February saw a 18.2% seasonally-adjusted fall in NZ residential consent issuance, with further large falls in multi-unit homes. Annual residential issuance eased to 39,725 consents (39,881 prior), led by declining annual consents in Auckland, Wellington and Otago. Despite new builds largely avoiding proposed government tax measures to investor residential properties, a cooler general housing market backdrop is expected to weigh on dwelling construction activity over 2021.
The rapid rollout of Covid-19 vaccines and the prospect of additional US government spending continued to buoy markets overnight. In the next day or so Biden is set to unveil a circa USD3-4 trillion plan to bolster US infrastructure in transport, telecommunications and utilities with a tilt towards green initiatives. Biden was seeking to have the package approved by mid-year but, given the hefty price tag and the fact it will largely be funded via tax increases for high income earners, it will face strong opposition from Republicans. With the Senate split 50-50, Democrats could be again forced to rely on their own votes for passage by using the reconciliation provision. This will not help heal partisan divides, but it is expected to be good for global growth, with the IMF reportedly looking to raise its forecasts for global GDP growth in 2021 (currently 5.5%) and 2022 (3.5%).
Equity markets largely shook off the impacts of the collapse of Archegos Capital Management and the reminder of the fragility of global supply chains following the recent blockage of the Suez Canal. US equity indices were lower on their open, but falls were modest. Eurozone equities held onto opening gains (Euro Stoxx 50 1.1%, Dax +1.3%, FTSE 100 +0.5%), led by climbing financial and consumer discretionary stocks. Despite the stronger than expected 3% February climb in retail sales, Japanese equities were generally weaker, and the ASX 200 was down 0.9%. NZ and Chinese equity indices were generally up.
The reflation trade returned. Treasury yields continued to grind higher, helped by a block sale of US Treasury notes, with 10-year yields touching post-COVID-19 highs (1.78%) overnight. European yields shot higher on their open, with firming German consumer prices (+1.7% yoy versus 1.3% yoy prior) helping to push 10-year UK (0.82%) and German yields (-0.29%) yields close to their highest in a year. Japanese 10-year yields edged up, but at 0.08% remained close to the BoJ 0.1% target. There is speculation that the BoJ might tweak its pace of asset purchases at its 5pm meeting today.
Australasian yields were firmer. Despite former RBA Board member Edwards warning that the Bank’s QE programme would need to be maintained for an extended period and Brisbane starting a 3-day lockdown, Australian 10-year swap and bond yields were up close to 10bps. NZ yields also nudged up, with the narrowing in swap spreads.
The firmer USD weighed on commodity prices. Following an earlier two-day rally, oil prices were around USD1 per barrel lower overnight. The expectation is that OPEC+ will agree to extending production cuts until May at its April 1 meeting. Gold prices fell below USD1700 per troy ounce.
Adding to the positive theme was the stronger than expected lift in US consumer sentiment, with headline confidence on the Conference Board measure hitting 109.1 (mkt: 96.9, prior 90.4), its highest level in a year. Respondents’ assessments of their current and future situation both strengthened. Meanwhile US annual house price inflation on the S&P measure hit 11.2%, its highest since 2006. Various reading for Eurozone economic confidence were also generally firmer than expected.
FX Update: The USD was in the ascendancy and the strongest G10 performer overnight, with the NZD (generally up against other non-US crosses) and the AUD (generally down) experiencing mixed fortunes. The NZD eased below 70 US cents overnight and is currently towards the bottom of its 0.6970 to 0.7030 USD overnight range. The NZD crept higher against the AUD and is currently just below 92 Australian cents. The improved outlook for global growth and the potential for a new super-cycle in commodities are expected to support commodity currencies, including the AUD and NZD.