NAB Morning Call

Thursday 8th September 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 There were big market moves yesterday and overnight, with sharp drops in oil prices, bond yields falling, a turnaround in US equities and the US dollar gaining some ground, with the Yen falling to its lowest level in 24 years. NAB's Skye Masters says there wasn't much data to influence the markets, but there was a lot of Fed commentary that is suggesting that perhaps the pace of interest rate moves might begin to slow down. Falling oil prices and government subsidies on gas prices will also be seen as helping to tame inflation.

Wednesday 7th September 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 There was a strong response to the US Services ISM overnight, which came in stronger than expected. NAB's Rodrigo Catril says they have raised expectations for a 75bp rate hike at the next FOMC meeting, pushing bond yields higher overnight. In the UK Liz Truss is officially Prime Minister and is expected to freeze energy bills with what could amount to a £1,500 subsidy per household. So that could help reduce inflation, but higher government spending could have the opposite effect, particularly in combination with planned tax cuts. There's also discussion about the RBA decision, Australia's widening current account surplus, China's trade data and the Bank of Canada meeting tonight. A busy one.

Tuesday 6th September 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 It's RBA day today. NAB's Ivan Colhoun talks through what to expect, whilst Ray Attrill looks at the worsening situation in the UK and Europe. Gas prices have risen after the closure of the Nordstream pipeline, and oil prices are also on the rise after OPEC+ agreed to production cuts from next month. We've also seen a revision in PMIs in Europe, with the UK services PMI moving into contractionary territory. Signs of resilience are quickly disappearing. It's a different story for the US, though, where ISM numbers are expecting to stay above 50, adding to the pressure the US dollar will place on other major currencies.

Monday 5th September 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 There was a short-lived burst of positivity on Friday, when USD payrolls numbers delivered a Goldilocks result, with jobs rising, but wage rises easing and more people piling into the jobs markets. The good news was offset by news that Russia will not be reopening the Nordstream gas pipeline, adding to the pressure on Europe to navigate its way through winter. NAB's Tapas Strickland talks through the market impact on today's podcast, as well as the problems in China, where 65 million people are currently in lockdown in 33 cities. The ECB, RBA and Bank of Canada all meet this week, and the UK gets a new Prime Minister later today.

Friday 2nd September 2022 We know the world is in an awkward place, but we keep getting positive data reads, like a strong manufacturing ISM from the US, retail sales picking up in Germany, UK house prices still strong – all the things central banks don't really want to hear right now. So what happens if non-farms payrolls in the US tonight shows a labour market that isn't showing any signs of weakening? NAB's Ken Crompton reckons a soft read will cause more of a fall in bond yields than the response to a stronger set of numbers. It'll be an asymmetric response, he says.

Thursday 1st September 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 Euro area inflation is the highest since the creation of the Euro and NAB's David de Garis says markets are no pricing in a greater than 50 percent change that the ECB will lift rates by 75 basis points next week. That's helped support the Euro today, whilst the pound falls further, to levels we saw in early 1985, when mullets were fashionable. Still are for some, of course. Australia's construction sector has taken a battering, driven by weather and higher supply costs, but private sector credit growth remains strong. China's PMIs show an economy that is taking a long time to recover – in part because of COVID, but hot weather has also had an impact. Friday's jobs numbers will focus attention now, but the new ADP report has shown jobs growth for larger businesses and a fall in small business employment.

Wednesday 31st August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 The US jobs market grew last month, whilst consumer sentiment improved. It's not what the Fed wants to hear. Do these positive numbers mean that the US can survive a soft-landing? No, says JBWere's Sally Auld, it just piles the pressure on the Fed to be more aggressive on rate rises. The consumer sentiment probably reflects little more than a fall in petrol prices. We know Europe is set for a hard landing, even though gas prices have fallen and Germany's reserves are up to 80 percent. But German inflation was higher than expected overnight, which suggests the European numbers will also be higher tomorrow, putting pressure on the ECB to move faster.

