US and EU PMI surveys point to a greater than expected slowdown in economic activity. This weak data contributed to a large move lower in global bond yields. Initial weakness in European currencies reverse as US data also disappoints

US and European purchasing manager surveys (PMIs) point to a greater than expected slowdown in economic activity and contributed to a sharp retracement lower in global bond yields. US equities moved higher, led by technology stocks, ahead of widely anticipated results from Nvidia, the chipmaker at the epicentre of investor excitement around artificial intelligence.

European PMIs raised concerns about the growth outlook. German manufacturing fell for the seventh straight month while services also moved into contractionary territory. Both measures were well below expectations. A backdrop of rising interest rates, weak consumer sentiment and high inflation are impacting demand for goods and services. Aligned with falls in Germany and France, the Eurozone composite index fell to 47 from 48.6 in July, which is the lowest level in nearly three years.

The market is pricing ~8 bp of tightening by the ECB at the September meeting, down from 14 bp at the start of the week. Investors will be looking to President Lagarde for further guidance on monetary policy in her speech at Jackson Hole later in the week. Bund yields fell sharply across the yield curve with 10-year yields declining 13 bp to 2.51%.

UK PMIs also undershot expectations with the composite index falling into 47.9 from 50.8 in July. 10-year gilt yields fell 17 bp to 4.46% which is the largest one-day move lower since the US banking stress in March.

US treasuries matched the moves in European bond markets with yields moving lower across the curve. 10-year bonds rallied 13 bp to 4.19%. US PMIs were also weaker than expected with the composite falling to 50.4, barely in expansionary territory. Investors will be looking for confirmation in the slowdown in activity from closely watched ISM surveys released at the start of September. The move lower in yields contributed to soft demand in the US$16 billion 20-year treasury auction. The auction tailed by nearly 1 bp with a relatively soft bid-cover ratio.

The US Dollar rallied initially following the European data with EUR/USD slipping 0.5% and reaching 2-month lows towards 1.08. However, the move reversed course after the release of the US PMIs with the US Dollar index fully retracing the earlier gains. The Yen outperformed amongst the majors, supported by lower treasury yields, and traded back below 145 against the Dollar. Weak retail sales constrained the Canadian Dollar performance.

NZD/USD fell towards 0.5930 in early European trade aligned with the moves in the US dollar. The subsequent reversal has seen NZD/USD rebound strongly to above 0.5980. The moves were largely matched the Australian Dollar with NZD/AUD remaining stable around 0.9240.

NZ fixed income markets ended moved lower in yield in the local session yesterday supported by weaker than expected retail trade volumes which are now falling at an annual rate of 3.4%. This is set against the backdrop of strong population and employment growth as well as a recovery in tourism which makes the fall even more notable. Bond yields fell 7bp in a parallel shift while swaps outperformed with a curve steepening bias. The spread between NZ and Australia compressed and we think this move can extend further. Australian 3 and 10-year bond futures are about 10bp lower in yield terms since the local close yesterday pointing to lower NZ yields.

New Zealand Debt Management is tendering NZ$500 million of NZGBs today split across 15 April 2027 ($250m), 15 May 2032 ($150m) and 15 May 2051 ($100m). In a sign of limited demand from market participants, there will be no inflation indexed bonds offered.

There are no domestic data releases today. Later this evening, US initial claims are expected to be unchanged from last week while a reversal of the June spike in aircraft orders should contribute to a 4% fall in headlined durable goods orders.