Market Briefing: One step forward, two steps back
US/Iran conflict. Weekend talks ended without an agreement. Energy prices jumped this morning. USD firmer. AUD & NZD lose ground.
Macro risks. US threatens to blockade the Strait of Hormuz. Downside risks to global economy remain. Volatility expected to continue for a while yet.
Global Trends
Market sentiment was underpinned last week by the US/Iran ceasefire news. There was a solid rebound in global equities (the S&P500 rose ~3.6% last week, its best weekly result since last November), bond yields declined, and oil prices pulled back. However, hope can only go so far. Weekend developments have once again highlighted how fragile the situation in the Middle East is. Talks between US and Iranian officials in Pakistan ended without an agreement. According to Vice President Vance Iran would not commit to not seeking a nuclear weapon, a key ‘
red line
’ for the US. In response, President Trump stated the US will blockade the Strait of Hormuz. This could further exacerbate global oil/energy supply concerns and cut off a financial lifeline for Iran given it has continued to export oil on par with levels prevailing before the conflict kicked off. It has also been reported President Trump is weighing up ‘
limited strikes
’ on Iran, raising more doubts the ceasefire will hold.
Nervousness and negative risk sentiment has returned to markets in this morning’s early Asian trade. US equity futures have opened lower (S&P500 futures -1.2%), and energy prices have jumped with brent crude oil rising ~8% to be back near US$103/brl. In FX, the USD has recovered a bit of last week’s lost ground with EUR slipping back (now ~$1.1675) and USD/JPY edging up (now ~159.68). Cyclical growth linked currencies such as the NZD (now ~$0.5808) and AUD (now ~$0.7007) have started the week under pressure.
Global event radar: US PPI (Tues), AU Jobs (Thurs), China GDP (Thurs), US Retail Sales (21st Apr), Global PMIs (23rd Apr), BoJ (28th Apr), BoC (29th Apr), US Fed (30th Apr), EZ GDP/CPI (30th Apr), US GDP (30th Apr), BoE (30th Apr), ECB (30th Apr)
Trans-Tasman Zone
After rebounding last week on the back of the improved sentiment and a weaker USD stemming from the US/Iran ceasefire, the AUD and NZD have dipped this morning on news weekend talks ended without an agreement (see above). At ~$0.7007 the AUD is a little above its ~1-month average, as is the NZD (now ~$0.5808). The AUD has also given back ground on the major cross-rates with AUD/EUR hovering near ~$0.60, AUD/CNH back around ~4.80, AUD/JPY close to ~112, and AUD/NZD tracking close to ~1.21.
Data wise this week the focus offshore will be on US producer price inflation (Tues night AEST) where the surge in energy prices should start to show up, and Q1 China GDP (Thurs AEST). China GDP will give a read on whether policy support is gaining traction. Locally, Australian business conditions (Tues) and the monthly jobs report (Thurs) are due. The reference week for the March jobs data is early in the month; hence the timing of Easter shouldn’t cause issues. We expect the latest employment figures to show that labour market conditions remain ‘tight’, reinforcing the case for the RBA to raise interest rates again as soon as the 5 May meeting. Markets are pricing in a ~68% chance the RBA hikes rates in May with a move fully discounted by June, and ~3 increases baked in by next March.
That said, global events, particularly the situation in the Middle East, should remain in the AUD driver’s seat in the short-run. As discussed last week the risks facing the global economy haven’t been extinguished with the weekend news illustrating how fragile the situation still is. As mentioned above, the impact on supply-chains and global energy could take some time to rectify. This in turn can continue to act as a handbrake on global activity, particularly across Asia. We believe that given how much more RBA tightening is already factored into the Australian interest rates curve, the lingering global growth headwinds, and with negative domestic consequences of higher mortgage rates and fuel costs in the pipeline, there are more downside than upside risks for the AUD over the near-term.