Tuesday 30th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 Bond yields in Australia rose sharply yesterday. NAB's Rodrigo Catril says it was part of the global response to Jerome Powell's short hawkish speech in Jackson Hole on Friday, but it was also because of the much higher than expected July retail numbers for Australia, which might suggest the RBA will have to push harder to knock inflation down to size. There's also discussion about how quickly the market in the US is expecting to see rates rise, and how quickly they expect inflation to fall. Also, the latest on the European energy crisis, why oil has pushed higher today and a look ahead to European inflation umbers and US jobs data.

Monday 29th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 We knew Jerome Powell would be giving a hawkish speech at Jackson Hole, so why were equity investors so surprised when he did just that? Clearly, they didn't get the memo, says NAB's Ray Attrill, referring to a huge sell off in US shares on Friday, mirrored by a big fall in the Aussie dollar. So how will the Aussie shape up now, if we see Europe and the US heading into recession, That's more likely in Europe, where gas prices continue to rise and deliveries from Russia stop totally middle of the week, with a question mark on when – and if – they will start again. Meanwhile, Britain's energy prices continue to rise to unprecedented levels. Where does it all end. And happy birthday to us; the Morning Call is six years old today.

Friday 26th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 There's unlikely to be any surprises when Jerome Powell steps up to the podium at the Jackson Hole Symposium tonight (Australian time). It's well signalled that he will be uber-hawkish, and with the Fed's credibility on the line, best not to go too-soft when inflation is spiking. That said, NAB's Taylor Nugent says there has been some pull back in bond yields ahead of the main act, whilst equities have pushed higher overnight. Minutes from the ECB have largely been overtaken by events. It was noted that a “recession would not necessarily diminish upside inflation risks, especially if it was related to a gas cut-off”, but the question remains, what can monetary policy do about it? And US GDP has been revised up, still in negative territory but gross domestic income perhaps provides a more realistic – and positive – picture of the health of the US economy.

Thursday 25th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 Ukraine has just celebrated Independence Day and it's becoming clearer how much the UK and Europe is paying the price. NAB's Gavin Friend paints a pessimistic picture about the outlook for that part of the world, as gas prices push ever higher. He says the Fed can raise rates to moderate demand in the US, but in Europe rate hikes will do nothing to mitigate rapidly rising energy prices. Joe Stiglitz has been saying overnight that interest rate hikes will do other than, he reckons, make inflation worse. Yet UK two-year yields shot higher overnight on expectations that the Bank of England will push ahead with a faster path of rate increases.

Wednesday 24th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 It's that time of the month when PMI reads give us a global snapshot of how everyone is doling relative to each other. NAB's Ray Attrill says the US provided the biggest surprise with a sharp fall in the services number, moving further into contraction territory, with a read of 44.1 – a 27 month low. That's somewhat worse than services numbers in Europe, and well below the UK, which continues to surprise, with a Services PMI read of 52.5 (actually growing). The bad news from the US was compounded by a fall in the Richmond Fed manufacturing index (also moving into contraction) and a further slowdown in new home prices. But Europe's future continues to be dominated with higher fuel costs, which show no signs of settling down.

Tuesday 23rd August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 The US dollar has risen close to a multi-decade, against a falling Euro and pound, as the energy outlook in that part of the world worsens and gas prices continue to skyrocket. NAB's Tapas Strickland says this has added to the resolve of central banks to tackle inflation with faster rises in interest rates. There is a plethora of PMI reports today. The question is, if they show any weakening in the performance of economies, will that be enough to moderate the hawkishness that's prevalent amongst most central banks right now?

Monday 22nd August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 Markets seem to have got used to the idea that central banks will be more aggressive with cash rate hikes, ahead of the Jackson Hole symposium at the end of the week. Part of the reason for that is because, what's been done so far is clearly not enough. UK retails sales increased in July despite all the talk about the dire state of the economy. The Canadians are also out shopping. We also saw a big increase in purchase prices in Germany, in fact the largest monthly rise since 1949. All of this adds to the expectations that the meeting in Wyoming will see an increasingly hawkish stance from all gathered there.

