NAB Morning Call

Where are the Descendants?

Thursday 11th July 2024

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The drive for Joe Biden to step aside continues to dominate the news cycle in America, with actor George Clooney, who held a fundraiser for the President only a month ago, now calling for him to step aside for someone younger. Incidentally, how many Clooney movies can you spot in today’s introduction?

Meanwhile, markets are more focused on what Jerome Powell has been saying and whether the fed will squeeze in two rate cuts before the end of the year, while closer to home, the RBNZ struck a noticeably more dovish tone at their July meeting. NAB’s Taylor Nugent gives his interpretation of what’s said and how markets have responded. The biggest moves today have been in US equities, is that Fed related or jockeying ahead of earnings season?

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Duration:: 15m
Broadcast on:: 10 Jul 2024
Audio Format:: mp3

Well, it's still all Biden, Biden, dominating the news in the United States. Now George Clooney has said that Joe Biden should step aside and give it to someone younger, one of the descendants, just in case Biden takes a ticket to paradise. So who would be the American to replace him? That's still up in the air as Democrats get to grips with the gravity of the situation. See what I did there? Meanwhile, more words from Powell and US inflation today ahead of the ending season kicking off this week. Lots to move markets today. It's Thursday, the 11th of July, 2024. It's the morning call from Knapp. Good morning. Well, US stocks are rising, 0.6% up for the down, 0.8% for the S&P, which is top 5,600 for the first time, 1% for the Nasdaq, shares also higher in Europe, 1.1% for the Eurostocks, 50 at close, 0.7% for the Dax and the Kat Khan, and 0.7% for the FTSU-100. Bond yields are lower, down just one basis point for 10-year treasuries, down five, though for German 10-year buns, down six in France, down nine in Italy, down three in the UK. Aussie 10-year yield just today, it held at 4.434% on futures, just one basis point higher than that. And on currencies, the pound is the biggest driver, even so it's only 0.4% higher. We've got a small fall in the US dollar, a very small rise in the Aussie dollar, still a little over 67.4 US cents. The yen has fallen down further, down a quarter percent at one stage, down to almost 161.8 yen to the dollar, the Euro is up just 0.1%, oil is bounced back, 0.7% for WTI, 0.4% for Brent, back up to 85 barrels. So we're recording this, you have to appreciate, as an Englishman, while England is playing in the Euro semi-finals. So if I seem distracted, I'm not actually watching it, it's all recorded, Ray was scheduled to be on today, but he's bailed to watch the match, but that's good, because that means we get Taylor Nugent. So we've got quality today for a change from now being Melbourne, and he's focused on this rather than focused on what's happening in Germany right now. So good to have you on. And a bit happening today, Jerome Powell, talking again, this time his testimony to the House Financial Services Committee, he is, I don't know, is the much said that was new, although he's not confident on inflation, he said. Am I sensing that perhaps this time he's a little more cautious than perhaps he was sounding yesterday, or much of a matchness? Yeah, I'm not sure more cautious, good morning Phil, I think, you know, he'd say the macro reaction as well. He's not said anything that was a surprise, that the messages are pretty similar to yesterday. On that, you know, he did say he has some confidence that inflation is receding. The question for him is whether moving sustainable to target, and he's not prepared to say that yet. So that's not really a surprise. It's again, he was the timing thing, wasn't it, he said, you know, it's a critical time right now. Inflation's coming down, the labour market's cooling. We want to get it right with his words. Exactly. Yeah. So, you know, not still no huge amount of urgency. They, you know, certainly not thinking that they're going to fall behind the curve if they take their time and watch the near the data flow in the near term come in, but still talking about, you know, needing a bit more good data, noting modest further progress, again, talking about as we heard yesterday, you know, those risks, the balance of risks, you know, it's very much two-sided in his mind. And so, you know, with the labour market, having shown some evidence of cooling, he's, you know, noted that he is kind of, you know, continued to emphasize that, you know, while there is further progress to go on inflation, they're also looking at the labour market. They're also seeing that cooling, and so that's, you know, balancing some of the concerns on inflation as well. As he said, you know, they may be forced to cut rates soon if they get unexpected cooling in the labour market, but he didn't actually say, "What is expected?" So, we're non-the-wiser really. Yeah. Well, I, you know, we do have a bit of a, a bit of an understanding of that out of the, out of the most recent dot plots that the, at the moment, say the median dot was for an unemployment rate at 4% at the end of the year. It's 4.1% at the moment. So, you know, it's not necessarily the case that it's going to kind of continue to, to march higher over the course of this year, but certainly you can see why they're attuned to the risks. Yeah. You know, the, the FLMC, they don't think that they need to open up a lot of slack in the labour market in order to continue to see progress on inflation. So anything that suggests that unemployment is going to kind of meaningfully outpace that, that, that forecast would be, would be a concern to them. You know, would offset, you know, some, it would balance against, you know, more gradual progress on, on inflation. They're still going to need to be comfortable that inflation is heading in the right direction, but certainly, you know, the, the case for a cut would be strengthened sooner with a given set of inflation data if they see weakness in the labour market. They're still aiming