The RBNZ kept the interest rate on hold and took a less hawkish stance. Inflation in Australia is at two-year lows

Hawkish comments from the Fed supported the dollar and had a limited impact on the indices. Fed spokeswoman Bowman said that inflation will continue to decline if interest rates remain at current levels, but “it is not yet time” to start cutting rates. Kansas City Fed President Schmid also said: “With inflation running above target, labor markets tight, and demand showing considerable momentum, my view is that there is no need to preemptively adjust the stance of monetary policy.”

Strong earnings support equities: data from Bloomberg Intelligence showed that Q4 earnings for companies reporting on the S&P 500 rose 7.7% year-over-year, well above forecast (1.2%) and the highest since Q4 2021. About 90% of S&P 500 companies have reported so far.

WTI crude oil prices fell to $78.5 per barrel on Wednesday, retreating slightly from a one-month high as part of a likely technical correction. At the same time, investors continued to evaluate various supply and demand factors. Oil prices have gained around 3% over the past two sessions amid ongoing geopolitical risks in the Middle East and signs of a strengthening US physical market. The outcome of ceasefire talks between Israel and Hamas remains highly uncertain, while Houthi rebels in Yemen continue to disrupt shipping in the Red Sea, and there are also reports of attacks on telecommunications cables that lie at the bottom of the Red Sea. Investors are awaiting OPEC’s March decision to extend production cuts next quarter. According to preliminary reports, OPEC+ will consider extending voluntary oil production cuts in the second quarter and may extend them until the end of the year. This would be a bullish signal for oil.

We continue to watch the natural gas market. Producers’ efforts to combat oversupply by cutting production support the price, with companies such as Chesapeake Energy cutting their 2024 production plans by about 30%. Other industry leaders, including Antero Resources, Comstock Resources, and EQT, have also reduced drilling and production in response to market conditions. Natural gas prices rose to $1.8/MMBtu yesterday.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.06% yesterday, China’s FTSE China A50 (CHA50) jumped by 0.75% on Tuesday, Hong Kong’s Hang Seng (HK50) gained 1.09% on the day, and Australia’s ASX 200 (AU200) ended yesterday positive 0.57%.

On Wednesday, the Shanghai Composite Index settled at its highest level in almost three months as Beijing took a series of policy measures to support the stock market, boosting investor confidence. Investors are also looking ahead to the National People’s Congress, which begins on March 5, for signs of further policy support from the authorities. Meanwhile, investors are on edge as Hong Kong is due to announce its 2024 budget today amid a fragile economic turnaround amid a shaky recovery in China and lingering geopolitical tensions.

The Australian dollar fell to $0.652, hitting its lowest level in a week, as investors reacted to softer-than-expected inflation data in the country. The data showed that Australia’s consumer price index (CPI) remained at a two-year low of 3.4% y/y in January, unchanged from December and below forecasts of 3.6% y/y. Last week, minutes from the latest RBA meeting showed that policymakers discussed the possibility of further rate hikes at the February meeting. Still, they ultimately decided to maintain current monetary parameters, given signs of moderate inflation.

The New Zealand dollar slid to $0.61, hitting its lowest level in almost two weeks, as the Reserve Bank of New Zealand (RBNZ) kept interest rates unchanged and offered a less hawkish view on monetary policy than the market expected. The RBNZ kept the cash rate unchanged for the fifth consecutive meeting at 5.5%. The central bank noted the progress in containing inflation and lowered its forecast for rates to peak at 5.6% from 5.7%. However, the committee still expects monetary easing to begin in mid-2025. Markets have now lowered bets on a May rate hike to 20% from nearly 50% before the latest decision. Last week, RBNZ head Adrian Orr said there was still work to bring core inflation down but acknowledged the risks of excessive policy tightening.