AUD & NZD event radar: US PPI (Tues), AU Jobs (Thurs), China GDP (Thurs), NZ CPI (21st Apr), US Retail Sales (21st Apr), Global PMIs (23rd Apr), BoJ (28th Apr), BoC (29th Apr), AU CPI (29th Apr), US Fed (30th Apr), EZ GDP/CPI (30th Apr), US GDP (30th Apr), BoE (30th Apr), ECB (30th Apr)
AUD levels to watch (support / resistance): 0.6920, 0.6980 / 0.7080, 0.7150
NZD levels to watch (support / resistance): 0.5710, 0.5780 / 0.5850, 0.5880
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (13th Apr) JPY BoJ Gov. Ueda Speaks (no set time) EUR ECB's Guindos Speaks (10:15pm) GBP BoE's Taylor Speaks (11pm) TUESDAY (14th Apr) CNY Imports/Exports (Mar) (no set time) AUD RBA’s Hauser Speaks (8:15am) USD Fed’s Miran Speaks (8:20am) SGD GDP (Q1) (10am) SGD MAS Decision (10am) AUD Consumer Confidence (Apr) (10:30am) AUD Business Conditions (Mar) (11:30am) GBP BoE’s Mann Speaks (6:50pm) USD NFIB Small Bus. Optimism (Mar) (8pm) USD PPI Inflation (Mar) (10:30pm) WEDNESDAY (15th Apr) GBP BoE's Greene Speaks (12am) EUR ECB’s Makhlouf & Lane Speak (12am) GBP BoE Gov. Bailey Speaks (2:05am) USD Fed’s Goolsbee Speaks (2:15am) USD Fed’s Barr Speaks (2:45am) USD Fed’s Paulson, Collins, Barkin & Barr Speak (3am) EUR ECB Pres. Lagarde Speaks (7am) EUR Industrial Production (Feb) (7pm) USD Empire Manufacturing (Apr) (10:30pm) USD Import/Export Prices (Mar) (10:30pm) USD Fed’s Barr Speaks (10:30pm) THURSDAY (16th Apr) USD NAHB Housing Index (Apr) (12am) EUR ECB's Cipollone Speaks (1:20am) GBP BoE Gov. Bailey Speaks (1:50am) EUR ECB’s Escriva Speaks (3am) USD Fed’s Bowman Speaks (3:45am) GBP BoE Gov. Bailey Speaks (4am) EUR ECB's Cipollone Speaks (4am) USD Fed’s Beige Book (4am) EUR ECB’s Villeroy Speaks (4:40am) EUR ECB’s Villeroy Speaks (5:30am) EUR ECB Pres. Lagarde Speaks (5:30am) AUD RBA’s Hauser Speaks (6am) EUR ECB’s Schnabel Speaks (6am) AUD Jobs Report (Mar) (11:30am) CNY GDP (Q1) (12pm) CNY Retail Sales (Mar) (12pm) CNY Industrial Production (Mar) (12pm) GBP GDP – Monthly (Feb) (4pm) EUR ECB Meeting Minutes (9:30pm) USD Initial Jobless Claims (10:30pm) USD Philly Fed Outlook (Apr) (10:30pm) EUR ECB’s Kazaks Speaks (10:30pm) USD Fed’s Williams Speaks (10:35pm) EUR ECB’s Schnabel Speaks (11pm) USD Industrial Production (Mar) (11:15pm) FRIDAY (17th Apr) USD Fed’s Miran Speaks (12:35am) EUR ECB’s Rehn Speaks (1:15am) EUR ECB’s Lane Speaks (1:40am) GBP BoE’s Taylor Speaks (1:40am) EUR ECB’s Kocher & Villeroy Speak (2am) EUR ECB's Nagel Speaks (2:45am) AUD RBA’s Hunter Speaks (4:30am) EUR ECB's Lane Speaks (4:30am) GBP BoE’s Taylor Speaks (5am) NZD Card Spending (Mar) (8:45am) GBP BoE's Breeden Speaks (7pm) GBP BoE's Pill Speaks (10pm) SATURDAY (18th April) USD Fed’s Barkin Speaks (2:15am) USD Fed’s Waller Speaks (4am)
*Note, all times/dates provided are AEST
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