AUSSIE BONDS: Little Changed As Global Bonds React To A Multitude Of Factors
ACGBs (YM +1.0 & XM flat) are little changed after global markets reacted to a multitude of factors. First, there was more weak data from China and a surprise 15bp PBoC rate cut in the 1-year MTL. Then, stronger UK wage inflation data (8.2% versus 7.4% est) put upward pressure on global yields. This was followed by much stronger than expected US retail sales (+0.7% vs. +0.4% est and up revised +0.3% prior). Drops in the Empire State index and the NAHB housing index provided some offset.
- The Fed's Kashkari said he is not ready to say the Fed is done. Sep 20 FOMC is at a 12% chance. Fed terminal at 5.42% (+9bp) in Nov'23.
- The 10-year US tsy yield spiked as high as 4.27%, a fresh high for the year, before finishing at 4.21%, +2bp on the day. The 2-year rate finished at 4.95%, -1bp on the day, after spiking to 5.02%.
- Cash ACGBs opened flat to 1bp richer with the AU-US 10-year yield differential unchanged at +4bp.
- Swap rates are 1-2bp lower.
- Bills pricing is flat to +2.
- RBA-dated OIS pricing is 1-2bp softer across meetings.
- Today the local calendar sees the Westpac–MI Leading Index.
- The RBNZ hands down its policy decision at 0300 BST.
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IRON ORE: Futures Print Highest Level Since Early April
SGX Iron Ore futures printed their highest level since early April on Friday, before maringally paring gains. In early dealing on Monday we sit a touch below opening levels.
- The August contract prints at $114.00/tonne, the contract rose ~4% on Friday finishing the week ~6% higher, the biggest weekly gain since early June.
- On Friday there was growing optimism over more stimulus for the Chinese property sectroy. PBOC Dep Gov Liu Guoqiang noted in remarks that monetary policy would be targeted and forceful. More here.
- Steel stockpiles at major Chinese mills were 12% lower in early July from the year before, according to data from China Iron and Steel Association.
AUD: Aussie Finished Last Week Lower, China Data Coming Up
After trending higher over the week, AUDUSD took a breather on Friday to be down 0.8%. It is currently trading around 0.6834. The USD index rose 0.2% helped by the firmer Michigan consumer survey but couldn’t hold moves above 100.
- Last week AUDUSD broke a number of key short-term resistance levels, which highlights a stronger bullish theme. Key resistance is now at 0.6900, June 16 high, and a break of this would open 0.6936, February 16 high. Initial support is 0.6784, July 13 low.
- Aussie is down 0.4% versus kiwi at 1.0737. AUDJPY fell 0.3% to 94.82. AUDEUR is down 0.8% to 0.6088, off the early low of 0.6079, and AUDGBP -0.5% to 0.5218.
- Equity markets were mixed but little changed on Friday with the S&P down 0.1%, FTSE -0.1% but Eurostoxx up 0.2%. VIX is lower at 13.3%. While oil finished the week higher, it was down sharply on Friday with Brent -2.1% to $79.26/bbl. LME metal prices rose 4.1% on the week but were down 0.2% on Friday. Iron ore is around $110/t.
- There are no events in Australia today. The focus will be on the swathe of data from China including Q2 GDP, June IP and retail sales.
BONDS: NZGBS: Richer, Plays Catch-Up After Holiday, US Tsys Cheaper on Friday
In early local trade, NZGBs are 3bp richer after the local market plays catch-up to global bond market developments following Friday’s public holiday. US tsys reversed cheaper on Friday following solid consumer sentiment data.
- The UofM’s preliminary July consumer sentiment index easily beat expectations rising to 72.6 from 64.4 in June. Additionally, 1Y inflation surprisingly increased to 3.4% (cons 3.1) after 3.3%; 5-10Y inflation increased a tenth to 3.1% (3.0), back at the top end of the 2.9-3.1% range seen since Aug’21 and one-tenth off a high since 2011.
- Prior to this, US tsys had experienced a positive trend due to the growing belief in a 'soft-landing' narrative for the US economy. This narrative gained momentum as evidence of cooling inflation emerged, with producer and consumer prices falling more than anticipated in June.
- Swap rates are 5bp lower.
- RBNZ dated OIS pricing is 1-6bp firmer for ’24 meetings.
- Today the local calendar sees the release of the Performance Services Index, with financial headwinds weighing on demand. The week’s highlight however will be the release of Q2 CPI data on Wednesday. BBG consensus expects headline CPI to print +0.9% q/q in Q2 with the annual rate dropping to 5.9% y/y from 6.7%.
