NAB Morning Call

A pinch and a punch, and a win for LePen

Monday 1st July 2024

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It’s the first day of the third quarter. The unsurprising news from French exit-polls this morning shows a clear win for Le Pen’s National Rally party, securing a third of the votes. NAB’s Taylor Nugent says markets have already priced-in the outcome and there’s been very little movement in early trade. Markets responded a little more to Biden’s shaky debate performance on Friday. On the data front, the Core PCE Deflator, the fed’s preferred inflation gauge, was good news – a little better than expected if you look at the second decimal place! Germany’s CPI is out today and the Central Banking get-together kicks off in Portugal.

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Duration:: 15m
Broadcast on:: 30 Jun 2024
Audio Format:: mp3

A win for Le Pen if you believe the exit polls in France, US inflation on its way down will find out about Germany today and a week with a couple of holidays ahead of payrolls on Friday and Aussie retail sales this week as well. Get ready for a fractured week but a busy week, it's Monday, it's the 1st of July, it's the morning call from Knapp, good morning. Well a small fall in the US dollar on Friday with the Aussie dollar up a third of 1% at 66.7 US cents compared to a less than 0.1% increase in the euro and the pound, the yen we can further but by less than 0.1% but still going down, the Canadian dollar was up almost 0.2% so the Aussie dollar up almost half a percent last week and US equities didn't end well on Friday, the Dow down 0.1%, the S&P lost 0.4%, 0.7% low for the Nasdaq. Still over the month the Nasdaq did climb almost 6% 4.3% for the S&P and 2.6% for the Dow. The ASX 200 by comparison over June was up just 1.8% sharp rises in bond yields on Friday up 11 basis points for 10 year treasuries up to 4.4% but still 10 basis points lower than the start of the month. German 10 year bond yields were up 6 basis points up 3 basis points for 10 years in France, the spread between France and Germany got as high as 84 basis points on Friday, the higher since 2012, it fell back below 81 basis points though but maybe that'll change, I don't know obviously we see the results of the French election because the round one they have cut well we've got the exit poll results, we'll talk about that in a second and on Friday oil just down a little, Brent down 0.3% to 85 a barrel. So it's Nabs Taylor Nugent with us in Melbourne this morning, let's talk about those exit polls first Taylor coming in from France, a win for Marine Le Pen's National Rally Party 33% of the vote, the left wing coalition, the new popular France got 29%, Macron's party on 20% so are we going to see any reaction to that or did we see it all on Friday because this is sort of what we're expecting isn't it? Yeah you know from what I've read so far it doesn't look like there's any kind of big surprises here coming in similar to exit polls and you know the final make up of the National Assembly is still very much late and see what happens in the second round kind of the numbers that we've seen here you know consistent with the an outright majority for RN still being possible but you know very very much not guaranteed and a lot will depend on what happens from here. You know one interesting thing to mention is that turnout was particularly high and so that means that you know the way that this system works is that you know with a high turnout the threshold for a third candidate to get through to that second round is easier to reach and so you know probably the fair few three-way votes so it will be interesting to watch whether there is kind of you know that third place candidate dropping out in order to kind of you know shore up, centrist or left support and not split that kind of anti-RN votes so that will be something to watch in the near term but you know I think overall largely as expected we're going to need to wait until until next Sunday for the results you know the only market reaction we've seen so far kind of the euro in kind of very early early trading today is up around 0.1% so you know not a not a huge reaction there. No big bikies no July the 7th I should say it takes a week to get the results they're the very slow counters and July the 7th is the the date of the next election so US politics has been a bit on shaky ground as well so Thursday night we saw that that debate Joe Biden I mean he lost his way halfway through a sentence for goodness sake in that election debate the where reports of the Democrats were scrambling to find a replacement it sounds like they're not doing that now as far as we can tell but was there any market reaction I mean it looks like Trump is a shoe in doesn't he but you know provide he's not in prison is this have we really seen any market response to that yeah so it's it's interesting certainly in kind of you know market implied you know betting odds on on you know likely president there was kind of a you know a fairly notable move away from Biden mostly Trump picking up some of that so you know some risk that there would be a different democratic candidate put up being being priced in there as well but kind of you know when we look at when we look at the dollar when we look at bond yields there's no kind of obvious obvious kind of a sign to say an early steer of what the market reaction to an increasing chance of a Trump presidency would be you know if you look at the market reaction on Friday we did see curves deepening we saw that tenure yield up kind of you know meaningfully more