Risk sentiment improves on much calmer markets and some positive indicators. Global rates movements contained

Another night of little news, helping risk sentiment to heal a bit further. Global equities are higher. The US dollar is a touch firmer, with the main mover a weaker JPY. NZD and AUD are marginally lower. Global rates movements have been contained.

Overnight it has been a case of no news is good news for global markets trying to rebuild confidence following recent bank turmoil. The VIX ‘fear’ index has dropped below 20, back to levels since before the recent global bank ructions.

The S&P500 was higher from the get-go and currently up around 1%, with real estate, technology, and banks outperforming. The US KBW banking index is up 1.7%. This maintained the positive sentiment seen in Europe, with the EuroStoxx600 index closing up 1.3%.

US pending home sales rose 0.8% in February, against expectations of a 3.0% decline. This is their third consecutive monthly increase suggesting the US housing market may have been starting to find its feet ahead of the recent banking turmoil. Sales were still down 21.1% y/y.

Global rates movements have been contained. Fed pricing expectations is little changed today, with a roughly even chance of a 25bp hike priced for the next meeting in May and cuts priced by the end of the year. US 2-year Treasury yields have oscillated and consolidated above the 4% mark, to sit little changed on the day near 4.07%. US 10-year yields are down a bp or so at 3.55%.

Better market sentiment has seen more US corporate bond sales, making for 20 investment-grade offerings over the past two days along with the first junk-bond since before the banking wobbles in early March.

German consumer confidence was less negative again, rising to -29.5 from -30.6, continuing a trend from its trough last October. Given there was no obvious ill effect from the initial stages of the US banking issues in the US confidence data the night before, it’s no surprise to see similar in these German figures which were close to market expectations. German Bund yields rose around 3-7bps, with a front-end lead flattening bias. EUR was little changed, currently sitting around 1.0840.

In currency markets, the main mover in the past 24 hours has been the JPY. Yesterday, BoJ’s outgoing chief Kuroda continued to sing the praises of the large scale easing and saying that it was appropriate to continue with monetary easing. Some catch-up to recent increases in US Treasury rates and improving risk sentiment overnight dimming JPY’s safe haven appeal has seen USD/JPY lift around 2 big figures from this time yesterday, to now sit around 132.60.

The market paid less attention to new BoJ Deputy Governor Uchida’s indications that when the time comes for the bank to adjust its yield curve control program it may do it as a surprise. Speculation will continue over when a possible policy change is coming. New BoJ Governor Ueda formally takes over on April 9.

Currency movements were smaller elsewhere. The US dollar is marginally firmer on the broad indices amid month and quarter end flows. NZD and AUD are a touch lower against the firmer USD, but within ranges, around 0.6225 and 0.6680 respectively. NZD/AUD has given back its gains post yesterday’s softer AU CPI data, to be back around the 0.9320 mark.

NZD/JPY is up around 0.9%, reflecting JPY weakness, to now be back over 82.50 and complete the full reversal of the dip late last week to under 80.50.

Yesterday’s Australian monthly CPI indicator for February showed 6.8% annual inflation. It is a step down from January’s 7.4% and was noticeably lower than expectations at 7.2%. While only one month’s data, and incomplete coverage compared to the full quarterly CPI, for next week’s RBA meeting it leaves the risk of a pause. Other data like the recent employment data and the NAB business survey would suggest it is too early to pause. Market pricing is consistent with an RBA pause next week and a cut by the end of the year. AU rates and AUD fell post release. AU 3-year bond rates closed unchanged on the day, but around 8bps lower than the pre-CPI highs. Overnight, AU 3-year bond futures have given back most of the CPI move to sit around 2-3 bps lower in yield from pre-CPI levels.

Yesterday, NZ rates continued to push higher, driven by the short end, and generally following recent momentum seen offshore. The broad move was not put off stride by the softer AU CPI. NZ 2-year swap closed nearly 11bps higher, driving a curve flattening with longer dated swap rates up around 2-3bps. NZGB’s saw similar moves at the short end, although bonds cheapened 3-4bps relative to swap in the 10-year part of the curve and cheapened around 3bps against ACGB’s at the same tenor.

Recent NZ rate moves reflect the market lessening the chance of OCR cuts later this year, rather than adding more chance of near-term hikes. Market pricing for next week’s RBNZ Monetary Policy Review is firmly consistent with a 25bp hike.

Over the coming 24 hours, locally we get building consents and business confidence releases. The former watched for further trend decline in February, the latter for more assessment of the (mid-February) events of Cyclone Gabrielle including influences on inflation gauges. Offshore, German annual CPI inflation is expected to slow sharply, while European confidence is expected to be little changed in March despite global financial market ructions. US has the latest jobless claims as well as a few Fed speakers in the form of Barkin, Collins, and Kashkari.