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AUD

Rates rethink

• Higher bond yields. Stronger services PMI data in Europe and the US has seen interest rate markets adjust further. This has weighed on risk sentiment.• USD firm. The lift in US yields is supporting the USD. AUD has drifted back. Locally, wages data is released today.• AUD/NZD in focus. RBNZ announcement today. Will the RBNZ stay the course and hike by 50bps, or will it hold back given the cyclone impacts? A negative night for markets with investor sentiment shaken by another jump in bond yields as positive economic data fueled expectations central banks, particularly the US Fed, have...

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Silent night

Unsurprisingly, with the US President’s Day holiday and no major news across the other regions, it has been a quiet start to the week. European equities eased back slightly, tracking the modest falls in US S&P500 futures (now -0.3%) with the US Fed’s higher-for-longer interest rate outlook continuing to sink in. European bond yields ticked up 2-5bps across their respective curves, with some ‘hawkish’ comments from the ECB’s Rehn playing a role. According to Rehn inflation is “excessively high”, further rate hikes by the ECB beyond March seem “logical”, and the bank shouldn’t rush to start discussing rate cuts. The...

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Financial Conditions Tighten on Still-Robust US Consumer Demand

The three trading rules which have dominated for decades apparently remain intact: don’t fight the Fed, don’t bet against the dollar, and never, ever underestimate the US consumer. Retail sales rose at the fastest pace in two years in January, providing more evidence that aggregate demand in the American economy isn’t slowing as much as the Federal Reserve might prefer. Overall retail receipts climbed a seasonally adjusted 3 percent in January, snapping back from declines in November and December as consumers spent more on cars, clothing, and eating out. This comes after earlier reports showing that more than half a...

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Currency Market Sub-Plots Lift Greenback

The dollar is creeping upward as conflicting cross-currents in the foreign exchange markets contrive to keep most majors tightly rangebound. Yields are broadly flat, and equity futures are setting up for a slightly weaker open. Mexico’s Banxico yesterday became the second central bank—after the Reserve Bank of Australia—to defy increasingly-dovish policy expectations, sending the peso soaring by raising rates by half a percentage point in a move that surprised virtually every observer. In a statement accompanying the decision, policymakers said “Given the dynamics of core inflation, on this occasion it is necessary to continue with the magnitude of the reference...

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Bond Market Signals

Fairly modest moves across markets overnight, though the underlying themes of participants reassessing the outlook for how high interest rates could go, how long central banks may need to keep them there to squash inflation, and concerns about what the economic impacts could be continuing to bubble to the surface. The US S&P500 drifted back again (-0.9%) as US bond yields rose ~6bps across the curve. The USD index has range traded over the past few sessions, but in level terms it is still up near a 1-month high. EUR is down near 1.0730, USD/JPY is up around 131.60, and the...

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