than than the two year and so you know at face value you could say there but that kind of reaction is consistent with that story of kind of you know Trump's tax cuts potentially leading to some more some more treasury issuance wider deficits putting a little bit of upward pressure on the term premium and seeing a little bit steeper curves but you know really the timing of that it was kind of through the US afternoon on on Friday that we really saw that steepening and so you know with it being with it being quarter ends we saw equity is kind of opening higher on Friday and then and then ending up you know with a with a small decline over the day you know there's there's a few confounding factors they think kind of cloud the signal of the the market reaction sure so a bit of rebalancing on that yeah I mentioned the fact that equities are done so well during the month so was the the fact that they did so badly on the last day of the month was that rebalancing would be part of that you know that's that's one explanation yeah certainly certainly could be part of it but yeah certainly you know the big data on on Friday the the PCE which I'm sure we'll talk about in a moment you know we saw a we saw a fleeting reaction to that it was it was good news we saw yields fall a little bit we saw our equities kind of continue to push a little bit higher up almost three quarters of a percent and then you know just through the rest of the day that kind of an issue reaction to that that data around so was it was it good news or was it just it because it was was as expected wasn't it so wasn't bad news so bad news is not not bad news is good news I guess Ray so 0.1% was the core PCE flater Ray says we should always go to the second place so what was the second decimal place and did that tell a different story well this is where the good news is hiding Phil 0.08% so that was the even relative to consensus you know we're having this API the the PPI already suggesting that you know that inflation outcome through through May was much more benign that was confirmed and you know at the margin a little bit better than expected and so you know that's the the lowest read since November 2020 certainly heading in in the right direction kind of anyway you cut it may it looks like a it looks like a good month from the feds perspective so that the core services excluding housing measure that they've been focused on rose less than 0.2% and that was pushed up by health care wasn't it that was the it looks like health care was pushing keeping services higher and energy was responsible for the the the fall that we saw in goods yeah yeah so health care strong so you know I suppose you could make the argument that you know outside of health care services looked even better but then you know on the other side airfares were pretty good in the month we saw portfolio management fees which tends to be pretty volatile subtracting in the month as well so you know there's always going to be things you know at the high side and at the low side and but you know as you say overall pretty broad base cooling in in May so you know now it's all about you know how sustained is this you know this is probably too much to hope for on a on a sustained basis I don't think this is the new normal but certainly this is a good sign that those unhelpful prints through Q1 were likely to be a temporary bump and so I think you know looking forward you know the Fed in September markets around 70% priced for a cut a little bit less than that has been fairly stable over the week and you know with three payrolls prints three CPI prints to go before September you know the the PCE data kind of confirming that that's still very much in play if the if the data behaves itself so the University of Michigan consumer sentiment reading on Friday was better than expected but still down so let's not get too excited so from 69.1 in May to 68.2 in June but it's expected it was actually going to be quite a bit high wasn't around 65.8 but consumer expectations rose from 68.8 to 69.6 so people obviously thinks again think things are going to get brighter so if things are getting better and inflation is coming down well maybe that's why they think it's getting better but you know that's potential for a Goldilocks scenario at some point in the future. Yeah so that was the final read there and you know both the expectations and the current conditions in the University of Michigan Index are much better in the final read than in the preliminary so that's a that's a good sign still you know not suggesting the consumers are all of a sudden particularly confident and you know the other data we talked about the inflation data but you know what we saw out of the spending and income components in that that PCA measure as well were also consistent with that story that you were talking about there so you know personal consumption especially through some discretionary categories is is much lower than it has been kind of you know the numbers there are consistent with consumption growth annualizing around one and a half percent through this year that's you know about half the pace that we saw at the back end of last year so it's a pretty meaningful step down but then you know with labour markets resilient income growth is pretty healthy and was you know fairly strong in the month so savings rates are a little bit higher still resilient labour market supporting income growth but a bit of a slowdown in that kind of exceptional strength in consumption so all of that kind of you know bodes pretty well for this story of resilience but cooling to continue rather