US equities have pushed up to a fresh record high overnight, with investors choosing to accentuate the positive on mixed news headlines. US Treasury yields have slipped, as they retreat from gains earlier in the week. The USD’s downward path continues unabated, seeing the NZD break 0.71 overnight even though it was one of the weakest performers, so it is lower on the key crosses. GBP has recovered yesterday’s losses to head the leaderboard.
US equities show only modest gains, but enough to set fresh record highs, with the S&P500 currently up 0.2%. Investors have chosen to take a positive view of the news headlines – looking forward to the imminent rollout of a vaccine even as COVID19 spreads uncontrollably in the US; hoping for a fiscal stimulus package, even though key player McConnell’s stance hasn’t changed; and encouraged by a drop in jobless claims, even though there’s a good chance it is just statistical noise.
The daily infection rate of COVID19 in the US hit 200,000 for a second day, the daily hospitalisation rate broke through 100,000 for the first time and reported daily deaths hit a new high of over 2800. These figures look likely to continue to rise following further spread of the virus after the Thanksgiving holiday.
Negotiations around a new $900b bipartisan fiscal package are back in the spotlight, with key Democrat leaders Pelosi and Schumer on board with this smaller-sized package and Trump indicating that he will support a stimulus deal if Congress agrees to a bill. But, as per the previous long and tedious round of negotiations before the election, it has yet to get the approval of Republican Senate leader McConnell. His preference is for an even smaller $500b package and he has been consistent throughout the whole process for a small but well-targeted package. His comments in the Senate overnight implied that he wasn’t budging.
In economic news overnight, the US ISM services index slipped further to 55.9 in November, in line with expectations, with the comments suggesting most companies were more cautious as they navigate the pandemic and in the aftermath of the election. Initial jobless claims fell by more than expected to 712k last week, but the figures might be exaggerated by the Thanksgiving weekend. Pantheon Economics believes that the figures for this week will bounce back strongly, more indicative of a weaker labour market. The data comes ahead of the key employment report tonight, where expectations are centred on a 475k gain in employment – which would be the weakest gain since April – and a tick down in the unemployment rate to 6.8%.
While US equities have looked to the bright side, the Treasury market is not having a bar of it and the 10-year rate has pushed down about 2-3bps from the NZ close to 0.91%, although no doubt some of the move simply reflects a retracement of the notable rise in yields seen earlier this week.
In currency markets it is a similar theme, with more broadly based selling of the USD, down 0.5% on the DXY index and no technical barriers for another 2-3% decline in the short-term. USD weakness has been the key driver of the NZD breaking up through 0.71 and reaching its highest level since April 2018. It has since retreated to 0.7075. The AUD shows a similar path, touching 0.7450 overnight.
But the NZD is weaker overnight on all the key crosses, including a fall on NZD/AUD to 0.9510. EUR blasted up through the 1.21 mark, stretching to a 2½-year high of 1.2175. NZD/EUR has dropped to 0.5825, while NZD/JPY is down 0.4% for the day to 73.5.
GBP is the strongest of the majors, seeing no adverse impact of reports that France is leading a group of countries that could veto an EU-UK trade deal if it doesn’t like the terms. GBP has touched 1.35 on hopes that a deal can be agreed soon and NZD/GBP is down 0.8% for the day to 0.5250.
The domestic rates market was heavy early in the day in the lead up to the government’s bond tender, where strong demand saw rates fall back down, and most rates down 1bp for the day, against a swap market where rates were up 1bp across the curve. The government’s financial accounts showed further strong improvement, with the core operating balance running almost $5b ahead of Treasury’s forecasts made only a couple of months ago, with tax running well ahead of plan and spending well below. Ironically these figures were published the same day the government rushed through a promised tax increase for top income earners. With filled coffers, odds favour a reduction in the bond tender programme at the 16 December half-year economic and fiscal update.
Finally, in the last hour or so, OPEC+ agreed on a compromise deal to gradually ease output curbs early next year, with 500,000 barrels a day added to supply in January. The news was well anticipated, with a modest impact on oil prices. Brent crude is up over 1% for the day to $48.90.
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