Friday 19th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 Bond markets have been fairly lacklustre today. NAB's Ken Crompton says there is still uncertainty over the less-hawkish FOMC minutes this week, which is why central bank speakers are out in force pushing the party-line for higher rates faster. There's still a difference between the markets and the Fed on how quickly those rates will come down. Meanwhile, there's still plenty of resilience in the US economy, with jobs not really coming down. As we saw yesterday, it's the same story in Australia. The Euro saw a sharp fall today, as gas prices shot up to a record high. Canadian and UK retail numbers are out later – will they be a other sign of resilience in the face of adversity?

Thursday 18th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 Inflation clearly isn't easing yet. The UK hit 10.1 percent in numbers released yesterday. NAB's David de Garis says the sticker-shock of double-digit inflation set the cautious mood off early. But if hiking by central banks is designed to slow consumption it is taking its time about it. US retail sales were up 10.3 percent (YoY) in July. Can an aggressive path of hikes slow demand enough to stop inflation in its tracks? Will the RBNZ be the first to demonstrate success? And will the RBA need to pick up the pace, with some worrying signs in the wages data yesterday, even though the headline number seemed quite tame.

Wednesday 17th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 Central banks continue to keep a close eye on wages data. The UK has just reported a drop in wages growth, alongside a fall in new jobs. We'll see Australia's wage growth numbers later today, which NAB's Rodrigo Catril says shouldn't be a big rise this quarter, but expect more in Q3 and Q4. Also today, the state of US retail, Canada's rising inflation (despite all the front-loading of interest rates) and what to expect from the RBNZ. A busy day.

Tuesday 16th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 The Aussie dollar has retreated from the gains at the end of last week, after a slowdown in China's retail sales, industrial output and fixed asset investment. All grew well below expectations, as COVID continues to influence behaviour and, clearly, buying habits. We've also seen a big drop in oil overnight. NAB's Ray Attrill says the fall is a combination of the weaker China data and signs that an Iran nuclear deal could be getting closer, which would see more oil pumped into the global marketplace. In the US equities continue to rise, even though the housing market is struggling, and the Empire State Manufacturing Index showed a massive (unbelievable) fall. The RBA minutes will be scoured today for any signs of the direction the bank will take now it is not, in their words, on a “pre-set path”.

Monday 15th August 2022 View our disclaimer and terms of use: nab.co/3shJyyp View our NAB Financial Services Guide: nab.co/3rvJtI9 There was a lot more positive sentiment around on Friday, because there are more signs that perhaps inflation is peaking. NAB's Tapas Strickland says strong corporate earnings have helped, and a belief that the Fed will not be moving much further on rate hikes – even though many Fed speakers are keen to argue otherwise. It's a different story amongst bond markets, were the 2-10 years spread remains firmly in negative territory, suggesting a recession or at least much slower activity for the remainder of the year. The RBNZ meets this week – Phil asks Tapas is they are being viewed as a test case for central banks, given that interest rates are likely to hit 3% this week, amid signs that the economy is slowing.

Friday 12th August 2022 Markets are still behaving as though inflation will not reach the heights predicted by the Fed, and that the path of hikes will be downgraded. Softer PPIs in the US added to this sentiment. But NAB's David de Garis says energy prices are the big concern. Brent is back over $100 a barrel, with concerns that European demand to substitute gas will push prices higher and add to inflationary pressures. But will inflation create a recession? GDP numbers in the UK today are expected to show a decline, yet unemployment remains persistently low, retail numbers are doing well and Dave says the streets of London are filled with people spending money. It doesn't feel like a recession, whatever the numbers show.

