Economic Releases

Wednesday 31/03
3:00am, USD, CB Consumer Confidence
Forecast 96.0
Previous 91.3
1:00pm, NZD, Final ANZ Business Confidence
2:00pm, CNY, Manufacturing PMI
Forecast 51.3
Previous 50.6
7:00pm, GBP, Final GDP q/q
Forecast 1.0%
Previous 1.0% Read more

Top Stories This Week

Key Points:

  • Worldwide coronavirus cases surpass 125.87 million with over 2.762 million official deaths
  • Equity markets charge higher amid risk off tone
  • Fed’s Evans says inflation topping out over 3% would be a worry as the Fed reinforces their willingness to tolerate higher inflation, he expects rates to remain until 2024
  • Germany has reported over 22,000 coronavirus cases and 228 deaths in the latest update
  • The Suez Canal remains blocked by a 400-meter Japanese container ship as dozens of ships backup
FX News

NZD Buying Enthusiasm Deteriorates

The Federal Reserve has expressed they are more focused on full employment at the detriment of its inflation mandate. Full employment looks to now be the focus. This shift in reason is only now being realised by markets as a reality. At last week’s Fed announcement Chairman Powel outlined where inflation ‘actually’ is, rather than second-guessing where it might end up. Also of note he made it clear that he is not overly bothered by record recent equity prices or higher bond yields. Joe Biden’s 1.9T stimulus money flowing into the US economy will no doubt create short-term rises in prices or a CPI shakeup but it will be a long time before the Fed steps in to take control again. The massive spending in the Whitehouse implies Powell is committed to no further hikes for at least 2 years until inflation is within the target band, or somewhere around 2.0%. The question is, what happens if the inflation target is reached earlier and balloons to 3% or 4%, would the fed be prepared to raise interest rates and jeopardise prospects of full employment? Obviously, full employment helps the struggling but pushing up unemployment in the form of rate increases to restrict inflation, ie tighter monetary policy would be a harder pill to swallow. Read more

Economic Releases

Tuesday 23/03
2am, USD, Fed Chair Powell Speaks

Wednesday 24/03
3am, USD, Fed Chair Powell Testifies
9:15pm, EUR, French Flash Services PMI
Forecast 45.5
Previous 45.6
9:30pm, EUR, German Flash Manufacturing PMI
Forecast 60.8
Previous 60.7
9:30pm, EUR, German Flash Services PMI
Forecast 46.4
Previous 45.7

Read more

US Equity Markets Rise

US Equity markets rose yesterday and the US Dollar weakened post the Federal Reserve announcement. The Fed kept the benchmark rate unchanged at 0.0% saying they planned to remain accommodative while the economy improves. The Fed has thrown billions of dollars over the past year into bonds in order to keep Bond prices high and yield prices and interest rates as low as possible. Powell said he would not adjust the current stimulus lower until the economy reaches full employment and inflation averages 2.0% for a long period of time. The key 10-year bond yield which rises when the bond price falls shot up to 1.64% from 1.62 after the fed announcement, earlier in the day it had traded at 1.68% before the Fed said they would continue to hold interest rates as low as possible while they continue to buy billions of bonds. In summary, the Federal Reserve wants everyone to think that even though the economy is scheduled to perform better with inflation tagged to go much higher, they won’t raise interest rates for years. Fed policy makers raised their forecasts for the economy and inflation but left in place their target interest rate range to around zero until well into 2023. Read more

Markets Await Fed Direction

Market Overview

The volatile week that was, wrapped up with US Stock prices closing at near or at record highs combined with mixed headlines around global vaccination program implementation. The US Dollar Index traded above 92.00 the first time since November 2020 before falling back. The major play of the week was US 10 year Bond Yields closing 0.10% higher at 1.629% becoming the motivation for the greenback to push higher. Concerns around loose Fed monetary policy continue to cause too much excitement among equity markets and if the Federal Reserve signals a more hawkish policy stance this could cause the US Dollar to travel higher. This week’s Fed announcement is Thursday the 18th when all will be revealed. Read more

FX Update

  • Worldwide coronavirus cases surpass 119.095 million with over 2.64 million official deaths
  • Biden’s 1.9T coronavirus stimulus relief fund has been approved by congress
  • It’s highly probable that a large chunk (over 15%) of the US Stimulus checks could go directly into the stocks
  • US 10 year treasury note continues to rise adding further pressure for the Fed to acknowledge inflation is on the horizon
  • Up to 300,000 jobs could be lost once the Australian Federal Government job-keeper wage subsidy ends this month, experts are also warning more than 10,000 businesses could close permanently
  • The Organisation for Economic Cooperation and Development has raised their 2020 world growth forecast from 4.2% to 5.6% and 3.7% in 2022 from 4.0% with notable risks of efficiencies of how the coronavirus vaccine rollouts will go
  • UK manufacturers are seething after added costs and one to two week delays post Britain’s departure from the European Union
  • New Zealand House prices ending February 2021 reach record highs. Up 22.8% nationally to 780,000 from 635,000. Of note Auckland up 24.3%, Hawkes Bay up 36.4% and Wellington region up 24.0%
  • The Bank of Canada held rates at 0.25% Thursday saying they would leave rates unchanged for some time although the economy was faring better than predicted as they come out of the covid pandemic

Our View: The outlook for the USD

The two charts below show a couple of significant trends that have developed in financial markets since August last year. The issue here is that these two trends cannot continue on together indefinitely. One of them is going to have to reverse, at least to a significant degree.

The top chart is US 10-year yields that have risen from a low of around 0.52% in August last year, to currently trade just over 1.50%. The bottom chart is the NZDUSD, used here as a proxy for showing the broad-based USD weakness seen since September. Rising US interest rates will eventually support the USD. It is extremely unlikely that US interest rates keep rising and the US dollar keeps falling. The question markets are asking themselves is at what point does one of these trends reverse? If US 10-year yields fall back to 1.0% or so, the USD could easily continue to decline in value. But if 10-year yields continue to rise, it’s likely the USD will face a sudden and sharp reversal of fortunes. Read more

Greenback strength dominates

Market Overview

• Worldwide coronavirus cases surpass 117.727 million with over 2.61 million official
• Biden’s 1.9T coronavirus stimulus relief fund has been approved by congress.
• Japanese (final) GDP for the fourth quarter comes in at 2.8% slightly lower than the 3.0% predicted and lower than the third quarter’s 5.3%
• NZ Manufacturing activity over the fourth quarter slumped to -0.6% from the prior quarter 10.0%
• NZ ANZ Business Confidence index alarmingly dropped to 0.0 from 11.8 in February.  
• Japan’s government wants a 2-week extension of the Tokyo state of emergency.
• The CDC is reporting lower US cases of coronavirus along with fewer recent deaths.

Read more