for that soft landing, in other words. So look, stock market is rallying today ahead of the ending season. So is it doing well because of, of the Fed, or is it just jogging for position ahead of the ending season, which, which really kicks off in earnest on Friday? Because today we've gotten a video up two and a half percent, 1.6% for Tesla. So tech stocks doing well, but actually the expectation is, I think that the finance stocks are going to do particularly well. And it's a lot of the banks reporting on Friday. Yeah. Yeah. So earnings season is kicking off on Friday. That's big for equities. We've obviously got US CPI overnight as well, which we'll, we'll focus on. So, you know, I think more so than, than pals, comments, you know, markets looking forward to that. You know, back to, back to regularly scheduled programming a little bit in US equities today. That's more game we got yesterday was, was led by, led by financials. And as you say, it's the tech stocks that are, that are leading, leading today in the NASDAQ on our pacing gains and the S&P 500 as well. Now, I love it when we get a bit of celebrity gossip on the morning call, not a chance to get that very often, but George Clooney, who a month ago was raising money, holding a fund raise for Joe Biden today saying he thinks he should, he should back out of the race and let someone else in Nancy Pelosi was also asked and she gave a pretty non-committal answer. Mine, she's older than Joe Biden. So perhaps she was trying to remember who Joe Biden was, but it's, it's certainly, you know, it's still occupying a great deal of, of press coverage in the United States. And look, Biden is going to give a speech. It seems a lot is going to count on this, a press conference Thursday evening after he's finished his, he's wrapped up his meetings with world leaders at NATO. So yeah, you know, we'll watch the soap opera unfold. I mean, the markets aren't reacting to it, but they, they will, if something big happens, I guess. Yeah. I mean, there's probably not too much to note there. I guess the only thing to, to point out is that, you know, Biden's, uh, assurances that he is, he is still running have not, have not put the issue to bed. And so you can see that in, in Pelosi's comments, still talking about this kind of an open question where, where a decision still needs to be made rather than kind of, you know, throwing, throwing her weight behind the, um, behind his candidacy as well. So, you know, no, no real new developments, I think, but as, as you say, the issue is, is not yet resolved. Absolutely. Clearly factor. Yeah. Uh, so the RBNZ yesterday, a bit more davish than expected. Yes. Yes. So, you know, that's probably the, um, you know, we're talked there about, you know, not much really to, to see out of, out of power's commentary, a little bit more of a market reaction, um, out of the, out of the RBNZ and, you know, you can see why as well. So, you know, expectations going in where they would leave rates on hold. They did. That wasn't where the surprise was, um, but the, the kind of content of that monetary policy review, that post meeting statement, um, was, you know, substantially more davish than, um, than expected. And so we got a fairly meaningful market reaction from that two year, um, swap rates in the, in New Zealand down almost 19 basis points and kind of expectations, but cuts pulled forward, um, a little bit in, in market pricing. Um, and really the, the big shift there, you know, if you look at the New Zealand data, you look at the economic backdrop and you, and you read the statement, you know, there's probably nothing in there that would be too surprising, um, you know, just in isolation. Um, the, the real surprise came in the contrast of, of what we saw in, in May. So you know, if we remember the RV and Z in May was still floating around the idea, discussing that, that they might need to, to hike more. Um, whereas, uh, yeah, out of this meeting, then, then noting, uh, more evidence of excess capacity pressures, then noting a range of indicators pointing to declining activity. They're seeing a risk that monetary policy is feeding through to demand more strongly than they expected. Um, and they're communicating that, um, the extent of monetary policy restraint will be tempered over time consistent with the decline in inflation pressures. So, you know, a, a very big, uh, shift from May when they consider the hike to the discussion in, in this meeting that suggests that, you know, they're looking pretty firmly at, at, you know, the need to, to cut, um, and just working out, you know, when, when that confidence will, will be there, um, on the back of that, our colleagues at, at B and Z, uh, did, uh, pull their expectation for the first cut forward from, from February to November. And just noting there, that's really just reverting to a, a previous call they've been saying for some time that the RB and Z would be cutting before their, their own projections implied that they were kind of under appreciating the softness in the economy. And so it's, you know, looks like the RB and Z is, is, you know, recognizing what they'd been saying in the economy for some time. And so that kind of tease out the prospect that they might not be quite as late to, uh, responding to some of that weakness in, in economic activity as it might have looked on the back of their previous communication. And look, we aren't going to talk about US CPI because that is really the, obviously the killer stat for today, just very quickly, just finishing off yesterday because inflation slowed in China down 0.2% for the month for June on, uh, on top of a 0.1% drop the month before, uh, so that is kind of it more than expected. So, um, it makes inflation growth year on year for China. Wow. Just 0.2%. Yes. So, you know, still very soft, uh, domestic inflation, no pressures in, in China, a little bit softer than expected expectations or a 0.4% lift, um, driving that was, you know, food price falls, deepens, um, there was a little bit of an easing in energy inflation. There was some e-commerce, uh, firms discounting alongside sales events. So all of those kind