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EUR

12 Mar 2023

Contagion worries

• US bank woes. SVB developments are weighing on risk sentiment, with US yields falling sharply. The policymaker response is in focus.• Data flow. Another solid US labour report. US CPI and retail sales this week. If SVB is contained, fundamentals point to rate expectations snapping back.• AUD holding. AUD remains around ~$0.66. These are several US, global and Australia data points this week that should keep AUD volatility elevated. A bout of risk aversion is running through markets with the collapse of the US’ Silicon Valley Bank (SVB), and its broader potential fallout, weighing on investors’ minds. The undoing...

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09 Mar 2023

BoJ & US labour market in focus

• Shaky risk sentiment. Bond yields fall as some partial data points to a looming turn in the labour market. Equities also under pressure.• US labour report. Market reaction to the outcome should be binary. A strong (weak) result would boost (weigh) on the USD.• BoJ announcement. Will outgoing BoJ Governor Kuroda spring one last surprise? If he does, the JPY would strengthen. Our base case is for no change today. Although the economic news flow has been light, there were some notable market moves overnight, generated by lower tier US labour market data. In a break from the recent...

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08 Mar 2023

Policy divergence

• Higher for longer. Markets continue to bolster their US rates outlook. Others are at a different point. The Bank of Canada paused overnight.• US curve inversion. The jump in rate expectations has moved the US yield curve further into negative territory. The curve has a strong record of picking US downturns.• AUD sub $0.66. Deeply negative rate differentials are a AUD headwind, but the high terms of trade is an offsetting factor. Relatively calmer markets overnight. US equities consolidated, while bond yields ticked up further and were once again led by the front-end of the curve. The US 2yr...

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07 Mar 2023

Hawks in the Fed nest

• Hawkish Fed. Chair Powell pointed to rates rising even higher than previously thought, with the door to larger hikes still open.• Market repricing. US rate expectations have risen, supporting the USD. While the outlook for the RBA has been pared back following tweaks to its guidance.• AUD slump. The diverging RBA and Fed outlooks has weighed on the AUD. The shift in thinking can keep the AUD under pressure near-term. Market attention was on US Fed Chair Powell’s Congressional Testimony overnight, and he didn’t disappoint. In line with our thinking, which we have highlighted over the past few days,...

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07 Mar 2023

RBA in the home straight

As was universally anticipated the RBA increased the cash rate by another 25bps at today’s policy meeting. This puts the cash rate at 3.6%, a high since May 2012, and makes it 10 straight meetings the RBA has lifted interest rates in its battle against inflation. After kicking things off in May 2022, the RBA has now increased the cash rate by a cumulative 350bps making this the fastest and most abrupt tightening cycle since at least the 1980s. The RBA doesn’t look to be finished just yet. It retains a hiking bias, noting it “expects that further tightening of...

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