US equities a bit lower, yields down a touch, USD marginally higher. Oil prices lift

Market movements have been generally modest, with limited news flow. US equities are lower, while the USD is a touch higher and US yields marginally lower. Oil prices have recovered some recent losses.

The second estimate of Q4 US GDP came in at 2.7% which was marginally lower than the initial print and under expectations. With core PCE inflation being revised higher to 4.3% at the same time, it looks like a case of higher inflation taking more of nominal incomes and suppressing real activity. Not a good look even if it is dated data with focus now the New Year bounce in activity. The latest US jobless claims showed a bit more labour market strength than anticipated into mid-Feb.

In other news, US Treasury Secretary Yellen said the global outlook has improved and noted signs of declining inflation across the globe but stressed that ‘there’s much more work to do’. She noted the resilience of the US economy.

The firmer inflation and stronger labour market data saw US yields initially jumped up before pulling back. The US 10-year rate traded up to a fresh three-month just through the 3.97% mark, before retreating. It currently hovers just over 3.90% a point or so lower from around the NZ close.

Yesterday morning, the Fed Minutes maintained a hawkish tone as expected given the chorus of similar commentary from Fed speakers. There was a small kneejerk pop higher in US rates initially, the move was not sustained.

Bond yields were lower in Europe, with core 10-year rates generally down between 4-8bps driving a flattening bias. 10-year Gilt yields were down a point.

US equities initially held up, but then extended the past week’s downtrend. The S&P500 currently sits down around 0.3%, with materials and consumer discretionary sectors among the laggards.

There was little net movement in currencies, although a whiff of a risk off tone later in the session saw the US dollar marginally higher against most of the majors.

EUR and GBP mildly underperformed, consistent with the move lower in European rates. EUR sits just around 1.058, GBP near 1.20.

NOK was an exception seeing a mild gain against the USD. Oil prices recovered some of yesterday’s losses to get back toward the middle of the range for the year to date. Brent crude is up more than 2% to sit around $US82.30/bbl.

NZD mostly traded its post-MPS 0.6210-0.6250 range through the night but tested through the bottom of that this morning as the USD strengthen. NZD currently sits just above support at 0.6200.

NZD/AUD has sustained its move higher post-RBNZ and softer AU wage data earlier in the week that saw a widening in NZ-AU yield differentials. NZD/AUD opens this morning just under 0.9150.

There was further comment from RBNZ officials yesterday, but it was essentially reiterating and dispersing the key messages from the Monetary Policy Statement issued the day before.

Domestic swap rates did see another shunt higher across the curve yesterday. Partly following prior offshore moves, partly on higher bond rates, and partly as the market moves to further price out the idea of OCR cuts later this year as well as inching closer toward fully pricing in a 5.5% OCR peak around mid-year. NZ 1-year swap is testing post-GFC highs. NZ 2-year swap rose 5bps, while NZ 10-year swap closed up 7bps.

NZGBs underperformed offshore and NZ swap as the market shifted attention away from the RBNZ and towards the syndication of the new 2030 nominal bond in March. By day’s end, NZGB yields had lifted 13-16 bps across the curve. The 2033’s closed more than 13bps higher in yield, as the bond cheapened more than 6 points to swap. 

There is nothing on the local calendar today. Offshore, Japanese inflation is expected to lift further. Keep an eye out for Ueda, the nominee to be the new BoJ governor, as he testifies before the Diet. Overnight there’s a host of US data with expectations for another round of activity data showing stronger readings for January (enhanced by warmer weather). The PCE deflators for January and UoM confidence readings are also due.