US equities ended last week on a soft note led by technology stocks. US inflation expectations fell more than expected. Better then expected activity data in China provided a temporary boost for Australasian currencies

US equities fell on Friday led by technology stocks following indications of weak demand from Taiwan’s TSMC, the world’s top chipmaker. The Nasdaq fell 1.6% while the S&P pulled back 1.2% to end little changed over the week. The beginning of a strike among US autoworkers also dampened investor sentiment. Global bond yields increased, and the US Dollar made marginal gains. Brent crude remained near recent highs at US$94.30 per barrel having increased a further 4% last week.

The University of Michigan consumer sentiment survey for September showed that inflation expectations fell more than expected. Consumers expect prices to rise 2.7% over the next 5 to 10 years which is the lowest level since the end of 2020. Policymakers will be encouraged that inflation expectations are finally responding to lower levels of current inflation. However, the final reading released late September, may be impacted by higher gas prices. Consumer sentiment fell to the lowest level in three months. Perceptions about the labour market and consumers financial situations deteriorated.

The Empire State index rose more than expected in September. This series has been particularly volatile since the pandemic but does align with expectations of a modest bounce in the advance PMI manufacturing reading later in the week. Industrial production rose 0.4% in August, above the consensus of 0.1%, boosted by a rebound in mining output due to higher oil extraction.

In China, retail sales and industrial production grew faster than expected in August. Industrial production grew 4.5% y/y in August, while retail sales, increase 4.6%. The economy has struggled to rebound amid a property slowdown, declining exports and low consumer demand. The Yuan advanced immediately following the data, but subsequently faded and ended little changed.

Global bond markets ended the week higher in yield. In Europe, 10-year bund yields increased 8bps to 2.67% unwinding the move lower in yields following the ECB meeting the preceding day. 30-year bunds reached the highest level since 2011. US treasuries took direction from European rates and moved 4-5bps higher in yield across the curve in a largely parallel adjustment. US economic data didn’t provide much additional impetus with a dip in yields following the consumer sentiment data proving short-lived. 10-year yields closed up 4bps at 4.33%, just below the 4.36% cycle highs.

In currency markets, the US Dollar Index traded higher overnight Friday. Although EUR/USD remained stable, the Yen underperformed amongst the majors and made a fresh 2023 low against the US Dollar. BOJ sources suggested financial markets had misinterpreted previous comments by Governor Ueda about potentially ending negative interest rates.

Australasian currencies underperformed within G10. Earlier gains, following the better than anticipated activity in China couldn’t be sustained. NZD/USD reached the highs near 0.5940 in early Europe before losing ground for the remained of the offshore session and closed near 0.5900. NZD/AUD was stable near 0.9170.

NZ government bonds were little changed in the local session on Friday with 10-year yields steady at 4.94%. Swaps were also unchanged. Australian 10-year bond futures are close to 4bps higher in yield from the local close on Friday suggesting a modest upward bias for NZ yields to start the week.

NZ services PMI is released today. On Friday, the manufacturing PMI fell further into contractionary territory and indicated the lowest level of activity for a non-COVID affected month since June 2009. It is a quiet start to what is a busy week on the international calendar with the Fed, BOJ and BOE monetary policy meetings taking place along with the release of advance PMIs.