Equities | FX | Global | Rates
Markets to Watch This Week: Australian Markets in Focus Ahead of Wednesday Inflation
- By Bilal Hafeez
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- 1 min read
Market Moves
Markets turned more hawkish on $-Bloc Central Banks. Ahead of Australia’s inflation print on Wednesday, markets had begun to price the 3 May meeting as an option for a first rate hike while certain the 7 June meeting is the latest it could start. Meanwhile, in Canada, a hawkish reaffirmation from Governor Macklem at the IMF Spring Meetings had pushed markets to speculate on a 75bps hike at the 1 June BoC meeting.
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We standardise price changes across different markets to allow for cross-market comparisons.
Market Moves
Markets turned more hawkish on $-Bloc Central Banks. Ahead of Australia’s inflation print on Wednesday, markets had begun to price the 3 May meeting as an option for a first rate hike while certain the 7 June meeting is the latest it could start. Meanwhile, in Canada, a hawkish reaffirmation from Governor Macklem at the IMF Spring Meetings had pushed markets to speculate on a 75bps hike at the 1 June BoC meeting.
A worsening outlook on China growth hurt Asia-Pac markets. In particular, the CSI 300 broke down through 4,000 (-2.0 standard-deviations). The overall poor picture of China growth led to a weaker demand picture for commodities, which spurred weakness for AUD and NZD, both down 1.5 standard-deviations over the past week. Negative price action for copper is also being affected by a buildup in inventories.
GBP weakened on poor economic data. Retail sales, including auto fuel, lowered 1.4% MoM. Markets had only expected a 0.3% slowdown MoM. Despite this, markets are pricing in a 20% possibility of the Bank of England hiking 50bps at their 5 May meeting.
Elsewhere, US, German, China, and UK curves saw significant bear flattening. US 2-year yields moved the most (+2.4 standard-deviations), far more than the US 10-year (+0.7 standard-deviations). Less extreme but similar moves occurred for German, China, and UK rates.
Flattening curves spurred credit worries and poor equity performance. That is, the US high yield credit default swap spiked +1.6 standard-deviations as the S&P500 dragged -1.4 standard-deviations. The Russell 2000 and NASDAQ also performed poorly. Globally, BOVESPA and Hang Seng reflected the theme of underperforming equites.
Turning to this week, we think US wage and price data will continue to show that inflation pressures are still strong and widespread. While in the Asia-Pacific, a larger than expected Australian CPI number – 4.6% YoY is currently expected – may bring a May hike into play. You can read Dominique’s views on the week ahead and analysis of COVID-19 numbers here.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.