Thursday 11th August 2022 US inflation numbers were lower than expected, giving markets a major boost if confidence. Shares rose sharply, thew VUIX index fell to the lowest in quite a while, the USA dollar weakened, and the Aussie dollar was given a major boost. But will the enthusiasm last? As NAB's Tapas Strickland explains, the falls were largely related to lower energy prices and the low-side core surprise was a payback for the high-side reading in June. In fact, the core reading is still rising and the Fed has made it clear they still have more work to do. So, can we expect markets to retrace their steps a little over the next day or so?

Wednesday 10th August 2022 The long-awaited US CPI numbers are out today. NAB's Rodrigo Catril most attention will be paid to the core reading, which excludes energy and food, the two factors which the Fed can have less influence over. If the core reading rises it shows the Fed has more work to do and that will only exacerbate recession fears. On that, we've seen the 2-10 yield spread falling ever lower to levels normally only ever seen ahead of recessions. China's CPI and PPI reads will also be of interest today. There's also discussion on today's podcast on the NAB Business Survey yesterday – how can business indicators be so strong, whilst consumer sentiment is falling?

Wednesday 9th August 2022 Markets are a bit in limbo today. We've seen bond yields reversing some of their initial response to non-farm payrolls, with the US dollar temporarily switching direction, and the Aussie and Kiwi dollars gaining strength. But for how long? NAB's Skye Masters says what happens next will depend on US CPI numbers tomorrow. There was a glint of hope that the worst is over with slight decline in inflation expectations in the US and New Zealand. Certainly the NAB business survey will be scanned eagerly today for price movement.

Monday 8th August 2022 The US non-farm payrolls numbers on Friday were certainly a surprise to many, with 528k new jobs created in July, twice the market expectation. Wages also rose further. Phil talks to NAB's Ray Attrill about the swift market response, with many assuming the Fed will go for another big hike at their next meeting. US consumer credit numbers on Friday are also a forewarning of a difficulty period ahead for struggling housheolds. Meanwhile, Joe Biden's Climate bill has just been passed by the senate – what impact will another splurge of government spending have on the Fed's endeavours to bring down inflation. Speaking of which, US CPI is the number to look out for this week.

Friday 5th August 2022 Markets continue to be pulled in two directions. Is inflation peaking with the hope of a soft landing? Or is there more to come, forcing central banks to lift rates high enough to spark a recession. At least the uK seems to have a clearer picture, but its not a good one. As NAB's Gavin Friend discusses today, the Bank of England has lifted rates by 50 basis points, lifted their inflation forecasts and warned of five consecutive quarters of economic contraction. So, why is it so much worse in the UK than Europe? And could a change in Prime Minister change the outlook? He also talks to Phil about yesterday's Australian trade data and looks ahead to tonight's non-farm payrolls in the US.

Thursday 4th August 2022 Nancy Pelosi has moved on from Taiwan and taken the cautious sentiment with her. Instead, very positive ISM services numbers in the US, and James Bullard talking about how the Fed will deliver ‘credible disinflation', have seen the US dollar strengthen, helped shares bounce back and driven front end bond yields down. Today Phil talks to NAB's Ray Attrill about what Bullard had to say, what to expect from the Bank of England today and whether Australia's trade balance will actually increase, rather than the consensus view of a slight fall.

Wednesday 3rd August 2022 There has been some market caution this morning as Nancy Pelosi arrives in Taiwan, much to the disgust of China. Her rhetoric has been confrontational too, so what is the purpose of this visit? Fed speakers have been keen to shift US market sentiment away from the notion that there will be an easing in the path of rate hikes, with Mary Daly saying they are “nowhere near almost done”. NAB's Tapas Strickland says there's been a sharp rise in 2 year yields since, fully erasing the fall seen after the last FOMC meeting. The RBA raised rates as expected but is being cagey about where to next. On today's podcast we look at the likely path to the end of the year, but is the market overly optimistic about how quickly rates will come back down?