of, you know, putting a little bit of downward pressure on, on prices, worth noting as well for, you know, the, um, the rest of the world. And as we think about the prospect of China kind of continuing to, to export goods deflation, if you like, or disinflation to the rest of the world, PPI is, is still in deflation territory as well. That was as expected at minus 0.8 from minus 1.4% the month before, um, importantly they're, you know, on a monthly basis, that's falling, um, there was some, some base effects that meant that pace of decline fell. And I think it's interesting as well, consumer durable prices were, were falling in the month as well as, especially cars. And so when we look at that, there's potentially still some offset there from that Chinese capacity putting some downward pressure on global goods prices offsetting a little bit, that kind of back up in, in freight rates that we've seen recently from a kind of advanced economy inflation perspective. But for China, overall, no domestic inflationary pressures and, you know, we're really looking ahead to the, the third plenum early next week for whether there's going to be any kind of big shift in policy, but worth noting their expectations are still pretty low for a kind of big shift. And if they are going to, you know, export deflation, which they obviously were a very good app before the, uh, before the pandemic, uh, then we, they've got to produce more. They've got to, uh, not only see prices going down, but they've got to export more of those prices going down as well. So we get new one loans for China today, I think. So, um, hopefully that'll show that there's more being borrowed. So there's more investment so that they do produce more and export more of that deflation. We'll see. Yeah. Sometimes, some time in the week ahead for new, uh, your own loans. So they may be, maybe not the way from now. Yeah. All right. Okay. I did notice it keeps on cropping up in my calendar. If it wasn't to yesterday, maybe it'll be today. Uh, we'll wait and see. All right. So it's that precise. So US inflation, we know that is definitely happening. Uh, the core rate in May was 3.4% year on year, uh, it would be helpful, wouldn't it? If that fail, or let's not expect it to, I think the headline rate is expected to come down. But I think we're thinking the core rate is going to stick at 3.4%, aren't we? Yeah. That's right. Headline rate accepted it expected to fall to, to 3.0% on the back of a 0.1% month on month's rise. The core is steady at 3.4 on a 0.2% month on month's outcome. So lower gas prices helping there. Um, I think, you know, when we look at US inflation, you know, the base effects turn less supportive through the, through the back half of, of this year. So the, those kind of core numbers kind of staying steady or, or edging lower is still consistent with kind of, you know, inflation numbers that look meaningfully better than they did. Um, earlier, earlier this year and, you know, the strong expectation in the, in the Bloomberg survey is for a 0.2% outcome for core that would match, uh, last month's outcome. And then, you know, as always, that, that followed up by the PPI on, on Friday for that read through to the feds preferred PCE measure. But, you know, we've heard from Powell, you know, they're, they're looking at it. They can see the risk of balance, but they're not quite comfortable on inflation yet. So a 0.2 would be a good outcome that would keep building that confidence. But, you know, there's, there is still the risk out there with kind of, you know, markets 75, 80% price for a September cut, you know, the, the, if it comes in higher, that's going to, you know, add a lot more question marks over whether the Fed really can be comfortable by September. Right. And the weekly jobless claims out tonight as well. It's interesting, isn't it? Because we've been looking at jobs, uh, thinking, well, okay, if they're too good, if it's too strong, then is that going to be inflationary? Now, Powell's playing, well, we feel like we've beaten inflation in terms of, uh, you know, the role that jobs have got. So we're looking at it the other way to see if they're getting too weak. You know, we've just shifted our position really on what we're looking at. Exactly. Yeah. I think all of that speaks to the, the cycle is getting more mature, the risk is getting more balanced. And there's, there's been, you know, a lot of, a lot of progress made. And, you know, you look at the US labor market at the moment. There's nothing to suggest that it's, you know, particularly overly tight when you look at it relative to the, the pre pandemic labor market certainly. And so I think, you know, signs of softness in jobs growth now can, you know, we're almost at the point where we can interpret that as, as genuine softness rather than, than good news towards rebalance. So a swag of numbers for the UK today, including the three month average GDP read plus the, the monthly read as well, uh, in April year on year GDP was going 0.6% that's expected to move up this time. So things are looking good. I mean, actually they won't really care because the actual real number that counts obviously is the score, uh, against, uh, against Holland, but, uh, you know, we'll, we'll see GDP will be good too. And, you know, worth noting there as well, maybe the, maybe the weather is having a bit of an impact there. So, you know, we had that very wet, uh, April, um, which kind of potentially weighed on that flat outcome in, in April to a pretty warm day. So, you know, maybe that, um, helps a little bit in terms of that month on month comparison. Right. I have not watched the game. It's on right now as we're recording this, but I know the weather will influence that as well. Cause it's pouring with rain in Germany at the moment. I've got to go and watch that now. Good to talk to Taylor. Thanks for coming on this morning. It was supposed to be Ray. He's chicken day. He's going to pub that early in the morning somewhere watching it all, uh, and we'll catch you again soon. Thanks. Thanks, Phil. And now, a swift taxi. I'm Phil Dohie for now. I'll see you tomorrow. [BLANK_AUDIO]