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21 May 2023

US debt ceiling: two steps forward, 1 step back

• US debt ceiling. Talks hit an impasse. Negotiations set to resume later today. A deal is needed quickly with the ‘x-date’ coming closer into view.• AUD sluggish. Global forces will continue to drive the AUD. Beyond the debt ceiling, the global economy is slowing. This is normally a headwind for the AUD.• RBNZ hike. AUD/NZD has slipped below 1.06. RBNZ meets on Wednesday. Following the NZ Budget expectations of another ‘hawkish hike’ have risen. Optimism regarding a US debt ceiling deal faded a bit on Friday, with negotiations reaching an impasse. US equities lost some ground (S&P500 -0.1%), while...

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18 May 2023

Australian labour market: cracks in the veneer

It’s a lagging indicator, but cracks are beginning to appear in the Australian labour market. In our view, these cracks should widen over time as the weight of higher mortgage rates, negative consumer and business sentiment, and other cost pressures act to constrain economic activity. While the larger than normal share of households on fixed rate loans diluted the initial rate hike impacts this cycle, the result should ultimately be the same. We expect growth to slow materially over the next few quarters as the substantial cashflow hit on the heavily indebted household sector intensifies. Indeed, there is still a...

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17 May 2023

US debt ceiling optimism

• US debt ceiling. Positive rhetoric from both sides supported sentiment. US equities & bond yields rose. USD index firmer, with AUD ~$0.6660.• Fed speak on the radar. In addition to the debt ceiling, US Fed speakers will be in focus the rest of the week. Markets pricing ~3 rate cuts by January.• Labour market data. April Australian labour report due today. Labour market is a lagging indicator. Data for April reflects the state of play ~6-months ago. A more positive tone to markets overnight with comments on both sides of the US political spectrum easing fears of a potential...

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16 May 2023

Trading ranges shrink ahead of action-packed day

Currency markets are seeing subdued price action this morning as participants stay sidelined in a catalyst-poor environment. Both the euro and pound are holding modest gains and the dollar is slightly weaker, with three-month implied volatility levels trading near the lowest levels in a year as monetary policy expectations crystallize and movement in the fixed income space slows to a crawl. Commodity-linked and Antipodean currencies are weaker after traders responded to softer-than-expected Chinese economic activity data by marking down demand forecasts. Last night’s official data showed industrial output in the world’s second largest economy expanding 5.6 percent in April from a year...

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14 May 2023

Higher inflation expectations are a worry for the US Fed

• US inflation worries. Jump in US inflation expectations should catch the US Fed’s eye. Market pricing for multiple Fed rate cuts looks misplaced.• USD rebound. Higher yields supported the USD. US retail sales & Fed speakers in focus this week. Reduction in Fed rate cut pricing should be USD positive.• AUD slips back. The AUD has extended its slide. Local and offshore data should generate AUD vol. On net, we think the AUD can fall back further. Markets nervousness continued into the end of last week, with growth concerns, higher US inflation expectations, and US debt ceiling worries weighing...

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