Archives of “February 1, 2022” day

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RBA holds the Cash Rate at 0.10%, as expected. Ends QE

  
  Analysis

Forecasts for the RBA include an end to bond-buying in February, rate hike 2022

  • Prior was 0.10%
  • Ends QE with final purchases to take place on Feb 10
  • Prior pace of QE was A$4 billion/week
  • While inflation has picked up, it is too early to conclude that it is sustainably within the target band
  • Repeats that it “will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range”
  • There are uncertainties about how persistent the pick-up in inflation will be as supply-side problems are resolved
  • Wages growth also remains modest and it is likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at target.
  • RBA says is “prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve”
  • RBA balance sheet is around $640 billion
  • RBA will consider the issue of balance sheet reinvestment in May

In the December statement, the RBA tipped that it could end QE in ‘mid-February’. The program was widely expected to be ended today.

Previously, the RBA had said only a gradual pickup in underlying inflation was expected. The very same month, core prices rose 1.0% m/m, data revealed last week. Since then, market pricing for hikes has picked up and there was a 14% chance of a hike priced in next month, rising sharply from there.

This statement should be read as a push-back against those expectations and so it’s no surprise that AUD/USD has taken a quick trip to 0.7040 from 0.7070 beforehand.

More:

  • faster-than-expected progress has been made towards the RBA’s goals and further progress is likely
  • central forecast is for GDP growth of around 4¼ per cent over 2022 and 2 per cent over 2023
  • high numbers of job vacancies suggest further gains in employment over the months ahead
  • central forecast is for the unemployment rate to fall to below 4 per cent later in the year and to be around 3¾ per cent at the end of 2023.
  • Wages growth has picked up but, at the aggregate level, has only returned to the relatively low rates prevailing before the pandemic
  • Gradual pickup in wages is expected
  • The central forecast is for underlying inflation to increase further in coming quarters to around 3¼ per cent, before declining to around 2¾ per cent over 2023 as the supply-side problems are resolved and consumption patterns normalise

The RBA’s previous forecast on inflation was not to hit underlying inflation of 2.5% until 2023. Now it’s saying there will be a short-term rise that will sort itself out and then the pace will fall to 2.75% over 2023.

US: We only have ‘a handful of weeks’ left to get Iran nuclear deal

  
Analysis, Politics
  • Talks are in the ‘final stretch’
  • Progress has been made in narrowing the list of differences
  • Negotiators have returned to capitals for consultations to figure out whether leaders are prepared to make the tough political decisions needed
  • Iran is shortening nuclear breakout time in ways that are ‘extremely dangerous’
  • Talks with Iran have been business-like and the US can see a path to a deal
  • We don’t think sequencing is going to be an insurmountable obstacle

It sounds more and more like a deal is coming together. The US needs lower oil prices more than it needs to keep Iran at bay. WTI was up another $1.48 to $88.30 today.

The question is: How much is priced into crude? I think the market is coming around to the idea of a deal but lately it hasn’t impacted crude. OPEC also says it has contingencies in place to deal with more Iranian crude, though I’m not sure that’s in plat at $90 brent.

Finally, it’s an open question how much oil Iran has been able to export outside of sanctions. There are many invisible barrels out there.

US major indices end the last day of the month with solid gains, but worst month since March 2020

  
Analysis, US Market

The major indices are closing sharply higher on the day as gains accelerated into the close and last day of the trading month. Although the major indices are still down on the month, the losses have been slashed in the last few days of the trading month.

  • All 11 sectors of the S&P close higher
  • S&P and Nasdaq have their worst month since March 2020
  • Nasdaq has its worst January since 2008
  • S&P and Nasdaq have their best 2-day gain since November 2020
  • Tesla fell 11% in January
  • Amazon fell 10%.

The final numbers are showing:

  • Dow rose 406.37 points or 1.17% at 35131.85
  • S&P rose 83.67 points ro 1.89% at 4515.53
  • Nasdaq rose 469.32 points or 3.41% at 14239.89
  • Russell 2000 rose 59.94 points or 3.05% at 2028.45

Looking at the 11 sectors today were:

  • Consumer discretionary rose 3.9%
  • Technology rose 2.6%
  • Communication rose 2.3%

The worst performers today were:

  • Health care, +0.6%
  • Energy, +0.5%
  • Consumer staples, +0.4%

For the month,

  • Dow, -3.32%. The Dow was down -8.77% at the month’s low
  • S&P -5.3%. The S&P was down -11.4% at the month’s low
  • Nasdaq -8.98%. The Nasdaq was down -16.3% at the month’s low
  • Russell 2000, -9.8%. It was down -15.34% at the month’s low

Both the S&P and Dow closed back above their 200 day MAs.

For the Dow, the 200 day MA comes in at 34977.70. The 100 day MA is above at 35344.19. Getting above the 100 day MA would give buyers more confidence.

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