Americans return from holiday break to lower rates across Europe and US Treasury yields down 3-4bps from last week's close, 10-year rate down 7bps

It has been a quiet start to the week, as the US returns from holiday. US equities are currently flat, US Treasuries show a modest fall in yields across the curve and currency movements have been small. The NZD is trading little changed from last week’s close after a brief look just over 0.61 overnight, a fresh three-month high.

It has been a typical sleepy start to the new week, with little data and little newsflow. In terms of financial market pricing, the most notable move has been a fall in global rates, with European 10-year rates down in the order of 9-10bps, and the UK 10-year rate down 7bps. US Treasury yields are down 3-5bps across the curve since last week’s close, with the 10-year rate currently trading at 4.42%. Relative to the NZ close the move has been greater, as higher yields during the local trading session have given way, and change is closer to 8bps lower.

In economic data, US new home sales fell 5.6% m/m to 679k in October, with downward revisions to prior data, adding to the downside miss to consensus estimates. The data are volatile and have been trending high this year, given the lack of activity in the existing home market.

ECB President Lagarde testified to Parliament and there weren’t any new messages. On rates, she reiterated that the ECB expects to maintain interest rates at current levels for a sufficiently long duration to make a substantial contribution to restoring price stability. As widely acknowledged, base effects will lift near-term headline inflation, however, the medium-term outlook remains “surrounded by considerable uncertainty”. On QT, she said that in the not-too-distant future, the GC will reexamine the previous guidance on the pandemic bond portfolio – reconsidering how long they will replace maturing securities, with previous guidance being that they would continue to reinvest until the end of next year.

In an interview with Newcastle’s “The Chronical”, BoE Governor Bailey said that the potential growth rate of the UK economy was “no doubt…lower than it has been in much of my working life…it does concern me a lot”. Weak supply-side growth was one reason for keeping interest rates high and “they are unlikely to be cut for the foreseeable future”, noting that getting inflation down to 2% will be “hard work”.

Currency movements have been modest. The yen is the best performer against the backdrop of lower global rates, with USD/JPY down 0.4% to 148.90. EUR and GBP are little changed. The NZD is trading near 0.6090, where it closed at the end of last week. Overnight, the NZD briefly traded above 0.61 for the first time in over three months at a high of 0.6103., extending its recent rally and giving us more confidence that the currency has entered a new, higher, trading range. The currency breached the 200-day moving average of 0.6092, not that that technical indicator has meant much this year.

The AUD also traded at its highest level in over three months, taking a brief look above 0.66 and currently is just below that mark. NZD/AUD has range traded and sits at 0.9230.

After last week’s OPEC+ meeting was delayed due to disputes on future production, Saudi Arabia is asking others to reduce their quota to help support prices. Delegates report that no agreement has yet been made, amidst resistance to cut production. Oil prices are down a touch, with Brent crude trading with a USD80 handle.

The domestic rates market was quiet, with global forces seeing a small lift in yields across much of the curve and a steepening bias. While short rates were anchored, the rest of the NZGB curve was up 2-4bps. The 2-year swap rate was unchanged at 5.27%, consolidating last week’s significant sell-off, while the 10-year swap rate rose 5bps to 4.92%.

In the day ahead we get Australian retail sales and RBA Governor Bullock will be on a panel discussion at a conference. Tonight sees US consumer confidence released and respected St Louis Fed President Waller will be speaking on the economic outlook.