US rates push up to fresh year-to-date highs as investors continue to push out the timing and scope of US Fed rate cuts this year. NZ rates follow up, with swap rate rises boosted

Market movements have been well contained to kick off the week without any key catalysts to perturb pricing. There was a total eclipse of the sun in the US and a total eclipse of the year-to-date highs for US rates overnight, before they settled back down, seeing the 10-year Treasury yield little changed from the NZ close. US equities are slightly higher and the USD is slightly weaker.  The NZD and AUD have outperformed a touch, supported by higher commodity prices.

In the absence of any fresh news, last week’s themes that drove markets remain in play at the start of a new week.  US Treasury yields hit fresh highs for the year as the investors continue to push out the timing and scope of Fed rate cuts this year. The 2-year rate rose to an overnight high of 4.79% and the 10-year rate reached 4.46%. Both are currently up 2-3bps on the day, but little changed from the NZ close, the 10-year rate at 4.42%. Fed Funds rate pricing suggests that the June meeting is close to a coin toss between a cut and keeping rates on hold, the first full rate isn’t priced until August and just 63bps of cuts are now priced for the year, essentially a coin toss between two or three rate cuts.

US CPI data for March due Wednesday night will impact this pricing if the data surprises.  The NY Fed’s survey on inflation expectations released overnight didn’t move the needle, with the median year-ahead figure steady at 3% for a third consecutive month after trending lower prior to that, the 3-years-ahead figure up 2-ticks to 2.9% and the 5-years-ahead figure down 3-ticks to 2.6%, the latter two series directionless over the past year.

In his annual shareholder letter, JP Morgan CEO Jamie Dimon’s comments were sobering. He said, “we may be entering one of the most treacherous geopolitical eras since World War II.” He repeated, but didn’t labour, his previous warnings on high debt levels, fiscal stimulus, ongoing deficit spending and the unknown effects of quantitative tightening, simply adding that the impact of geopolitical and economic forces are “large and somewhat unprecedented”. He said that the bank was prepared for a wide range of economic outcomes and broad range of interest rates, from 2% to 8% “or even more”.

In currency markets movements have been small to modest, with JPY underperforming against a backdrop of slightly higher global rates, but USD/JPY meeting resistance just under 152 with the threat of official intervention overhanging, and speculators not quite ready to take on Japan’s MoF.  The USD is on the soft side, with DXY down 0.2%, but gains for EUR, GBP and CAD have been contained to within 0.1-0.2%.

The NZD and AUD have outperformed, with last week’s “global reflation” trade still seemingly in play as commodity prices continue to push higher. On the London Metal Exchange, six of the seven key metals showed a lift in pricing, including a near 1% gain for copper to USD9412. The AUD is up 0.4% since last week’s close to just over 0.66 while the NZD is up 0.3% to 0.6035. China continued to show strong support for the yuan at its daily fixing.

Higher global rates from the previous NZ close drove NZGB yields up 9-10bps across the curve yesterday, with the 10-year rate closing at 4.74%. The swap market outperformed with the 2-year rate up just 6bps to 4.95% and the 10-year rate up 8bps to 4.54%. There has been little change in Australian bond futures overnight. The RBNZ’s MPR on Wednesday is widely seen to be uneventful for the market, with little change in view expected from the RBNZ.

In the day ahead, the NZIER’s quarterly survey of business opinion will shed some more light on the extent of spare capacity in the economy, pricing tensions and economic activity, ahead of the RBNZ’s policy review tomorrow. Global data are second-tier, although the US NFIB survey of small businesses is under-rated and has been signalling some cracks opening up in the US economy of late.