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Daily Market Briefing, Asia Pacific

28 Feb 2023

Inflation continues to surprise

• Eurozone inflation surprise. Eurozone bond yields jumped up after a run of higher than expected inflation prints.• USD still firm. The USD remains near recent highs, with relative interest rate expectations still in favour of the US.• AUD risk events. Q4 GDP, January inflation, and China PMIs are released today. AUD intra-day volatility should pick up, but will the underlying trend change? Interest rate expectations and bond markets remain in focus, though overnight attention was in Europe rather than the US. Bond yields across the Eurozone rose ~5-8bps as markets re-priced how high the ECB policy rate could end...

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27 Feb 2023

Treading water

• Holding steady. A quiet start to the week with US bond yields easing back slightly and US equities edging a little higher.• GBP & EUR bounce. UK and EU agreed a new deal on Northern Ireland’s trading arrangements. But GBP continues to face structural headwinds.• Retail sales in focus. AUD has consolidated. After softening into year-end consensus is looking for Australian retail sales to bounce back in January. A quiet start to the week. The adjustment in expectations around how high the US Fed could lift interest rates this cycle and the flow through to bonds have driven markets...

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26 Feb 2023

Another US inflation surprise

• Higher US rates. Strong US inflation data generated another repricing in US rate expectations, propelling the USD even higher.• Fed needs to do more. Sticky inflation means the US Fed has more work to do. Positive US data can reinforce the upswing in US yields.• AUD slump. AUD is now ~6% below its early-February peak. Will this weeks Australia/China data provide an offset to the stronger USD? The outlook for US Fed policy continues to drive markets. US rate hike expectations took another leg higher on Friday, pushing US bond yields back up towards their peaks. This in turn...

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23 Feb 2023

USD recovery continues

• Mixed markets. US equities are a little stronger, with US bond yields slightly lower. However, the USD remains firm.• US data focus. Initial jobless claims remain low, a sign the labour market is still tight and that the US Fed has more work to do.• AUD pressure. AUD slipped below 0.68 overnight before recovering modestly. We see further near-term downside on the back of a stronger USD. While market moves have generally been modest, underlying themes have remained the same, especially in FX markets. US equities whipped around overnight, but have ended the day in positive territory (S&P500 +0.6%),...

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22 Feb 2023

AUD underperformance

• Higher for longer. The Fed meeting minutes reaffirmed a hawkish bias. Elevated US interest rate expectations are supporting the USD.• AUD pressure. Weaker than expected wages data has seen RBA rate hike bets pared back. Relative differentials point to further AUD weakness.• AUD crosses. European growth indicators continue to surprise, pointing to a lower AUD/EUR. AUD/NZD weighed down by a ‘hawkish’ RBNZ. A mixed night across the major markets, with European and US equities consolidating and bond yields down a few basis points. After hitting a fresh 3-month high the US 10-year bond yield has eased back slightly, but...

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