US equity markets stabilised, despite little change in the complexion of Ukraine news, the S&P500 currently up 0.1%. The safe-haven USD fell, while bonds yields continued to rise in anticipation of higher inflation. The US dollar index is down 0.5% on the day. EUR rose from 1.0850 to 1.0958. USD/JPY rose from 115.40 to 115.79. Underperformer AUD fell from 0.7300 to 0.7245. NZD ranged between 0.6800 and 0.6850. AUD/NZD fell from 1.0720 to 1.0649.
US 2yr treasury yields rose from 1.55% to 1.64% (highest since Dec 2019), while the 10yr yield rose from 1.80% to 1.87%. 10yr break-even inflation rose from 2.85% to 2.90% - a fresh record high. Markets fully price a 25bp hike in March. Australian 3yr government bond yields (futures) rose from 1.69% to 1.80%, while the 10yr yield rose from 2.23% to 2.35%. The first RBA rate is priced for June 2022.
Commodities, Brent crude oil futures rose 3.4% to $127 – the highest since 2008, copper fell 0.5%, gold rose 1.9%, and iron ore rose 0.2% to $161 – the highest since August 2021.
Overnight Currency Range
AUD/USD 0.7245 0.7347
EUR/USD 1.0849 1.0958
GBP/USD 1.3083 1.31445
USD/JPY 115.29 115.79
NZD/USD 0.6799 0.6850
USD/CNH 6.3126 6.3297
AUD/JPY 83.77 84.83
AUD/NZD 1.065 1.0729
The day ahead is expected to be dominated by the headlines from Europe. The overnight news that the U.S has placed an immediate ban on Russian energy is likely to cause continued volatility in that space while separately, news that China’s Xi is willing to help in mediation with other European leaders should be seen as a positive step.
In China, inflation should remain benign in February. CPI could stay below 1% with sluggish food prices and Covid outbreak weighing on services recovery. PPI would continue to drop, despite recent surge in oil prices. China policymakers are working hard to stabilize commodity prices such as coal and iron ore. With the high base from last year, PPI inflation would decline further in the coming months. Inflation is unlikely to constrain China’s policy easing this year.
AUD/USD traded heavily yesterday on its way to overnight lows of 0.7245. The recent moves have seen order books cleared out but offering interest is expected toward the recent highs of 0.7440 while demand is staggered down to 0.7100.
Event Risk Data Today
Aust: Despite some positive developments surrounding COVID-19 and the RBA’s patient interest rate outlook, the March Westpac-MI Consumer Sentiment survey will likely be buffeted by Russia’s invasion of Ukraine. RBA Governor Lowe is due to speak at the AFR Business Summit in Sydney at 9:15am. Debelle will take part in a panel at the Digital Economy Conference in Sydney at 7:00pm.
Japan: A small upward revision is expected for the final estimate of Q4 GDP, highlighting the economy’s underlying strength before the omicron hit in early 2022 (market f/c: 1.4%qtr)
China: Consumer inflation is anticipated to remain weak in February (market f/c: 0.9%yr) despite intense upstream price pressures as evinced by producer prices (market f/c: 8.6%yr). Meanwhile, M2 money supply growth and new loans are set to remain robust in February as authorities ensure ample credit and liquidity as demand builds in 2022 (market f/c: 9.6% and CNY1450.0bn). Note the M2 and loan data is due 9-15 March.
US: January’s JOLTS job openings should continue to highlight the extraordinary demand for labour in the US (market f/c: 10950k).