Market Briefing: Can the positive sentiment continue?
Positive vibes. Prospect of more China stimulus & German fiscal spending supported sentiment. Equities rose on Friday, as did AUD & NZD.
Tariff impacts. US tariff effects showing up in the data. US consumer sentiment tumbled, while inflation expectations jumped up.
Event Radar. A busy week ahead. China data & US retail sales (Today), BoJ (Weds), US Fed, AU jobs, NZ GDP, & BoE (all Thurs) on the schedule.
Global Trends
Volatility in markets continued on Friday, although this time risk appetite improved over the final trading session of the week. Equities rose with US indices leading the charge (S&P500 +2.1%, NASDAQ +2.6%). That said, it wasn’t enough to unwind the torrid spell over the prior few days with the S&P500 recording its 4th straight weekly fall (or 6th in the past 7 weeks). Elsewhere, bond yields drifted a bit higher with the US 10yr rate rising ~4bps to be slightly above its 1yr average (now ~4.31%). In FX, the USD gave back ground, thought this was mainly due to a firmer EUR (now ~$1.0880). USD/JPY ticked up (now ~148.78) and GBP eased a fraction (now ~$1.2925). Closer to home, USD/SGD is hovering around its 200-day moving average (~1.3345), while the backdrop helped NZD (now ~$0.5746, near the top of its 3-month range) and AUD (now ~$0.6323) outperform.
Underpinning the market moves, particularly in currencies, was the lack of fresh tariff news, as well as positive non-US developments and troublesome US economic trends. In China, reports authorities were looking at stimulus measures to boost consumption, and which propelled the stockmarket higher on Friday (China’s CSI300 increased 2.4%), were confirmed over the weekend via the release of a 30-point action plan aimed at strengthening incomes/spending and stabilising the property and stockmarkets. In Europe, Germany’s Chancellor-to-be Merz reached a deal with the Green party to ramp up fiscal spending. The agreement will be voted on in German Parliament this week. By contrast, in the US, data showed that tariff related uncertainty is unnerving households. The Uni. of Michigan consumer sentiment gauge dropped to a near 2-year low, with worries about the outlook and employment evident. Added to that, as our chart shows, longer-term inflation expectations spiked to levels last seen in early-1993 as the tariff price effect is factored in.
It is a busy week macro-wise. The February China data batch is due today (1pm AEDT) and US retail sales are out tonight (11:30pm AEDT). Later this week, in addition to the Parliamentary votes in Germany (Tues and Fri), the Bank of Japan (Weds), US Federal Reserve (Thurs morning AEDT), and Bank of England (Thurs night AEDT) hand down their policy decisions. No policy changes are expected from the three central banks, although we think the BoJ is likely to keep the door open to more rate hikes, while the BoE should flag further gradual easing. In the US, we think the Fed is likely to nudge up its near-term inflation projections but lower its growth forecasts. The outlook is uncertain, however we believe the cross-currents may see Fed Chair Powell tilt slightly more ‘dovish’ than what is priced into interest rate markets. If realised, this could see the USD weaken, but the prospect of broader US tariffs being unveiled on 2 April should act to limit potential moves.
Global event radar: China Data (Today), US Retail Sales (Tonight), BoJ Meeting (Weds), US Fed Meeting (Thurs), BoE Meeting (Thurs), Global PMIs (24th Mar), China PMI (31st Mar), RBA Meeting (1st Apr), EZ CPI (1st Apr), US Reciprocal Tariffs (2nd Apr), US Jobs (4th Apr)
Trans-Tasman Zone
The improved sentiment, as illustrated by the rebound in global equities on Friday, pushed up the NZD and AUD at the end of last week. The NZD (now ~$0.5746) is at the upper end of its year-to-date range, while the AUD (now ~$0.6323) has ticked back above its 4-month average. The market backdrop also helped the AUD and NZD outperform on the crosses. While AUD/NZD drifted down towards its 200-day moving average (~1.1006), the AUD rose by ~0.2-0.5% against the EUR, CAD, and CNH on Friday. There were larger gains recorded against GBP (+0.8%) and JPY (+1.3%), though that only partly unwound some of the recent weakness. AUD/GBP (now ~0.4892) and AUD/EUR (now ~0.5811) are still tracking towards to lower end of their respective multi-year ranges.