Tuesday 2nd August 2022 There were further signs of a looming recession, with the US manufacturing ISM weakening, the Caixin Manufacturing PMI also lower and retail sales in Germany falling the most in 50 years. Oil is also falling, and the 2-10 yield spread in the US is close to being the most inverted it's been since the year 2000. You'd think although these recession signs at a time when central banks are still pursuing aggressive hikes would be enough to upset the markets, but NAB's Rodrigo Catril says they clearly haven't got the message yet, with equities showing only minor falls today. The only positive news of the day was that the first shipment of grain has left from Odessa, but it's anyone's guess how long that will last. The RBA meets today, a 50-basis point rise is expected, and an increase in the bank's inflation forecast this week.

Monday 1st August 2022 For those hoping that inflation was peaking (anywhere), then Friday didn't bring good news. PCE numbers in the US are rising, Europe's CPI is climbing higher, whilst manufacturing from China has slowed. Clearly, we're not out of the woods yet, with former US treasury secretary Larry Summers saying on Friday that the Fed hasn't reached a neutral rate yet, and the fact that Jerome Powell has said they have is just “wishful thinking”. So, what does this all mean for the RBA tomorrow. NAB's Taylor Nugent says the expectation is there will be a 50 basis point rate hike, but Philip Lowe has spoken about a narrow path “clouded in uncertainty” – is there an outside chance he will see the need to move even faster as global inflation rates show few signs of easing?

Friday 29th July 2022 US GDP fell by 0.9 percent in Q2. On top of the 1.6 percent fall in Q1 that meets the technical definition of a recession. But Jerome Powell and Janet Yellen are keen to point out the downturn is not sufficiently broad based to be called a recession. Nonetheless it does signify a further weakening in the economy, which investors seem to be taking as a sign that the Fed won't need to be as aggressive to counter inflation. NAB's Gavin Friend says that although the market may be trying to lead the Fed in that direction, that's not how Jerome Powell sees it and we can expect to see further significant hikes. Perhaps the same could be say for the RBA, with Australian retail sales continuing to rise and Treasurer Chalmers yesterday predicting inflation will peak at 7,75 percent, well above the RBA's 7 percent forecast.

Thursday 28th July 2022 The FOMC has met, they've pushed rates up 75 basis points and, whilst Jerome Powell said there would be no forward guidance, he has hinted at another big rise next time. Of course, it all depends on the data. Phil Dobbie talks to NAB's David de Garis about the take-outs from the press conference, which injected some animal spirits into the share market. They also look at yesterday's Australian inflation numbers, and whether they have cemented in a 50-basis point rate rise by the RBA, or could it be more? Plus the Meta earnings release, which brought mixed news after the US market close.

Wednesday 27th July 2022 There gave been sizeable falls in US equities, mainly stemming from a cut to Walmart's profit estimates. NAB's Tapas Strickland explains how the rising price of food is leaving less money for people to spend on discretionary items, with more price increases to come. Meanwhile, Europe is hoping to cut gas consumption as Russia halves the supply of gas down the Nordstream pipeline. The EU has agreed a voluntary arrangement, but will be enough to build reserves for winter? Australia's inflation numbers are out today – what will they be, and could they force the RBA to be more aggressive next week? The IMF has downgraded its global growth forecasts, noting an increasingly gloomy and uncertain outlook. Least but not least, the FOMC announces its rate decision just before tomorrow's podcast. Tune in then for the full rundown, as it happens.

Tuesday 26th July 2022 From Wednesday one of two operating turbines on the Nordstream pipeline will be switched off, effectively halving the existing supply, taking gas provision to Europe down to 20 percent of full capacity. There's no clear evidence that Europe has a coordinated plan to deal with reduced supplies, as EU member nations argue over the equality of calls for reduced consumption. NAB's Ray Attrill says the threat of the full blown weaponization of gas supplies later in the year is still very much a live issue. Meanwhile, markets are treading water ahead of the FOMC meeting middle of the week, the US GDP read after that and Aussie inflation numbers tomorrow. There's also a slew of major earnings results over the next few days.

