After the much-hyped US CPI figures, Wednesday was a day of some stunning reversals in global equity and foreign exchange markets. Immediately prior to the CPI release, the Dow Jones Industrial Average was up 150 points at 24,810. Less than 10 minutes later, it had fallen almost 500 points to 24,350. Barely ninety minutes after that, the index had rallied 370 points off its low and added a further 100 points before the close. It was a similar tale of extreme swings in FX. AUD/USD stood at 0.7860 just before the inflation numbers and, as stocks tumbled, it fell almost a full cent to the 0.7775 area. Two hours later, the pair had regained all its losses and more to a best level of 0.7885 and by the close of business in New York it was back on a 79 cents big figure for the first time since February 5th.
After the NAB business survey earlier in the week, yesterday we saw the Westpac survey on consumer confidence fell by 2.3% to 102.7 in February from 105.1 in January. The bank notes, “The survey was conducted over the week of February 5 – February 11. That week was marked by a wave of volatility in global share markets. The Australian market, which was more stable than most, still experienced some significant swings, being down a net 4.6% for the week while the US market (S&P 500) was down by a net 7.2%... Extensive media coverage of these developments would have unnerved respondents on two fronts – the impact on their own financial position and concerns for general global stability. These concerns appear to have been acutely felt by retirees whose confidence fell by 13.5%”. Looking at the details, Westpac point out, ““Developments in the components of the Index are consistent with the likely impact from last week’s market volatility. In particular respondents’ assessments of their own finances suffered, the ‘finances vs a year ago’ sub-index fell by 4.5%; and the ‘finances, next 12 months’ sub-index fell by 3.1%. We assume that these components have suffered temporary set- backs associated with market volatility. On face value the ‘year ago’ component is sending a very weak signal about likely spending prospects.”
We noted earlier in the week that Commonwealth Bank of Australia have changed their interest rate forecasts to remove the two hikes they previously had penciled-in for 2018. Westpac haven’t yet done this but note, “While we are less optimistic about the unemployment rate and the growth outlook, the Bank’s forecasts are not entirely out of line with our own view and, arguably, consistent with steady rates over the next few years.” NAB, meantime, still has two 25bp hikes in its forecast profile for H2 2018. Let’s see what today’s labour market report does to all those forecasts. The Australian Dollar opens in Asia at USD0.7910, with AUD/NZD at 1.0745 and GBP/AUD1.7690.