Daily market moving news
RBA FEB Meeting: Preview & FX Strategy From 10 Major Banks The RBA returns from the local summer break with the first board meeting of 2016 on Tuesday (February 2nd).
BofA Merrill: We expect policy to remain on hold over coming months...There has only been a modest increase in market pricing of the likelihood of RBA easing this year despite the negative news flow in global markets. Current front-end rate levels look expensive without a firming of the RBA’s easing bias. June 30-day futures levels below 1.70% look rich without a stronger case to ease in coming months and Jun-Bank Bill futures have failed to move below 2.0%. As global risks leave less room for the market to price out rate cuts, we would expect Jun 30-day pricing to maintain a broad range between 1.65% and 1.85%. The equivalent range for the implied yield on 3-year futures is 1.75-2.10%. We retain a June-16 to June-17 Bank Bill steepening trade and a 6m 1Y payer spread to eventually capture a change in the medium-term policy outlook. A steady RBA stance and still reasonable economic outcomes underscore the theme of relative outperformance for AU across the developed commodity complex. We have a preference for AUD over NZD in the currency space that has been reinforced by the dovish stance from the RBNZ in the OCR on January 28th. This could be further underlined in data releases this week. NZ 4Q labour market data is due out on Wednesday and we expect to see a 0.1ppt rise in unemployment, to 6.1%.
BNPP: Our economists expect the RBA to leave rates unchanged on Tuesday as activity data has been holding up and Q4 CPI came in line with the central bank’s forecasts. That said, recent dovish surprises from the ECB, BoJ and RBNZ arguably caution against turning too complacent on the RBA, and there is scope for a more dovish signal in the statement of monetary policy released on Friday. December building approvals data on Wednesday and retail sales Friday will be watched for potential signs that resilience is starting to fade.
NAB: Early in December the market was pricing around 15bps of RBA rate cuts for the year ahead. In January, the sharp fall in the renminbi along equity markets instability and renewed downward pressures in oil prices have weighted down on RBA rate expectation with the market currently pricing 32bps of cuts for the year ahead. This has occurred despite the fact that domestic data releases over this period have continued to point to healthy improvements in the non-mining domestic economy. Given this background our economists have noted that the key question will be whether the bank still sees prospects for a pick-up in growth. For now, the Board has time to continue reviewing domestic economic signals as global economic/financial developments evolve. As such, while we expect the board will retain a mild easing bias, today’s statement is unlikely support to current market rate cut expectations. As for the currency, notwithstanding our view that the AUD still needs to fall further to better reflect commodity price falls, we doubt the RBA will choose to materially change its view that the currency ‘is adjusting to the significant declines in key commodity prices’. Any acknowledgement of a more uncertain outlook due to international developments should temper any AUD-positive impact.
ANZ: One of the clear themes in markets so far this year has been the sharp lift in volatility and nervousness brought about by Chinese economic weakness (yesterday’s PMI data hasn’t helped the cause). How central banks have chosen to respond to this backdrop has been another key theme, and the preference appears to be for further easing (BoJ) or at least a signal that further policy easing is a real prospect (ECB and perhaps more reluctantly the RBNZ). Caution has been a common undertone in central bank communication with Federal Reserve Vice Chairman Fischer this morning also acknowledging that the Fed is closely monitoring global economic and financial developments. Today we should learn if another central bank has joined this club, with the RBA Board decision released at 2:30pm AEDT. Since RBA Governor Stevens’ ‘chill out’ comments last year, the domestic data pulse has been reasonable, particularly on the labour market. The positives are counterbalanced by financial market volatility and concerns over Chinese growth prospects. We expect the RBA to retain its easing bias, but remain comfortably on hold for now. That said, we remain of the view that further policy easing is likely to be required later this year as the stimulus from residential construction activity and the depreciation in the AUD fades. Moreover, a challenged Chinese and global growth backdrop continues to leave the distribution of risks firmly tilted to the downside.
Barclays: We expect the RBA to stay on hold on Tuesday, with underlying inflation at the lower bound of the target band. The latest Q4 inflation print suggests that Q3 weakness in underlying inflation was transitory, with the average of the underlying inflation measures accelerating to 2.3% q/q saar, compared with the RBA's inflation target band of 2-3%. As such, we believe that the RBA will be in no hurry to ease further, especially with the AUD having depreciated 3-4% YTD both on a trade-weighted basis and against the USD. Currently, the interest rate market is pricing in a less than 10% chance of a 25bp easing at the meeting and about 32bp of rate cuts by year-end (from 36bp). That said, however, the weak inflation outlook, driven by an expected decline in retail fuel prices, should keep RBA rhetoric tilted toward an accommodative bias for now. Price action in AUD and NZD is likely to be driven mainly by global risk sentiment and commodity prices. We expect China’s weak PMI outcomes and investor growth concerns to keep a lid on the upside for commodity prices and the AUD. The expected dovish bias of RBA is an additional downside risk for AUD.