Monday 25th July 2022 PMI numbers were much weaker than expected on Friday, particularly for US services, which fell quickly into a contractionary read of 47.1. The composite read for Europe also fell below 50. Will this mean central banks ease off the rate-hike pedal a little? The opposite is expected in Australia. Rodrigo Catril explains how NAB believes the lower-than-expected unemployment rate last week cannot be ignored, and it's likely the RBA will move faster over the next couple of meetings. Vladimir Putin continues to hold a strong grip on energy and food supplies, offering a re-opened gas pipeline with constrained supply, and reopened grain delivery routes, offset by attacks on their principal port of departure. It's a busy week ahead, including the Fed meeting, and more inflation numbers.

Friday 22nd July 2022 As we predicted the ECB lifted interest rates by 50 basis points yesterday, up to zero percent. NAB's Ken Crompton says this was more than markets had expected and explains there was a short-lived reaction on the bond markets. There was also disappointment in the central bank's anti-fragmentation tool, which now has a name and a new acronym! Right now it's light on detail and will countries like Italy be able to meet the criteria being set for its use, even though, with rising spreads with German bunds, they are the ones who really need it. In the US weaker jobs claims gave job that the labour market might be easing. Coupled with weaker than expected manufacturing data, there's always the hope that the Fed won't need to be so aggressive. PMI data today will give a further indication of how services and manufacturing are travelling, in the US, UK and Europe.

Thursday 21st July 2022 There's some confidence in the markets this morning, despite what seems to be a compendium of bad news for Europe. NAB's Gavin Friend says gas prices have fallen because Vladimir Putin has indicated that they will meet the reopening deadline for the Nordstream pipeline, but it'll be at only 20 percent of its capacity. As discussed on today's podcast, that might be enough to meet short term demand, but won't allow Europe to build up stocks for winter. The ECB meets today and will outline plans for its anti-fragmentation tool. If markets aren't impressed, it could bolster Italian bond yields, which have already pushed higher on growing uncertainty over Draghi's tenure in the Italian parliament. We also look at what Philip Lowe said yesterday, ahead of August's RBA meeting.

Wednesday 20th July 2022 Markets are preparing for a big rate rise by the ECB tomorrow. NAB's Rodrigo Catril says they are hiking when the expectation is that the Nordstream pipeline won't fully reopen for some time, if at all. “No energy means no growth”, he says, with the likelihood that Europe is heading for a major recession. Is the central bank prepared for that? Politically, can Europe cope with it all? Also today, we look at what the Bank of England's Andrew Bailey had to say about UK rate expectations, ahead of inflation numbers later today. Plus, is the RBA preparing the market for a 75bps hike? And those flicking the off switch on Netflix - not as bad as expected.

Tuesday 19th July 2022 The resumption in gas supplies to Europe could well be delayed, but perhaps Russia has a legitimate reason. A bigger move this morning has been the rise in the price of oil which NAB's Ray Attrill will in part be down to Saudi Arabia's refusal to increase supplies. Equities have fallen slightly, in part because of reports that Apple are downgrading their hiring and growth plans. US housing continues to be under pressure, with more data today. We also hear from the RBA's Michelle Bullock today, who might give away some indication of rate expectation, perhaps.

Monday 18th July 2022 US equities rallied on Friday as data releases showed some resilience in the economy, but is it enough to stave off recession? Probably not, says NAB's Tapas Strickland on today's podcast, but it will be enough to put to bed any ideas of a 100 basis point rate rise by the Fed this month. Also today, China's fall in GDP was worse than expected, with continuing lockdowns making the official forecast for the year completely out of reach. The focus this week will be on Europe: what if the Nordstream pipeline doesn't reopen? And, with so much uncertainty, NAB is predicting the US dollar will remain stronger for longer, which is likely to keep the Aussie dollar below 70 US cents for some time to come. Hear more about that in today's podcast too.

