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05 Jun 2023

05 Jun 2023

RBA in focus

• Softer US data. The dip in the services ISM exerted some downward pressure on US bond yields & the USD late in US trading.• RBA in focus. Will they or won’t they hike today? We think it is a line ball call. Most analysts & the rates market are leaning towards no change.• AUD reaction. Given expectations, AUD reaction could be uneven, with a hike likely to generate a relatively larger lift compared to the pull-back on an on hold decision. US markets consolidated overnight, with equities easing slightly (S&P500 -0.2%) and bond yields a bit lower. After rising...

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05 Jun 2023

Weekly Market Update June 5

Exhibit 1 Recession fears are subsiding. Bloomberg US Economic Surprise Index Exhibit 2 Rate cut expectations are moving into 2024. Treasury Yields, % Exhibit 3 A long-expected growth rotation is firmly underway. Purchasing Manager Indices Exhibit 4 Saudi Arabia is working to bring oil markets into “balance” around $80. Production volumes, millions barrels per day Exhibit 5 Oil shorts aren’t “ouching” yet. Global benchmark prices, USD per barrel Exhibit 6 Margins of safety are widening. OPEC spare capacity, million barrels a day Exhibit 7 But observers expect further tightness. Consensus forecasts vs. implied forward prices, USD per barrel Exhibit 8...

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05 Jun 2023

Firming Rate Expectations Push Dollar Higher

With investors increasingly convinced the Federal Reserve will follow through on its “higher for longer” mantra – at least through the latter half of the year – the dollar is kicking another week with solid gains. Firming expectations for a July hike – coupled with a removal of bets on late-year cuts – are tilting rate differentials in the greenback’s favour, with the two-year Treasury yield holding near 4.54 percent, up from 4.06percent at the end of April. The pound, euro, and yen are all on the defensive, failing to break higher as relative growth expectations erode.  Friday’s non-farm payrolls report provided...

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05 Jun 2023

A matter of when, not if the RBA moves again

• US labour market. Another punchy US payrolls report. US yields rose, as did the USD. Broader risk sentiment remains positive.• Limited offshore data. Global event calendar is limited this week. Over the weekend Saudi Arabia announced a cut to its oil production.• RBA in focus. Will the RBA deliver another hike this week? Markets factoring in a ~40% chance. Given pricing, there could be an asymmetric AUD reaction. Risk sentiment remained positive at the end of last week. Equities added to recent gains with the US S&P500 rising by another ~1.5%. The S&P500 is now at its highest level...

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