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  • Writer's pictureVince

Fed minutes stick to the dovish tone

NZ Prime Minister Ardern announced that from 11.59pm on April 18 two-way quarantine free Trans-Tasman travel will resume. A ‘flyer beware’ principle will apply, with Trans-Tasman travel potentially paused or suspended if there are community outbreaks on either side of the Tasman (a new state-by-state framework of continue, pause and suspend was introduced). Quarantine-free travel for around 40% of our international visitor market will provide a welcome boost to airlines, airports and to tourism-dependent regions/sectors that had been struggling. However, it will not be a return to the tourism boom of old given the risks of another viral outbreak, chronic labour shortages, and with many people still highly reluctant to travel during a global pandemic. The creation of a Trans-Tasman bubble will free up more MIQ space (1,000 to 1,300 rooms per fortnight). However, with the Government to hold 500 rooms as a contingency and looking to decommission some facilities for low-risk countries, the impact may not be as large as it would otherwise be.


The day did hint at an escalation in US-China tensions, with a possible US boycott of the 2022 Beijing Olympics, but reaction was limited, with the US State Department dismissing the suggestion.


Fed meeting minutes released earlier this morning reiterated the bank’s dovish tone and suggested there’s no sign of any tapering just yet. Covering the March 16-17 meeting, the minutes showed officials reiterating that the Fed is unlikely to tighten policy settings in the near term. The key line was “participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized… …asset purchases would continue at least at the current pace until then.” The committee raised its GDP and inflation outlook, but there was little sign that the prospect of higher inflation concerned officials. Comments by Chicago Fed President Charles Evans overnight were of a similar ilk, stating it would take “months and months” of higher inflation before he would take a view on whether it was sustainable or not.


With the Fed sticking to recent themes, bond market reaction was relatively limited, with US Treasuries fluctuating. There was modest steepening in the yield curve, with the 10-year Treasury up to 1.66%. Yields were lower across the curve in Europe.


Movements in sharemarkets have been mixed overnight. Wall Street continues to hover around record highs, with the Dow falling 0.15%, the Nasdaq 0.23% lower and the S&P500 up 0.05% in the wake of the Fed minutes. Equities were marginally lower across Europe, though the UK FTSE managed a 0.9% lift.


Commodity Prices were similarly mixed overnight. Oil prices have continued to edge up on the prospect of higher global growth (the IMF revised its forecasts yesterday), with Brent Crude up around USD$62.97 a barrel. Metal prices were lower across the board.


The Oxford-Astra Zeneca saga also rolls on. The European Medicines Agency has released findings showing a ‘possible link’ between the vaccine and the potential for blood clots. Some countries have restricted giving the vaccine to over-55s in response, while the UK has opted to offer under-30s alternative vaccines.


FX comment: Overnight saw a period of relative USD strength, with the NZD and AUD two of the weaker performers. As at the time of writing, the NZD/USD has edged down just shy of 0.70, whilst the NZD/AUD was trading sideways around 0.921.


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