By Doug Steel*
Mixed corporate earnings results in the EU and US sees equities down, with banks underperforming. Global bond yields are lower. Risk off tone brings a firmer US dollar (USD) overnight, but only back near to where we left it late Monday. Likewise, the NZ dollar (NZD) sits near US61.40 cents.
Global equities are on the back foot. It was a risk off session in Asia yesterday with China’s CSI 300 index falling for a fifth day, down 0.5%. In Europe, after a relatively flat session Monday night, Eurostoxx 600 closed down 0.4% overnight pulled down by a 1.2% drop in financials. Banks in Europe were dragged lower by disappointing results from UBS and Santander, as earnings season continues.
In the US, embattled First Republic Bank’s first quarter (Q1) results were always going to be bad but still disappointed with a bigger-than-expected 41% deposit outflow in the quarter, even though they stabilised in March and have ‘remained stable’ through April 21. No forward guidance and no presentation to accompany the results added to the negative sentiment. The bank said it’s pursuing ‘strategic options’ and cutting costs which includes a headcount reduction of 20% to 25% slated for the second quarter (Q2). The bank’s share price plunged currently down more than 38%.
This weighed on US equities with the Nasdaq KBW banking index currently down 3.6% on the day. The S&P500 currently sits down 1.4% for the day digesting a mixed bag of earnings results and after a relatively flat result in the previous session. On the positive side, McDonalds sales were positive and General Motors beat expectations and lifted this year’s guidance. Microsoft and Alphabet earnings are due after US market close this morning. The Nasdaq is currently down 1.7%.
Despite lower equities and risk sentiment retreating, the fear factor is not flashing red. The VIX index has lifted to 19 from last week’s sub 17 levels, but it is still a long way from mid-March’s panic spikes over 30. In a sign that the intensity of financial stresses has eased recently, overnight the Fed and other major global central banks announced they will revert to fewer auctions for dollar funding (back to weekly from daily). This is akin to a downgrade in the threat level to world financial stability.
Generally disappointing earnings and risk off tones sees US Treasury yields lower and steeper, with two-year rates down 17 basis points (bps) and 10-year down around 10bps on the day. The former is nearly 25bps lower than where we left it before ANZAC Day. The market still favours a 25bps hike by the Federal Reserve next week, but has become a bit less confident of that. US 10-year rates are around 17bps lower than pre-ANZAC levels.
European rates had been holding up with earlier support from further hawkish comments from European Central Bank (ECB) officials, but retreated overnight as risk sentiment soured. Core EU 10- year bond yields are down around 9-13bps. ECB governing council member Wunsch told the Financial Times this week he would not be surprised if deposit rate goes to 4% (currently 3%). Then ECB Executive Board member Schnabel suggested to Politico that a half-point hike can’t be ruled out, saying ‘data dependence means that 50 basis points are not off the table.’ Market pricing for next week’s ECB meeting remains for at least a 25bp hike with nearly a third of a chance of a 50bp hike built in. Market pricing has a peak just over 3.75%.
Datawise, Germany’s IFO business climate survey come out above expectations on Monday night while in the US the Dallas Fed Manufacturing index, Philadelphia Fed Non-Manufacturing index, and Richmond Fed Manufacturing index all missed to the downside and continues a recent theme of US business surveys coming in generally softer than EU counterparts of late. US consumer confidence printed under market expectations as it fell to its lowest level since July, with the drop driven entirely by the forward-looking component. Meanwhile, US new home sales unexpectedly rose to a one year high in March
In currency markets, risk off tones saw the USD firmer with the DXY index up around 0.5% to be back close to where we lift it late Monday. EUR has slipped back below 1.10, after nudging through 1.1060 late yesterday.
Bank of Japan (BoJ) Governor Ueda said at parliamentary testimony yesterday that yield curve control remains appropriate and tightening now could cause a grave situation in the future. That adds to the case of no change at this Friday’s meeting, unless, of course, the BoJ doesn’t count a yield curve control band widening as a tightening as it has argued in the past. USD/JPY had pushed above 134.70 yesterday, but a stronger USD sees it back near 133.60 now.
