Equities nudge higher. GBP, EUR gain on UK stimulus package. NZD, AUD testing range highs

Markets largely remain in a holding pattern. US equity indexes are marginally higher, so to US 10-year Treasury yields. Commodity prices and currencies are up, while the US dollar is weaker.

The UK Chancellor of the Exchequer, Rishi Sunak, unveiled a GBP30b (around 1.4% of GDP) package covering tax cuts on home-buying and dining out, and a new bonus program for employers who don’t fire staff. The plan includes raising the stamp duty threshold for property purchases, until the end of next March, which officials say will mean nearly 9 out of 10 people buying homes will pay no stamp duty at all. Sales tax for restaurants, hotels and attractions will be cut to 5% from 20%, while a government-backed discount on restaurant meals across the country will apply through August. In addition, the Chancellor included a GBP9b program to protect workers returning from furlough (a scheme that covered some 35% of the workforce and is to wind down), with a one-off bonus of GBP1,000 per employee if they remain in employment through to January. Sunak signalled more stimulus is likely.

This sent GBP on an upward trajectory taking other European currencies along for the ride. GBP/USD has lifted from around 1.2540 to be currently near session highs around 1.2620, up around 0.6% on the day. EUR/USD has followed suit, up around 0.5% to open this morning around 1.1330.

In COVID news, the number of confirmed cases in the US has passed 3 million, representing more than a quarter of all cases globally. Arizona and Florida both reported increases in cases, but at lower rates than their 7-day averages. The US is ramping up testing in the troubled southern states of Louisiana, Texas, and Florida. This will help clarify the situation as officials weigh how far to go in reopening.

Reports of a proposal by some of President Trump’s advisors to undermine Hong Kong’s currency peg fizzled out as it hasn’t been elevated to senior levels of the administration. But it is yet more signs of the simmering tension between the US and China.

The Fed’s Bostic was on the wires again with a mix of optimism and caution. The Fed’s Altanta President was hopeful the US economy will regain most of the jobs lost by year’s end, but worries about the confidence impact from resurgent virus cases. 

It all highlights the ongoing contest between economic reopening and rising cases, with markets weighting the balance. The S&P500 has pushed marginally higher, with gains in the tech sector offsetting weakness elsewhere.

The US dollar is a touch weaker, with the 0.5% decline in the DXY index the flipside of the strength seen in the European currencies.

A softer USD sees the AUD and NZD testing recent range highs, with mild gains in commodity prices also assisting. Brent crude is up around 0.6%, while gold prices have pushed through US$1,800/oz and up 0.5% on the day.

The AUD has shrugged off yesterday’s lull to be again eyeing the 0.7000 mark, currently sitting near session highs around 0.6980. The AUD also shrugging off reports of the recent COVID outbreak in Victoria spreading to the ACT yesterday, via two travellers from a Melbourne hotspot.

The NZD is also currently testing post COVID range highs, currently sitting just under 0.6580, moving up in tandem with the AUD. A push through might require a further lift in global risk appetite. Higher dairy prices are a support.

Yesterday saw the NZX milk futures for Fonterra’s 2020/21 milk price rise strongly, nudging $7.00, before easing back a touch. This was a follow on from the very strong GDT auction result the previous night, so offers no additional support to the NZD. But it does reinforce the brightening dairy price outlook with market pricing pushing above Fonterra’s $5.40 to $6.90 forecast range.

Bond markets were quiet overnight, with generally minimal moves. One exception seen over the past hour is Canada, following a fiscal update showing a deficit of 15.9% of GDP in 2020/21. Canadian 10-year bond yields are up nearly 5bps. Gilt yields showed little reaction to the UK’s fiscal stimulus, effectively unchanged on the day. US 10-year Treasury yields are barely up a point, at 0.65%.

The NZ rates market was very quiet yesterday. Bonds rallied a point or less across the curve, resisting the extent of the offshore rally in the previous session. NZ swap rates ranged from no change in the 1-year to nearly 2 bps lower out to 10-year. Today the NZDM tenders $950m of NZGBs via $450m 23s, $350m 29s, and $150m 33s, ahead of the next week’s 2041 syndication.

There again appears little on the data calendar for the day ahead to materially move markets. Locally, there will be some interest in the ANZ business survey considering the rather limited confidence bounce in this week’s Quarterly Survey of Business Opinion. Offshore, China releases the latest inflation figures and there are jobless claims out of the US.