UK and EU will discuss proposed first package on Friday So says an EU bod on Bloomers Junker and Cameron spoke yesterday and the first discussion on the UK/EU package is set for Friday
It's still early days but if there's signs that the UK is getting a deal done, the pound will start to like it. I won't expect it to fly but it will ease some referendum nerves
And as if by magic, a new referendum poll has just popped up from a YouGov Eurotrack survey (run Jan 20th - 27th), which has the leavers in front with 41% vs the stayers at 39%
Wouldn't trust it as far as I could throw it myself but sometimes the market takes note
GBP: BoE Preview & FX Strategy - BofA Merrill This Thursday, we get the BoE’s February rate decision along with minutes from the meeting and the QIR.
Rate hikes are not coming soon. Unemployment keeps falling, but wage growth is not strong enough yet. Downside economic risks are elevated. The forthcoming EU referendum provides uncertainty. The news since November points to low inflation lasting for longer, but not forever. But there are many hurdles before we reach that medium term, making it easy to dismiss for now.
We expect a dovish BoE to revise down growth and near term inflation forecasts whilst keeping the 3y forecast above target.
We consequently expect Thursday’s Quarterly Inflation Report (QIR) to be more dovish than November’s. We believe the BoE will signal the market’s dovish outlook for rates is out of sync with the BoE’s own by forecasting inflation above target at the 3y horizon. However, the market took little notice of this back when November’s QIR was released and with a Brexit vote on the horizon we see little reason for a different reaction this time around.
January 2016 US Markit services PMI final 53.2 vs 53.74 exp Final January 2016 US Markit services PMI
- Flash 53.7. Dec 54.3
- Employment 54.3 vs 54.3 flash. Dec 53.1
- Composite 53.2 vs 53.7 flash, Dec 54.0
That takes services to the lowest since Oct 2013
That's manufacturing going south, services going south. If the ISM non-manufacturing goes south there's not a lot left in the GDP pie that's pointing north. Heaven help us if jobs start turning south too.
January 2016 US ISM non manufacturing PMI 53.5 vs 55.1 exp Details of the January 2016 US ISM non manufacturing PMI data report 3 February 2016
- Prior 55.3. Revised to 55.8
- Business activity 53.9 vs 58.5 exp. Prior 59.5
- Employment 52.1 vs 56.3 prior
- New orders 56.5 vs 58.9 prior
- Prices paid 46.4 vs 51.0 prior
Non-manufacturing is at the lowest since Feb 2014. The components are worse. Prices paid lowest since July 2009. Activity lowest since Aug 2012. Dare I look at the respondent comments?
Actually they're not as bad as might be expected. Probably the ISM being selective.
EUR/USD surges to 3-month high, amid further signs of delayed Fed hike EUR/USD enjoyed its strongest one-day move in two months, surging to its highest level since late-October, as the dollar continued to retreat from last week's Bank of Japan-driven rally, amid signals of slowing economic growth and decelerated job gains in the labor market.
The weak data comes ahead of the release of a highly-anticipated January U.S. jobs reports on Friday. A poor reading could compel the Federal Reserve to slow its pace of tightening, as it weighs whether to raise short-term interest rates in March. the The euro, meanwhile, could be the chief beneficiary of a dovish Fed, as the European Central Bank mulls a decision to push interest rates deeper into negative territory.
On Wednesday, the currency pair traded in a broad range between 1.0904 and 1.1145 before settling at 1.1098, up 0.089 or 1.64% on the session. The euro has now closed higher against the dollar in seven of the last eight sessions. After ending last year below 1.09, EUR/USD has gained more than 2% since January 1.
EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.
On Wednesday morning, the ADP Research Institute said in its January employment report that private payrolls last month rose by 205,000. While the figure came in above consensus estimates of 190,000, it fell considerably below December gains of 257,000. The ADP employment report is widely viewed as a precursor for Friday's government report from the U.S. Department of Labor.
Preview: Why should we expect anything of note today from the MPC? The latest in our ForexLive previews takes a look at today's BOE MPC announcements at 12.00 GMT The short answer to the header question is " We shouldn't".
We know that they won't change interest rates and I can't see why the voting should change from 8-1. The Minutes should really spring few surprises either. Here's the last lot.
We heard recently the thoughts of Carney and whilst he was at pains to tell the TSC that they were his own take on rates and the current scenario I don't envisage that his colleagues offer anything much different.
Yesterday's better than expected UK services PMI data gave the market a good excuse to make a few corrections to all the recent GBP selling aided by general USD weakness but it';s not going to change the immediate MPC position.