NZD stabilised from last week’s softness post the weaker than expected CPI (consumers price index) figures toward 0.6190 yesterday before a stronger USD overnight sees it back near late Monday levels around 0.6140 and back below its 200-day ma. NZD/EUR sits just under 0.5600 and NZD/GBP around 0.4950 both crosses marginally higher from late Monday.
AUD has underperformed sitting around 0.6620. This sees NZD/AUD around 0.9270, up nearly a cent from where we left it Monday evening. Focus today will be on the Australia CPI for March and Q1.
In domestic rates, Monday was very quiet in NZ being wedged in between the weekend and yesterday’s ANZAC Day holiday. There was little movement across bond and swap curves. Movements offshore since then suggest initial downward pressure on domestic rates today.
Attention will also be on today’s Australian CPI where annual inflation is expected to pullback from the previous quarter’s high. Any material deviation from expectations here could be important for the market’s assessment on whether the RBA remains on hold or has more to do with lifting rates. Market pricing is currently more consistent with a hold at next week’s RBA meeting.
Before the Australian CPI today, we get NZ’s trade balance data for March which we expect to show a fresh record annual deficit. Overnight there is German consumer confidence and US trade and durable goods orders data, but more interest will come later in the week with US and Euro area Q1 GDP, the US employment cost index and PCE (personal consumption expenditures) deflators, and the BoJ meeting.
The easiest place to stay up-to-date with economic events is by following our Economic Calendar here ».
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*Doug Steel is a senior economist at BNZ. David Chaston is away this week.
36 Comments
Nothing gets 'inflated away' unless the income underlying the Debt rises. If it doesn't all that happens is the Debt gets bigger.
It's like your job paying you the same, or less (That Trade Deficit you mention), but you increase your credit card debt to pay the bills - you're even farther behind.
That is the plan
Election year
https://www.nzherald.co.nz/nz/politics/ird-opens-the-books-how-much-tax…
At the core of that policy is "Inflation will push the price of our existing products higher, to pay off the existing Debt". But even if that was feasible (it isn't. More Debt is always needed) Inflation drives prices higher, which drive interest rates higher.
So who will pay that cost you mention? Private Debt holders = anyone with a mortgage or any other type of consumer Debt, as interest rates march ever higher.
NZ with a record trade deficit for a country that produces so much more food than we can consume. Maybe mention our record account balance and our record investment deficit with the rest of the world.
Globalism has taken advantage of our puppet politicians who bowed to the Covid scam and next up is the 'Climate Change' agenda. NZ has become a debt slave to the globalist movement.
Covid was or is a virulent disease so how do you see it as a scam. The overdone response was a scam to hold us in fear and voting red.
Did you follow what happened to tucker, he would have probably publicly agreed with you. Though there's no telling what he would say privately
7 million with co-morbidities that never died 'of' the virus but died with the virus. That was the scam. The CARES act in the US took care of the rest, with payments to the hospitals for admittance, double if hooked up to a respirator and to boot they would even pay $9,000 towards your funeral expenses if you had died and been suspected of having this mild cold virus. A great financial boost for the insolvent hospitals and the funeral parlors, in the USA.
Fascinating that tens of thousands died unexpectedly exactly when the waves of this cold swept around the globe, isn't it?
Globalism has taken advantage of our puppet politicians
I suspect it is the other way round. Our politicians and industries have exploited globalism to drag our economy ahead for years with cheap debt from overseas and high net migration. This has been far easier than achieving organic growth with reforming our markets and investing in infrastructure, education, R&D and capital.
"Globalism has taken advantage of our puppet politicians who bowed to the Covid scam and next up is the 'Climate Change' agenda. NZ has become a debt slave to the globalist movement."
Buzzword bingo! I have to admit that it irks me a little to see so many 'thumbs up' on your post. One would hope that a financial advice website might cater to those above a brainstem-level of functioning.
