NAB Morning Call Phil Dobbie

Friday 31st May 2024
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Assuming he stays out of prison, Donald Trump has an even chance of winning the next Presidency. What does that mean for the Fed? Trump has often argued for the need to keep interest rates low, so he’s probably not too happy with the higher for longer strategy being used to fight inflation right now. We also know he wants to challenge the independence of the central bank. But how would that work exactly?
On this Weekend Edition Mary Rosenbaum, Managing Director of the Observatory Group, an analyst firm in Washington specialising in geopolitics and macroeconomics, gives her take on what President Trump 2.0 could do to achieve his low-interest aims. Will he try and replace people in the Fed, or change the Federal Reserve Act so the government has more control over how the Fed operates, with Treasury members on the board perhaps. Or will Trump resort to bullying the Fed to see things his way?
Mary talks through the various scenarios and what the implications could be on bonds, interest rates and the dollar. Some useful insights that’s worth half an hour of your weekend.

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Friday 31st May 2024
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Inflation is taking a long time to come down, everywhere it seems. Europe reports its CPI today, but the numbers from Germany and Spain have already shown it’s taking longer than expected. NAB’s Gavin Friend talks about expectations around the Fed’s preferred inflation measure, the Core PCE Deflator, out later today. With Fed speakers doing their best to pus expectations further back a high number here could be the ammunition needed for those expected no cuts this year, and maybe a rise. That’s an argument made by Bill Dudley on Bloomberg today. Yet there are many signs of a weakening global economy, the US included, which will give hope to those expecting cuts sooner rather than much later.

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Thursday 30th May 2024
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Australia’s monthly CPI reads are always to be treated cautiously. Nonetheless, the surprise rise in inflation did create a response on Asian markets, pushing Aussie yields higher. JBWere’s Sally Auld talks about how weaker bond demand in US 7-year note auction added to the bond sell-off. Australia wasn’t the only inflation surprise. German CPI also rose. The ECB is wedded to a cut next week, but will they deliver the 60bp priced in for this year? In New Zealand the question for today is can the government meet all their budgetary promises without adding to the inflation worries.

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Tuesday 28th May 2024
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There were two bond auctions in the US overnight – for 2 year and 5 year treasuries. Both saw weaker demand than expected. Phil asks NAB’s Ken Crompton if investors are weary of the size of bond supply this year. Meanwhile US consumer confidence rose more than expected. Yesterday we saw weaker retail numbers than expected, but part of that can be explained away by the timing of Easter. Today there's the CPI number for Australia, although it’s not expected to influence the RBA’s sense of timing. 

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Tuesday 28th May 2024
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It’s been a quiet 24 hours with the UK and US on holiday, with the bond and equity markets closed in each place. But Europe was open for business, although the German IFO numbers offered little to get excited about – staying in the same place as last month. One ECB speaker said after the June rate cut, the central bank will retain ‘maximum optionality’ – central bank speak for we’re not sure what happens next. NAB’s Rodrigo Catril guides us through the data, and the commentary from the ECB and the BoJ. Australia’s retail sales numbers are out this morning, along with producer prices for Japan, and the Conference Board’s Consumer Confidence report out tonight in the US.

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Monday 27th May 2024
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Friday was a quiet end to the week, but the NSDAQ still managed to touch a new high. Bond markets closed early in the US, though, in readiness for a long weekend, that will see a slow start to this week. NAB’s Taylor Nugent says trade was light so we can’t draw any definitive conclusions about too much. Even Nobel economist Paul Krugman is unsure where things are heading. He said he could argue either way as to whether or not interest rates will remain higher for longer, and whether R* rate should return to 2019 benchmark levels, or has it moved higher. Does anyone know? After a quiet start, this week picks up with the US PCE deflator on Friday, and Australian retail sales and CPI prints before that.

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