Concerns will remain over energy/food related low inflation and the hosing market has recently showed signs of cooling. In any case they can curb demand by regulation rather than rate hikes and have said so, indeed done so already.
The pound has made significant losses since last summer and even though GBPUSD and EURGBP are showing signs of some correction off the lows we're still lower than recent highs on commodity based currencies such as CAD and AUD. I don't see any great amount of time discussing this by the MPC.
Lots of conjecture on Brexit lately but again I don't see this as a major BOE MPC focus right now although they readily admit to giving it some attention, and quite rightly so.
We should always expect the unexpected. I just don't see why this time around we should get anything off the agenda.
GBPUSD bulls will not be too fazed going into the announcement. We know the dovish MPC/Carney talk so the only risk could be hints of anything more hawkish. For that reason I remain cautious about selling too much GBPUSD up here for the moment, until the dust has settled at least.
Strong demand into 1.4545-50 and more at 1.4500 while 1.4650 should provide decent resistance to the top side. EURGBP remains 0.7550-0.7650.
Here's the only US non-farm payrolls preview post you'll need today It's US non-farm payrolls day!
As we're light on data until the release I'll get my preview out nice and early.
First up we'll take a look at the what the top 5 NFP pickers have to say.
The top 5 is as follows and their guesses for today;
- Smith/Sweet - Moody's - 180k
- Stephan Buu - CTI Captial - 174k
- Ted Wieseman - Morgan Stanley - 180k
- Wesbury/Stein - First Trust Advisors - 190k
- Stephen Stanley - Amherst Pierpoint Sec - 175k
NFP guesses
Everyone was out by a fair margin last month and they are all looking sub-200k this month.
What is interesting is the impact monitor and what it shows for last month.
NFP impact monitor for USDJPY
Despite December's report being the second highest number in 2015, the reaction was one of the most muted.
Why? It was purely because the number didn't mean anything after the Fed hike. It was all about the hike in the months leading up to it. While this impact monitor may not mean much to anyone in the prior months, it's very good for gauging the change in sentiment for the number.
In the context of today, the market is still shaken by the possibility that rates may not be following the path the Fed would like. I see two very clear outcomes today;
[*=1]A bad report will not easily be brushed aside as a one off because the market is on edge right now. A bad report will just be more fuel on this negative fire and the buck will suffer. Unless there's some good news in wages, a headline miss of 50k+ will probably do some decent damage. If wages suffer too then hold on to your hats. [*=1]A good number, 240+ will take some of the edge off this nervousness. Add good wages and we'll see a decent swing up.
If it's a middle-of-the-road report then we're likely to see more of a reaction to a small downside miss than a small upside beat. I'd be very surprised if the market didn't strongly fade a small beat, so be careful not to be sucked into the initial release move. Let the dust settle.
As for the numbers expected today, have a look at Greg's fantastic preview from yesterday. Here's the graphics shamelessly stolen from it ;-)
Atlanta Fed GDPNow estimate ratcheted up Atlanta Fed tracking estimate at 2.2% from 1.2% earlier this week That's a big swing. Here's what they had to say:
"After this morning's employment report from the U.S. Bureau of Labor Statistics, the forecast for real consumer spending growth increased from 2.5 percent to 3.0 percent and the forecast for real gross private domestic investment growth increased from -0.4 percent to 2.1 percent."
UK Preview: Industry Likely to Weigh Down on Q4 GDP Growth Factory output deteriorated in November, after warmer than usual weather had a detrimental effect on the manufacture and distribution of gas. Industrial production fell 0.7% and manufacturing, the largest subsector of industrial production, also saw a drop of 0.4%.
In December, economists expect the output to improve only slightly, by 0.1% on a month-on-month basis. The total production, which includes extraction of oil and gas from the North Sea, is expected to have declined again by 0.1%. The Office for National Statistics (ONS) is releasing December figures on Wednesday.
Wednesday's release will also offer the first insight into the industry's performance in the whole of the final quarter of 2015. In January, the ONS said total production needed to rise 0.5% in December in order for the industry to remain at least flat in the fourth quarter to avoid contraction, and a negative contribution to GDP.
If Wednesday's data release meets the expectations of a slight decline in total production, negative contribution from this volatile sector on overall economic growth can again be expected.
A wider trade deficit during the last three months of 2015 is also seen pushing down on total output. The ONS released on Tuesday this week quarterly figures on UK trade balance, which showed the deficit widened in the fourth quarter when compared with the previous three months. The second estimate of Q4 GDP, which will include data on trade and other expenditure components, will be released on February 25.
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December inflation highlights in the PCE report:
The inflation numbers are a touch lower but it's largely balanced out by upward revisions. It takes some serious mental gymnastics for the Fed to see inflation in all of this but they've managed to do it (and will continue to do so).
There isn't enough here to get the market's attention but the spending and income data is the driver.