Friday 15th July 2022 In a week of surprises (US CPI and labour market data, Canada's interest rate rise, China's lockdowns and the US$-Euro parity), yesterday saw a sharp fall in Australia's unemployment rate. ‘It was our turn to surprise', says NAB's Taylor Nugent on this morning's podcast. Unemployment has now fallen to a level below what the RBA was forecasting for next year, so does this mean we should expect a much larger hike at the start of next month? The big news this morning is the attempted resignation of Italian Prime Minister Mario Draghi, adding to the turmoil in Europe and adding to the US dollar strength. Next week is shaping up to be a turbulent week for the ECB, particularly if Vladimir Putin doesn't turn on gas supplies as scheduled. Rising US PPI numbers added to the inflation story overnight. Today, US retail sales numbers are out, and the University of Michigan inflation expectations survey, which last month convinced the Fed to move rates higher.

Thursday 14th July 2022 US inflation has picked up more than expected, rising 9.1% in the year to June. The Fed's Raphael Bostic said later that “everything was in play” when it came to a July rate rise. NAB's David de Garis says, it doesn't take a genius to figure out what he meant. The Bank of Canada (BoC) had just raised rates by 100 basis points, more than had been expected, so had that paved the way for the Fed? It certainly makes the RBNZ's 50 basis point hike seem a little constrained. The UK GDP growth was, unusually, helped by trips to the doctor, rather than to restaurants. Locally, Australian labour market data will be studied closely. Can the jobs market tighten any more and add to the pressure for faster hikes from the RBA?

Wednesday 13th July 2022 There's no let-up when it comes to the downward expectations around the health of the global economy. US bond yields inverted further, suggesting a heightening of recession expectations. Oil prices fell sharply lower, suggesting demand is expected to fall further. US small business owners who expect conditions to improve in the next six months fell to minus 54%, the lowest in half a century. The confidence in the German ZEW survey hit a 10-year low yesterday. The NAB business survey also showed business optimism falling sharply. And NAB's Gavin Friend reckons the prospect of an energy crisis in Europe is the real danger that is not yet fully reflected in market pricing. What will turn all this around? Central banks think a race to higher rates will fix the problem, with the Bank of Canada and RBNZ trying to outdo each other today on who can rate the fastest. So, imagine the reaction if US CPI numbers come out higher than expected today.

Tuesday 12th July 2022 There's a more cautious tone in the markets today, with US equities falling, bond prices rising, and the US dollar continuing on the up and up. Sentiment hasn't been helped today by more lockdowns in China as COVID cases flare up. Ironically, Yuan loans have increased a fair bit. NAB's Tapas Strickland says this suggests, perhaps, that the economy will pick up once COVID cases have settled down. Meanwhile the Euro is very close to parity with the rising US dollar, as concerns grow about continuity of energy supplies. Already parts of Germany are starting to ration energy use.

Monday 11th July 2022 It is a bit weird that positive US jobs data would be seen as heightening the expectations of a recession, but that seems to be the case. As NAB's Ray Attrill explains on today's podcast, the strength in the non-farm payrolls numbers of Friday did nothing to ease expectations that the Fed will continue with a rapid pace of rate hikes, and that could easily lead to a recession in the US. In Europe ECB speakers, like Robert Holtzman, are pushing for larger rate hikes even though rising energy prices (and shortages) are a very real prospect, with the next meeting this week. Meanwhile, recession prospects and a strengthening US dollar are playing havoc in emerging markets, as evidenced by the situation in Sri Lanka right now.

Friday 8th July 2022 There have been slightly less recession concerns in the US overnight, with equities and commodity prices pushing higher and 10 year Treasury yields pushing back over 3%. Jobs have been front and centre, with weekly jobless claims not moving far, and non-farm payrolls adding more data to the picture later tonight. It's been a torrid day in UK politics, with Boris Johnson resigning but not leaving Downing Street until a replacement is found. NAB's Gavin Friend talks through the impact it'll have on the UK economy. Whilst China is contemplating a massive spending spree for local governments to build infrastructure and get the economy back on track.