A lot of hype around this IRD report, for some reason I'm not yet able to put my finger on.
All this focus on richer NZers, yet nary a word about indexation, a core concept of tax administration which would benefit literally every single working Kiwi - yet utterly lost on the black hole that is Wellington.
NZ's answer to Tucker Carlson was on the radio with the PM discussing tax...the Hosk was asking if it was fair he pays 66c in the dollar tax...he came to this conclusion by adding 39c top rate + 15% GST+acc ++ he says...for an 'intelligent' commentator,his lack of understanding of our tax system & his maths deficiency is quite astounding...but I am sure the ZBoomer listeners were lapping it up and will be sharing those figures around the Ryman healthcare water coolers today.
I'm glad someone is asking the PM something about tax, although a better place to start is asking why the government tax take has exploded and core services are in crisis on almost every front, while households are pushed further and further against the wall.
Let me know if RNZ, TVNZ or any other outlet try to actually press Robertson on the subject of tax at an individual or household level, instead of just letting him spout off meaningless platitudes about fair shares and panic-posting about National and 'tax cuts' - which are actually a decade-plus of overdue indexation that he refuses to acknowledge or accept because it makes his books look good and means he doesn't actually have to think about value for money when it comes to government spending.
"NZ's answer to Tucker Carlson was on the radio ...the Hosk"
That's just depressing someone would make this comparison. When's Hosk going to get the sack for going off script and telling the nation the truth he believes. Hosking is a Hannity.
I would go out on limb and say the closet broadcaster to Tucker is Peter Williams and we already cast him out but he's not really on Tuckers level.
I've read some article on Tucker Carlson's ousting, and I have some questions. On screen he was sprouting Trump's BS. Off screen and 'privately' he was saying he knew it was BS. What side of that did he actually believe? I think it was the private comments, so why then did he continue to spout the on screen BS? Was he told to? Was that the editorial position of the station, and if so who else is being sacrificed? From what I can see Carlson hasn't fallen on his sword, he was thrown on it by the leadership, possibly for doing what he was told.
FOX news might still have the Youtube vids, go and have look at the footage he was using. I highly doubt there is any "off-screen" recordings of him admitting he lied on air. He made a lot of content and some of it was poorly researched and incorrect but the idea that is was all an act would require some extreme evidence. What he said, is what he believed.
Your getting your information second or third hand again Murry. He had editorial independence, was using it and got fired because he went too far. He was there because he had a massive audience not because FOX liked him.
Fresh off the press - RBNZ is proposing to reduce some LVR restrictions.
- Limit of high-LVR (+80%) Owner occupied to be 15%, instead of 10%.
- Investors definition of high-LVR changes from 60% to 65%.
From 1st June.
Question if this is in fact a bank protection scheme (their high-lvr loans will be growing as prices fall if priced mark to market).
Alternately, a way to soften the downward pricing pressure from investors wanting to sell from around June onwards, as most of them get a tax-bill they didn't plan on....
I used to flat with two students from Queenstown in CHCH in the late 80's, used to go ski and stay with parents, both builders. They warned that you had to be careful in Queenstown , it was boom and bust. The price movements in Queenstown used to look like Papatoetoe does now, like people losing a 1/4 in 18 months.... Auckland development is in full on crash mode, how long and will it happen at all in Queenstown, because if it does it will be carnage down there.
The housing market in Queenstown seems fully detached from the economic fundamentals of the area so it seems to do its own thing most of the time. The only thing I could see putting a dent in it could be if the tourist levels drop from a global recession and airbnb revenue takes a dive.
Ancedotally a lot of people I know in the area who aren't super high net worth are now depending on airbnb to soak up the interest rate rises and I could see that faltering if the supply of airbnb's outstrips demand as more and more switch from long term rentals to airbnb.
The current situation in Queenstown doesn't feel very sustainable to me. It's basically impossible to get any more workers in with how contstrained the rental market is so will certainly be interesting to see what the future holds for it.
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