As mentioned above there are several macro events scheduled this week that may generate more volatility such as the China data batch (1pm AEDT), US retail sales (11:30pm AEDT), the German Parliamentary votes (Tues and Fri), and central bank meetings (BoJ on Weds, US Fed on Thurs morning AEDT, and BoE on Thurs night AEDT). Across the Tasman Q4 2024 NZ GDP is out (Thurs AEDT), while the AU jobs report is also scheduled (Thurs). We think the NZ data might show a rebound in activity at the backend of last year, but it shouldn’t be enough to extinguish the need for further RBNZ rate cuts. Locally, we believe the jobs data will again show the labour market remains on solid footing. Last month the ABS noted there was a higher than usual number of people unemployment but waiting to start work. This suggests there could be another robust gain in employment and low unemployment print. If realised, this would reinforce expectations the RBA may only deliver a modest/gradual easing cycle and generate AUD support, particularly when coupled with our thoughts the USD risks losing ground near-term (see above).
Overall, we continue to think more bouts of AUD volatility should be anticipated over coming weeks, especially as 2 April approaches. This is when the US will make its broader ‘reciprocal tariff’ announcements. But from a medium-term perspective we believe there is more upside than downside potential for the AUD. A fair degree of negativity looks priced in with the AUD running ~3 cents below our ‘fair value’ models. The AUD has also not traded much below where it is over the past decade (AUD has been sub-$0.6350 less than ~4% of the time since 2015). Structural dynamics that cushioned the AUD down here (i.e. Australia’s improved capital flow trends and higher terms of trade) remain. Moreover, as mentioned previously, we think tariff induced export pain in China should be offset via measures aimed at boosting commodity-intensive infrastructure investment. This is AUD supportive given this is where Australia’s key exports are plugged into. And the EUR upswing on the back of greater European fiscal spending can also be an indirect AUD support via the drag created on the USD.
AUD & NZD event radar: China Data (Today), US Retail Sales (Tonight), BoJ Meeting (Weds), US Fed Meeting (Thurs), NZ GDP (Thurs), AU Jobs (Thurs), BoE Meeting (Thurs), Global PMIs (24th Mar), AU CPI (26th Mar), China PMI (31st Mar), RBA Meeting (1st Apr), EZ CPI (1st Apr), US Reciprocal Tariffs (2nd Apr), US Jobs (4th Apr)
AUD levels to watch (support / resistance): 0.6220, 0.6260 / 0.6340, 0.6370
NZD levels to watch (support / resistance): 0.5670, 0.5700 / 0.5780, 0.5820
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (17th March) CNY Retail Sales (Feb) (1pm) CNY Industrial Production (Feb) (1pm) CNY Fixed Asset Investment (Feb) (1pm) USD Retail Sales (Feb) (11:30pm)
TUESDAY (18th March) USD NAHB Housing Index (Mar) (1am) AUD RBA’s Hunter Speaks (10:20am) CAD CPI Inflation (Feb) (11:30pm) EUR Germany ZEW Index (Feb) (6pm) EUR ECB’s Rehn Speaks (8pm) EUR ECB's Escriva Speaks (8pm) USD Housing Starts/Building Permits (Feb) (11:30pm)
WEDNESDAY (19th March) USD Industrial Production (Feb) (12:15am) NZD Consumer Confidence (Q1) (7am) NZD Current Account Balance (Q4) (8:45am) JPY Trade Balance (Feb) (10:50am) JPY Bank of Japan Decision (no set time) EUR ECB’s Villeroy Speaks (9:45pm) EUR ECB’s Centeno Speaks (10:30pm) EUR ECB’s Guindos Speaks (11pm)
THURSDAY (20th March) EUR ECB’s Elderson Speaks (12am) USD FOMC Decision (5am) USD Fed Chair Powell Speaks (5:30am) NZD GDP (Q4) (8:45am) AUD Jobs Report (Feb) (11:30am) CNY Loan Prime Rate (1yr/5yr) (12pm) GBP Jobs Report (Jan/Feb) (6pm) EUR ECB Pres. Lagarde Speaks (7pm) EUR ECB's Centeno Speaks (10pm) GBP Bank of England Decision (11pm) EUR ECB’s Lane Speaks (11pm) USD Initial Jobless Claims (11:30pm) USD Philly Fed Index (Mar) (11:30pm)
FRIDAY (21st March) EUR ECB’s Villeroy Speaks (12am) USD Leading Index (Feb) (1am) USD Existing Home Sales (Feb) (1am) NZD Exports/Imports (Feb) (8:45am) JPY CPI Inflation (Feb) (10:30am) EUR ECB’s Escriva Speaks (7:15pm) CAD Retail Sales (Jan) (11:30pm)
SATURDAY (22nd March) USD Fed’s Williams Speaks (12:05am)
*Note, all times/dates provided are AEDT
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