Over the weekend, the US House of Representatives approved the $1.9 trillion stimulus package championed by Biden, taking the bill one step closer to fruition. The package – which includes USD$1,400 direct payments to many Americans – must now go to the Senate, which is more-likely-than-not to give its approval. US lawmakers are aiming to have the bill on the President’s desk by March 14th, when a number of key benefits expire. Despite all the recent speculation around overheating and a potential uptick in inflation, the new administration remains focus on remaining pockets of weakness in the US economy, with the Treasury Secretary Janet Yellen saying “people need more help putting food on the table and keeping a roof over their head until the virus is under control.”
Global bond yields eased a shade on Friday but remained well up over the week. The ‘reflation’ trade was the theme of the week, driven by the strengthening global economic recovery, investor expectations of higher inflation, and the prospect that policy rate hikes may not be as distant as they once seemed. The yield on the US 10-year eased to around 1.4% on Friday after hitting 1.6% earlier in the week and remains up more than 50 basis points over the year. NZ bond yields also rose sharply over the week in the aftermath of the RBNZ meeting, with the 10-year nearing 2% at times on Friday and closing the week sitting at 1.89% - a lift of more than 30bps over the week.
Share markets were lower across the board on Friday. The Dow Jones fell 1.5% and the S&P 500 slid 0.48%, while the tech-heavy Nasdaq managed a 0.56% bounce after being hit by the sell-off in tech shares earlier in the week. Similar themes were evident in Europe, with the pan-European Stoxx down 1.33% and the FTSE falling 2.53%. In the local market, the NZD bucked the trend, lifting 0.71%. Equity markets have been on a tear over recent weeks amid the improving economic outlook, but the prospect of rising interest rates started to weigh towards the end of the week, and most indices ended the week lower.
Commodity prices edged downward on Friday but remained well up over the week. Brent crude eased to just over USD$64 a barrel, but was still up 2.4% over the week, and not too far shy of post-COVID highs. Most base metals also gained over the week. There was no Global Dairy Trade auction last week.
Data wrap: Friday saw the release of domestic merchandise trade data for January, which showed NZ recording a $626m trade deficit over the month. Both export (-10.4%) and import (-5%) values were down on year-ago levels, but our annual trade surplus remains elevated at $2.7bn after hitting record highs towards the end of last year. NZ consumer data eased a smidge in the ANZ survey for February. The survey also showed higher inflation and house price inflation expectations as key themes. In the US, Private Consumption Expenditure (PCE) deflator data were released over the weekend, along with the latest Michigan Uni Sentiment Survey. Core PCE inflation lifted 1.5% in January, in line with expectations and below the Fed’s 2% target. Consumer sentiment was little changed in the February survey and similarly in line with market expectations. Elsewhere, Chinese PMI data were below expectations, but still showed an expansion at 50.6.
FX Update: The safe-haven USD and JPY were the big winners in US and European trade on Friday, benefitting from the anxiety on Wall Street. The NZD gave up most of its post-RBNZ gains against the USD when it passed the 0.74 mark, ending the week around 0.7233. The AUD ended the week lower against all the major crosses ahead of tomorrow’s RBA meeting, with the NZD/AUD trading around 0.9386.