Investors look ahead to central bank policy decisions from the Federal Reserve, European Central Bank and Bank of Japan this week. Japan CPI higher than expected

Global equity markets were little changed on Friday with the S&P consolidating near 15-month highs. Markets are looking ahead to central bank policy decisions from the Federal Reserve, European Central Bank and Bank of Japan (BOJ) this week as well as a busy US corporate earnings calendar. Global credit markets continue to trade near multi-month tights while the VIX, a closely followed measure of US equity market volatility, is trading at the lowest levels since the pandemic.

In commodity markets, grain prices continued to retrace the large move higher that took place following the Russian bombardment of Ukrainian export facilities. Chicago Board of Trade (CBOT) wheat futures fell 4.1% Friday to end at $6.975 a bushel. However, food prices remain in focus with news that India, which accounts for about 40 per cent of global rice exports, has banned international sales to lower prices and ensure availability in the domestic market. The Roger’s Agricultural price index is up more than 10% since the end of May and is at the highest level since June 2022.

Japan CPI increased 3.3% y/y in June which was 0.1% higher than the consensus and indicates lingering stickiness in inflation ahead of Friday’s BOJ meeting.  The central bank is expected to leave its policy settings unchanged with officials pushing aback against any near-term adjustment to its yield curve control program, which caps 10-year JGB yields at 0.5%, despite the inflation backdrop challenging the BOJ’s ultra-easy monetary policy settings. 10-year JGB yields closed up 2bps at 0.47% having risen back to the top of the YCC band over recent trading sessions.

In the absence of economic data for direction, US Treasuries were marginally lower in yield with the 10-year closing down 2bps at 3.83%. European bonds markets were little changed. News that UK retail sales beat expectations failed to elicit a response in the gilt market with 2-year trading down 5bps to 4.96% while 10-year gilts were steady at 4.28%.

The US Dollar was generally stronger against G10 currencies closing at the weekly highs. USD/JPY spiked higher following headlines that indicated BOJ officials see little need to act on yield curve control for now. EUR/USD was stable near 1.1130 and the Yen weakness saw EUR/JPY trade to the highest level since 2008 above 158.00. USD/CAD moved higher following weaker than expected Canadian retail sales data for May and downward revisions to the previous month.

NZD/USD extended the recent weakening trend overnight Friday closing on the lows near 0.6170 marking a sharp reversal from the July highs above 0.6400. There were no obvious drivers for the move lower beyond the stronger US Dollar. The NZD underperformed on the European crosses and was marginally softer against the AUD which closed near 0.9160.

NZ domestic fixed income markets moved higher in yield on Friday largely reflecting global moves in the absence of local data. The swaps market steepened with 2-year rates up 2bps while 10-year rates were up 9bps. This saw the 2/10s curve rebound from levels near -100bps which formed the lows in May and earlier this month. New Zealand Government bonds moved higher in yield in a largely parallel move. Australian 3 and 10-year bond futures are close to unchanged in the overnight session following the local close on Friday.

Statistics New Zealand announced that it intends to release more components of the CPI basket on the monthly basis in a response to requests for more timely data on inflation. New Zealand is only OECD country not to produce monthly CPI figures. The additional data is expected to be released towards from the end of the year and cover about 50% of the basket complementing information on food prices and rents already provided by the agency. 

NZ trade data for June is released today while the advance release of purchasing manager surveys (PMI) will be the focus overnight.