likely to have more impact and the prospect of a government shutdown at the end of the week all the more likely. This week the data in Europe, the US and Australia will be focused on inflation, naturally.

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Friday 22nd September 2023

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It’s a tough time for small businesses in Australia and the road back from COVID seems to be a lot longer one that most expected. In this episode of The Weekend Edition Phil talks to Ana Marinkovic, NAB’s executive general manager of the Small Business Bank, who describes a two-speed recovery, between those who have been able to cut costs and embrace online, and those who haven’t. Those unable to find cost effective labour are being hit particularly hard. But many businesses hit with rising costs are reluctant to push their prices up, taking a margin hit instead. So, looking closely at your operating costs and not being afraid to reprice are some of the key takeouts from Ana on this week’s podcast.

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Friday 22nd September 2023

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The Bank of England has kept rates on hold for now. Many other central banks have met over the last 24 hours – some have been on hold, some continue to raise rates, one has even cut rates. But bond yields continue to rise and equity markets have taken a hit. JBWere’s Sally Auld says it’s a sign that investors aren’t convinced that the tightening cycle is over just yet. US continues to display resilience that could suggest the Fed will do more. Even New Zealand, where the RBNZ has pushed rates have gone further than many, GDP has shown a strong comeback. So, the future is still uncertain. The Bank of Japan is next to meet. It’s safe to assume they’ll be on hold but, again, for how much longer? 

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Thursday 21st September 2023

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The response to the FOMC announcement this morning was swift, with 2-year Treasury yields hitting a 17 year high. The equity markets switched into negative territory too. Why? NAB’s Gavin Friend says the fact that rates are on hold wasn’t a surprise, it was the rise in the median rate forecasts for next year and the year after. Higher for longer is slowly sinking in, but now, perhaps, it's even longer than many had imagined. Gilt yields took a hit as UK CPI came in much lower than anticipated. Could this mean the BoE will keep rates on hold? And a swag of other central banks today, plus New Zealand’s GDP. They are expected to claw out of recession, but for how long?

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Wednesday 20th September 2023

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This time tomorrow the Fed will have decided, and the assumption is that they will keep rates on hold. But for how long? NAB’s Taylor Nugent says there’s an assumption of at least one more hike, which is being strengthened by further signs of persistent inflation. Oil nearing $100 isn’t helping and neither is higher than expected inflation numbers from Canada. But the soft-landing story remains, demonstrated further by revisions to the OCED’s GDP forecasts, which has upped growth for the US and downgraded Europe. We also delve into the RBA minutes from yesterday, looking for clues about the direction from here.

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