GDT dairy auctions surprise positively, but the NZD remains on the weaker side of the ledger. US stocks consolidate near record highs. U.S. Treasury yields push lower
There was little news overnight, and US stocks are consolidating near their recent all-time high. US Treasury yields have fallen. In the currency markets, the EUR outperformed, the GBP underperformed and the NZD was also on the weak side.
After the Easter holidays, European equity markets caught up with the strong recovery in US markets, with the Euro Stoxx 600 index rising 0.7% to a record high. US stocks have shown signs of consolidation with the S & P500 still close to its all-time high but stable for the day. There has been little news to drive the markets overnight.
As we announced last week, the IMF has improved its forecast for global growth from three months ago, now opting for 6.0% this year (previously 5.5%) and 4.4% the next year (previously 4.2%). The IMF has been particularly optimistic about the United States, with growth driven by massive fiscal stimulus. It has been noted that next year the United States will be the only major economy to exceed the level of production it would have had in the absence of the pandemic. The IMF also noted that most advanced economies will emerge from the pandemic with little lasting damage, thanks to the rapid deployment of vaccines and the willingness of governments to sharply increase public spending and borrowing.
Yesterday, an article published in the FT during the Easter holidays reported that “China’s central bank has asked lenders to restrict the supply of credit because the wave of lending which has supported the recovery of the coronavirus fueled by debt of the country has rekindled concerns about asset bubbles. and financial stability. Sources suggested that after the 16% growth in new loans in January / February, the PBoC asked banks to keep new loans in the first quarter at the same level or lower than last year.
US Treasury yields are down across the curve, with the 10-year rate falling about 3 basis points from the NZ near 1.65%, after hitting 1.7150 last night. This was further proof that the recent sell-off is winding down, with returns falling after the winning trifecta of strong data, namely US employment and the ISM manufacturing and services indexes.
Currency markets have been mixed. EUR / GBP is up 1% with EUR outperforming, pushing up to 1.1870, while GBP underperforming, sliding to 1.3825. There were no obvious root causes to this move, so we’ll put it down to the flows.
Commodity-linked currencies also saw mixed performance, with the CAD and NZD falling, while the AUD rose, also for no obvious reason. The NZD traded below 0.7010 overnight but has since gained ground to 0.7050, still lower for the day. The latest GDT dairy auction showed a 0.3% rise in the price index, an upside surprise with our indicators pointing to a potential 2-3% drop. Prices for whole milk powder remained stable while skimmed milk powder increased 0.6%. The auction suggests some consolidation in prices after the surge through early March, followed by the 3.8% drop in the mid-March auction. The annual capital gain is around 38%.
The AUD is slightly higher for the day at 0.7665 and the NZD / AUD traded at 0.9195 overnight and is currently not much higher. The RBA’s announcement came and went without surprise, with the Bank reiterating its policy directions – the Board does not expect the conditions for a rate hike to be met until 2024 at the earliest. Descriptions of the national economy were more positive, noting that the recovery was “stronger than expected” with the unemployment rate falling to 5.8% and the level of employment returning to pre-pandemic levels. Despite this, the RBA still predicts that the pressures on wages and prices will remain moderate.
The New Zealand rate market had a quiet session with little flow and lower rates reflecting global forces, with longer term yields falling by around 3-4 basis points on NZGB curves and swap. The opening of the trans-Tasman without quarantine from April 19 was well anticipated and will give a welcome boost to confidence and economic activity. The coming day promises to be another quiet one.