Another successful trading week has passed and yet again, PriceAction team is back with the weekly market overview & give you an idea about upcoming impactful events.
ECB bought a net 1.169 bln euros of assets in covered bond purchase programme 3 in week to march 5 vs sales of 67 mln euros week earlier. ECB bought a net 1.169 bln euros of assets in covered bond purchase programme 3 in week to march 5 vs sales of 67 mln euros week earlier.
PBOC slashed yuan’s fixing by 543 pips to 6.5338 per USD on Tue, the weakest level since Jan 4 this year and the biggest cut since July 20 2018, compared to the fixing of 6.4795 one day earlier.
RBA Governor Lowe delivered a very important speech on “The recovery, investment and monetary policy” at the AFR’s business review conference. Arguably the biggest take-aways from the speech were:
- The RBA has materially revised down its estimate of the fully-employed jobless rate – proxied by the non-accelerating inflation rate of unemployment or NAIRU – down from around 4.5% to the low 4s, with Governor Lowe stating it could be in the 3s (Coolabah’s CIO, Christopher Joye, argued the NAIRU might be in the 3s in the AFR last weekend as did the AFR’s economics editor John Kehoe a few days later)
- The RBA doubled down on yield curve control, dismissing economist and market forecasts that they will drop it this year, and strongly rejecting market pricing of rate hikes commencing later next year as Lowe argued rates are likely to remain near zero until at least 2024;
- The RBA has again clearly signalled that a third round of QE, or QE3, will come after the second $100bn QE2 tranche expires in September, in line with Coolabah’s long-held forecasts, and further communicated its willingness to temporarily increase QE if required to smooth market disruptions; and
- The RBA reiterated that it is singularly focused on getting the jobless rate down to the NAIRU, which is in the low 4s and possibly in the 3s, to lift record-low wages growth of 1.4% to over 3% to finally return core inflation to the RBA’s 2-3% target band. This key driver of RBA policy is something that Coolabah has repeatedly stressed in its advice to clients, with history suggesting it will take considerable time and substantial monetary stimulus to achieve this goal.
– Chinese banks extended 1.36 trillion yuan ($208.86 billion) in new local-currency loans in February, down from January but exceeding analyst expectations. Analysts polled by Reuters had predicted new yuan loans would fall to 950 billion yuan in February, down from 3.58 trillion yuan in the previous month and compared with 905.7 billion yuan a year earlier.
– The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis after rising 0.3 percent in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment. The gasoline index continued to increase, rising 6.4 percent in February and accounting for over half of the seasonally adjusted increase in the all items index. The electricity and natural gas indexes also increased, and the energy index rose 3.9 percent over the month.
March 11: The Governing Council took the following decisions: First, the Governing Council will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over. Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.
March 12: 30Y auction, which just like 10Y reopening, could make or break the bond market (especially with JPM warning that growing imbalances in supply/demand dynamics could have adverse consequences for the US Treasury market), we said that “we anticipate that today’s 30Y auction will sneak through without much effort,” and that’s precisely what happened at 1pm today when the Treasury sold $24BN in the ultra-long dated paper in the form of a 29-year 11-month reopening.
Another day, another solid auction, but more importantly, one less near-failed 7Y auction which started the rout exactly two weeks ago. As such, yields dropped across the curve, with the 10Y sliding 3bps from 1.54% to 1.51%, and the 30Y dropping my a similar amount as the bond market breathes a sigh of relief.
Upcoming important news:
- RBA Gov Lowe Speaks
- Industrial Production y/y
- Retail Sales y/y
- BOJ Gov Kuroda Speaks
- Core Retail Sales m/m
- Retail Sales m/m
- RBA Assist Gov Kent Speaks
- Dutch Parliamentary Election
- CPI m/m
- FOMC Economic Projections
- FOMC Statement
- FOMC Press Conference
- GDP q/q
- Employment Change
- Unemployment Rate
- MPC Official Bank Rate Votes
- ECB President Lagarde Speaks
- Monetary Policy Summary
- Official Bank Rate
- MPC Asset Purchase Facility Votes
- ADP Non-Farm Employment Change
- Philly Fed Manufacturing Index
- Monetary Policy Statement
- BOJ Press Conference
- Core Retail Sales m/m
- Retail Sales m/m