Thursday 7th July 2022 The FOMC minutes are out, pointing to significant risk if inflation isn't nipped in the bud. Markets are taking this as a sign that the Fed will lift rates more quickly, starting with a 50-75 basis point hike at the next meeting. This has added to concerns about the Fed inducing a recession, yet equity markets continue to climb. Phil asks NAB's Ray Attrill whether the minutes are a little out of date, given the ISM read shows a fall in employment. We'll get a clear indication of the jobless rate with initial claims for the US tonight. And Australia's trade balance is the major release locally.

Wednesday 6th July 2022 The Euro is getting closer to parity with the US dollar. In today's podcast NAB's Skye Masters points out that the Markets team had forecast parity by the end of the year, but it looks like it wil happen much sooner than that. The big moves overnight, including a sizable fall in oil and copper, show recession fears are front and centre, even though there's been very little data, and what there has been has not been particularly bad news. Skye says days like today, where there are some contradictory shifts, demonstrate the importance of looking at the trends and focusing on the bigger picture. Tomorrow could easily see a reversal of the moves we've seen today. The US share market had a wide trading range today, showing just how much uncertainty there is in the direction of travel right now.

Tuesday 5th July 2022 The RBA meets today and the NAB expectation is that they will lift interest rates by 50 basis points. Phil asks NAB's Tapas Strickland whether, by seeing inflation rising slower than many other parts f the world, whether we'll see a lower peak and hence, less work needed by the RBA. There seem to be lots of hope lately that inflation might be showing signs of peaking, but the war rages on and oil and food supplies are still heavily constrained. The most telling reality check is that Germany trade has fallen heavily into deficit, for the first time since 1991 (and even then, only relatively briefly). It could be worse still if Russia restrains supply even further.

Monday 4th July 2022 Recessions fears continue to rise, pushing bond yields lower. As NAB's Rodrigo Catril explains, the ISM manufacturing report in the US on Friday added to the fears, showing a contraction in new orders. It's no longer an issue of supply constraints, demand is also softening. Yet inflation continues to rise. In Europe it grew from 8.1% year on year in May, to 8.6% in June. A big fall in copper prices also suggests an expected fall in demand. All this uncertainty is knocking the Aussie dollar down more than most currencies. This environment provides the ammunition for the RBA to make a large hike (50 basis points) tomorrow. Later in the week we'll see if the tight labour market in the US is easing any, with the release of the monthly non-farm payrolls data. Prepare for a bumpy week again.

Friday 1st July 2022 Yields are lower in the US and Europe as recession fears grow, prompted by weaker than expected personal spending in the US, with a very strong chance of a negative Q2 GDP, which would mean the US economy was in recession. Whilst you might hope less consumption would mean falling inflation, NAB's Tapas Strickland days there's little sign of it yet. It wasn't just the US receiving bad news. There was a flurry of negative data for Europe, even before the EDB lifts rates, and a particularly bad activity outlook report from New Zealand. So, if the US, Europe, UK and New Zealand all go into recession, does that mean Australia will follow?

Thursday 30th June 2022 Markets are confused as to where the global economy is heading. If investors were looking to the ECB Forum in Sintra for clarification, they will have been disappointed, with Jerome Powell confessing that recent experience has shown ‘how little we understand inflation'. NAB's Gavin Friend says it doesn't inspire you with confidence, when central banks are feeling their way. Meanwhile, all we can do is look for signs of softening economies, in the hope that falling demand will match up with lower supplies. On that basis a downward revision in US GDP could be seen as good news and Australian retail sales holding up the opposite side of the coin. There is a plethora of data today to add to the confusion, including the core PCE deflator, that the Fed has traditionally turned to as its measure of inflation.