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Global equities are higher with the S&P breaking a 2-day losing streak to gain 1.2% while the Nasdaq was up more than 1.5%. Global bond yields are also higher following hawkish commentary from ECB president Lagarde and firm data in the US. The US Dollar is mixed against the majors.
President Lagarde’s speech at the ECB’s forum in Sintra presented a hawkish stance outlining the ECB is set to hike next July and that officials won’t be able to declare the end of the cycle any time soon. This suggests limited concerns about the weaker growth backdrop indicated by the advance purchasing manager surveys. Lagarde also commented the market must avoid expectations a rapid policy reversal which suggests the ECB may intend to hold rates at the peak for longer. Interest rate derivative markets weren’t much changed and almost fully price a 25bps hike in July and a total tightening of 50bps.
US durable goods orders rose 1.7% in May, easily beating consensus expectations for a 1.0% fall. Orders ex-transportation rose also rose more than expected and have been stronger recently than implied by leading indicators and the survey data. The Conference Board’s measure of consumers’ confidence followed the improvement in the Michigan survey and beat expectations though both measures of confidence remain below pre-COVID levels. New home sales jumped to 763K to the strongest level since February 2022.
US Treasury yields reversed an earlier move lower following the better than anticipated economic data. US 10-year yields reached a low near 3.7% before a sharp reversal towards the session highs at 3.77%. European bond yields are higher with 10-year Bunds up 5bps to 2.35% and 10-year Gilts up 7bps to 4.38%.
The Peoples Bank of China set the daily CNY fixing rate at a stronger than expected level for the second day running yesterday indicating increasing discomfort about recent weakness in the Yuan. The China Foreign Exchange Trading System (CFETS) basket measuring the Yuan’s performance against trading peers had fallen to the lowest level in more than two years on concerns about the slowing economy and divergent monetary policy. The stronger fix contributed to a sharp move lower in USD/CNH from levels near 7.25 which were new highs for the uptrend that began in January. Sentiment towards the Yuan was aided by comments by Chinese Premier Li Qiang that China will roll out measures to expand domestic demand and that the economy was on course to meet its official growth target this year. After the initial move lower, USD/CNH couldn’t maintain momentum and is little changed in overnight trade.
USD/JPY has extended the uptrend making fresh multi month highs above 144.00 following the US data. However, the Dollar lost ground against the Euro which gained support from hawkish commentary by ECB officials. NZD and AUD were not able to hold the CNH driven gains from the local session yesterday and slipped against the US Dollar in offshore trade. NZD/USD dipped towards 0.6170 while NZD/AUD was stable oscillating around 0.9230.
NZ fixed income opened the local session lower in yield before reversing higher with bonds underperforming relative to swaps in anticipation of an increase in supply from the start of the new fiscal year. New Zealand Debt Management (NZDM) release the bond tender schedule for July at 8:00 this morning. This is the first month using the flexible tendering approach for nominal bonds announced alongside the Budget in May. While total issuance volumes for each week will be outlined in the schedule, the actual bond lines and volumes will be confirmed on the Friday preceding the tender and incorporate feedback on demand from market participants.
On the economic calendar today, monthly CPI data for May is released in Australia and the ECB’s Sintra Conference concludes with a policy panel that includes the ECB’s Lagarde, Fed’s Powell, BoE’s Bailey and BoJ’s Ueda.
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