than kind of you know a sharp rollover and the ISM manufacturing ISM is out today for the United States as well actually when I say today actually early tomorrow morning Australia time but isn't going to be interesting to see how that reflects the PMIs which were quite elevated weren't they last week yeah yeah so that kind of difference we get final PMIs for a few countries and the US is ISM which is kind of a larger survey more established survey you know that has been showing a bit of disagreement with with the PMI recently so you know that'll certainly be watched for weather that continues yeah okay talking about PMIs we had the China PMI over the weekend showing a sideways move for May so could be worse could be better I mean it could be better couldn't I mean China still going nowhere basically yeah nothing to kind of change the story there and I think you know similar to the to the US there is a bit of disagreement there as well so you know we get the size in manufacturing PMI on on Monday that's been quite a lot stronger than the than the official PMI so you know while the official manufacturing PMI stayed in kind of modest construction territory kind of across that those official PMI indicators it it looks pretty weak you factor in the types in versions which kind of cover more smaller firms or it tends to be a bit more export focused things do look a little bit a little bit better but overall you know nothing to suggest any any quick turnaround they're kind of muddling through keeping that 5% growth target in play but certainly not not a particularly robust footing unfortunately they're you know one piece of bad news was the the construction PMI fell back you know about about two points or so to around 52 and so you know that's maybe a little bit of a surprise there was some wet weather in southern China but certainly those kind of those kind of measures to firm up activity in the real estate sector you know there's there's big question marks over that you know they were never expected to be particularly robust enough to to be a you know a sustained source of growth but you know maybe there are is still some fragility there they need more palm and block so I suspect not at this stage but yeah it hurts the economy if they don't doesn't it look today is Canada day of course Canada is on holiday to celebrate the anniversary of the Canadian Confederation on July the 1st Taylor 18 67 just I gave you a chance to nip in their history independence day 4th of July of course that's the middle of the week and the UK goes to the polls as well this week so on that same day 4th of July so it's not a normal week and it kicks off it's non-farm payrolls is how we finished the week it kicks off the ECB forum on central banking kicks off today in central in Portugal so lots of central bankers lots of academics anyone who's everyone is there Christine Lagarde is going to give the opening remarks today I wonder if she's going to have I mean probably just being very nice to everybody I wonder if she'll say anything revolution she's got a couple of opportunities so you know maybe the opening remarks out there on the opportunities she'll take that she's on a panel alongside Fed Chair Powell as well during during the week and just giving closing remarks as well so you know plenty of opportunities to tear from them we've got German CPI today as as well worth a mention ahead of Eurozone numbers tomorrow and then you also are Japanese Tankan survey is out today as well with the Tokyo so we got the Tokyo CPI on Friday we're still waiting for action aren't we on that falling yen the finance minister Sunni Suzuki said that they're watching it with a sense of urgency and there was a government report on Friday saying the economy is recovering at a moderate pace although it appears to be pausing and the economy could face downside risks from you know high interest rates in the US and Europe we all know that but they know it as well but they're just not doing anything about it yeah so a few eyes on Japan as you say your state API kind of still above 160 as we head into the new week nothing no signs yet that there has been an intervention there but certainly you know around these levels at some of the markets are watchful for and you know Tokyo CPI the core measures there came in at a tenth above expectations and so you know that bodes well for the prospect of the BoJ you know potentially moving increasing interest rates as soon as the July meeting and the Tankan survey today as I mentioned an opportunity to kind of firm up just how firm a footing the activity backdrop is even as kind of the inflation indicators do look like they're kind of going their way even as they're not you know particularly strong so Australia wise not much today we've got the RBA minutes tomorrow we've got retail sales on Wednesday and the Aussie dollar holding up pretty well actually isn't it is that they're going to continue yeah so the Aussie you know still around what 66 77 as a as I look at my screen now alongside the Kiwi what kind of one of the better performers over last week but you know I think you know as we've seen for a while it will be at the at the whims of the US dollar for that new term direction well it has beaten the Aussie dollar at the US dollar a few times doesn't it but anyway we will watch with interest good to talk Taylor we'll catch you again soon thanks Bill shaping up to be a busy week isn't it all more reason to stay with us on the morning call I'm back again tomorrow morning I'm Phil That'll be for now, thanks for listening. 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