Markets Today - Holiday | Business Research and Insights

Todays podcast

Quiet markets with US, UK and Germany out for public holidays
Small market moves in futures following w/e US debt ceiling agreement
US equity futures +0.3%, Tsy futures imply 1-2bp yield moves, DXY +0.1%
Coming up: AU Building Approvals, Spain CPI, US Consumer Confidence

“If we took a holiday; Took some time to celebrate; Just one day out of life; It would be, it would be so nice”, Madonna 1983

Public Holidays in the US, UK and Germany made for a very quiet night as far as market moves are concerned. Initial reaction to the US debt ceiling agreement has been muted with only small changes in equity futures (S&P500 E-mini +0.3%), bonds futures (TSY futures imply 10yr yield falls of 1-2bps) and currencies (DXY +0.1%). Larger moves were seen in Europe amid thin trading with the Eurostoxx50 -0.4% and German 10yr yield -10.2bps to 2.43%. In FX the AUD outperformed +0.3% to 0.6539, with smaller moves elsewhere (EUR -0.1%, GBP +0.1%, USD/JPY -0.1%, and NZD +0.1%). In EM the Turkish Lira weakened with USD/TRY +0.7% to 20.10, near a record low, with President Erdogan re-elected. Voting on the US debt ceiling is expected to begin from Wednesday and there appears to be sufficient support to clear passage. Focus now shifts to the liquidity implications of rebuilding the Treasury General Account via a deluge of bill issuance with some estimates suggesting 600bn within six-to-eight weeks of a deal.

With the US out for Memorial Day there was no data or notable news. On the debt ceiling, Politico reports that the US Administration’s calls with stakeholders and lawmakers have been positive with the White House feeling generally positive about cobbling the votes together on the Democrat side to give passage to the bill (see Politico: White House to Dems: The debt deal could have been a LOT worse ). Voting is expected to begin from Wednesday in the House, and then on Friday and the weekend if necessary for the Senate, in time for the most recent 5 June deadline. With bi-partisan support, focus is shifting to the other side with the Treasury General Account needing to be rebuilt, meaning a deluge of bill issuance with some estimates as high as $600bn within six-to-eight weeks of a deal. As liquidity gets drained from the banking system with bill issuance, what impact could that have on broader markets? Some estimates suggest it could be the equivalent of one 25bp rate hike as far as financial conditions are concerned.

In Australia, the Minimum-Award Wage Decision is set to be handed down on Friday 2 June , in time for the upcoming June RBA Board Meeting. Two important rates will be announced, the minimum wage which impacts around 200,000 people, and the award wages determination which impacts around 2.4m people. It is the award wage decision that is more important for the outlook for wages given its broader coverage. While we do not know the RBA’s working assumptions, the Treasury did say it had incorporated “4% and slightly above” for awards, and 7% for the minimum wage. Last year the Fair Work Commission was reluctant to have too large a gap between awards and minimum wages because it would compress relativities at the bottom end of the wage structure, so the risk is an award wage increase is higher than the 4% pencilled in by Treasury, which would then be problematic for the RBA’s wages forecasts.

Coming up:

AU: Building Approvals: Consensus looks for a 2.0% m/m rise.
NZ: Building Permits: No consensus available.
EZ: ECB speakers & Spain Inflation: There are three ECB speakers including Holzmann and Villeroy. Also out are the usual Euro area confidence measures. Meanwhile Core Inflation is expected to remain elevated at 6.4% y/y from 6.6%.
US: Consumer Confidence & Dallas Fed Manufacturing: Consumer confidence is expected to dip to 99.0 from 101.3, while the Dallas Fed Manufacturing Indx is expected to remain heavily negative at -18.0. The Fed’s Barkin is also being interviewed in a NABE Monetary Policy and Outlook Webinar.