Risk sentiment has weakened overnight with some doubt hanging over whether US-Iran peace talks are imminent. \u00a0Crude oil is higher, US and European equities are weaker, global rates are higher and the USD is broadly stronger. The NZD is flat from this time yesterday, and is stronger on the key crosses, following higher than expected Q1 CPI data that drove NZ-global rate spreads higher.<\/p>\n
Peace talks with Iran this week are under a cloud as the country has yet to agree to take part.\u00a0 Parliament speaker Ghalibaf said his country would not accept negotiations under the shadow of threats. Trump said Iran had \u201cno choice\u201d, the US is in a strong negotiating position and is \u201cready to go\u201d with a resumption of bombing if a breakthrough isn\u2019t reached.\u00a0 The NYT reported VP Vance\u2019s trip to Pakistan has been put on hold after Iran failed to respond to American negotiating positions, although the trip could be back on at a moment\u2019s notice.\u00a0 CNN reported that Vance will depart Wednesday morning.\u00a0 There has been no official confirmation as we go to print.<\/p>\n
In other overnight developments, the ceasefire between Israel and Lebanon looks fragile, with Israel saying Hizbollah fired rockets at its forces in southern Lebanon and it intercepted a missile fired towards Israel. US forces boarded a crude oil tanker linked to Iran in the Indo-Pacific region.<\/p>\n
Time is ticking as every week the Strait of Hormuz remains effectively closed, the global economic impact deepens.\u00a0 A speedy resolution needs to occur otherwise we\u2019re in for a significant market correction, as investors are assuming a quick turnaround.<\/p>\n
Oil prices are higher, with Brent crude up 3% towards USD100 per barrel and European gas futures are up 8%.\u00a0 US equities are weaker for a second day, with the S&P500 currently down 0.5%, paring gains early in the session.\u00a0 The Euro Stoxx 600 index closed down 0.9%.<\/p>\n
Global rates are higher, with the market believing that higher sustained oil prices add to the chance of tighter monetary policy. US Treasuries are up 4-6bps, with slightly flatter curves as the gains have been led by the short end. The US 10-year rate is currently 4.30%.<\/p>\n
US retail sales were stronger than expected and added to the upside pressure for US Treasury yields.\u00a0 Headline sales surged 1.7% m\/m in March, led by a 15.5% jump in gasoline station sales.\u00a0 But even excluding those, sales were strong, with the ex-autos and gas figures up 0.6% and the control group series, which feeds into GDP, up 0.7%. Sales were likely boosted by unusually warm weather and unusually large tax refunds. This raises a question mark over the sustainability of spending growth.<\/p>\n
Kevin Warsh fronted up to a Senate committee to make his case for becoming the next Fed Chair and repeatedly pledged to act independently if confirmed, rejecting concerns that he would be a \u201csock pocket\u201d for President Trump. He called for a number of changes the way the Fed makes its decisions, including a new framework for dealing with persistent inflation and a new way of communicating with the public, without providing specifics.<\/p>\n
UK labour market data were mixed, with payrolled employees falling 11k in March while the unemployment rate for the three months to February surprisingly fell three-tenths to 4.9%\u00a0 The key wages figures, based on the private sector excluding bonuses, rose 3.2% yoy for the three months to February, as expected, consistent with the recent trend of moderating wage inflation. Market reaction was muted, with global forces dominating.\u00a0 The BoE is seen on hold next week, is given a slightly than better even chance of a hike in June, with a full hike priced by July.<\/p>\n
In currency markets, the USD is broadly stronger overnight but gains have been modest. The NZD was supported yesterday in the wake of higher-than-expected CPI data (see below) but met some resistance at 0.5920.\u00a0 Weaker risk sentiment has sent it just below 0.59 overnight.<\/p>\n
Modestly higher NZD crosses post the CPI have been sustained.\u00a0 NZD\/AUD was trading below 0.82 yesterday morning and now trades at 0.8240.\u00a0 NZD\/EUR has been hovering around 0.5020, NZD\/GBP is at 0.4365 and NZD\/JPY is just below 94.<\/p>\n
In domestic news, the QSBO didn\u2019t surprise, with its message of lower business confidence \u2013 slipping consistently during the long survey period as the Iran conflict bubbled away \u2013 and higher pricing intentions.<\/p>\n
However, the Q1 CPI report was stronger than consensus, with annual inflation remaining at 3.1% rather than slipping.\u00a0 Inflation was widespread, with 9 of the 11 CPI groups showing annual inflation above 2% and 6 of the 11 groups showing inflation above 3%. Seasonally adjusted quarterly figures convey the cleanest picture of how inflation has been tracking and they showed annualised inflation consistently running close to 3% for the past eighteen months (with quarterly figures between 0.7-0.9%), a period through which the NZ economy has been sluggish. The 10-year running average of annual inflation ticked up to 3.1%, which should be anathema for a central bank wanting inflation expectations to be anchored at its 2% mid-point target.<\/p>\n
Needless to say, this is not a good place to be ahead of a further surge in inflation against the backdrop of the Iran conflict and the market responded accordingly, bringing forward rate hike expectations. The market sees a 25bps hike next month May as almost an even bet (11bps priced) while a July hike is more than fully priced.\u00a0 More than three rate hikes are priced through to the end of the year.<\/p>\n
With short end rates leading the charge, NZGB and swap curves were flatter. Short end NZGB Risk sentiment has weakened overnight with some doubt hanging over whether US-Iran peace talks are imminent. \u00a0\u00a0yields closed up 6-7bps while the 10-year rate rose 3bps to 4.62%.\u00a0 The 2-year swap rate rose 7bps to 3.43% while the 10-year rate rose just 1bp to 4.24%.<\/p>\n
On the economic calendar, UK CPI inflation data are due, with annual headline CPI inflation expected to show a rise from 3.0% to 3.3%.<\/p>\n
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Jason Wong is the senior Markets Strategist at BNZ Markets.<\/p>\n","protected":false},"excerpt":{"rendered":"Risk sentiment has weakened overnight with some doubt hanging over whether US-Iran peace talks are imminent. \u00a0Crude oil…\n","protected":false},"author":2,"featured_media":391247,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-391246","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/391246","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=391246"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/391246\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/391247"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=391246"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=391246"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=391246"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}