Market movements well contained. US equities up modestly, US Treasuries yields up slightly and the USD index is slightly stronger. Canadian inflation positively surprised, but this had more impact on rates than the CAD

Market movements continue to be well contained.  US equities are up modestly, US Treasuries yields are up slightly and the USD index is slightly stronger. Canadian inflation figures positively surprised, but this had more sustained impact on rates than the CAD.  The NZD has traded a tight range and is down slightly to 0.6120.

It feels like (northern hemisphere) summer trading conditions have come early, with the market trading in tight ranges across key assets.  Nvidia remains an exception to that rule, with its stock price recovering over 5% after a 13% drop over the previous three trading sessions.  Its volatility isn’t having much impact on the S&P500, with that index currently up 0.3% and on track for a fifth consecutive day of a movement of 0.3% or less. In a mirror image of yesterday, IT and communication services sectors lead the gains, while other sectors are lower.

US Treasuries continue to trade tight ranges. The 10-year Treasury met resistance again near the 4.2% mark and is currently up slightly to 4.24%.  Although not market moving, two Fed Governors offered opposing views on the policy outlook.  Bowman – considered the most hawkish FOMC member – wasn’t in favour of rate cuts this year, saying “reducing our policy rate too soon or too quickly could result in a rebound in inflation, requiring further future policy rate increases”. Cook, who appears to be more in line with Chair Powell, said that it will be appropriate to reduce rates “at some point”, with the timing determined by how economic data evolve.

In economic news, Canadian CPI inflation data defied expectations for a further slowing and picked up in May, breaking a four-month run of weaker figures.  Annual headline inflation rose two-tenths to 2.9% and the average of the median and trim core measures rose one-tenth to 2.85%. The stronger data reduced the chance of the Bank of Canada cutting rates for a second time in July, with rates higher across the curve, and the 2-year rate rising 8bps. The CAD spiked higher on the release, but the move proved temporary, and USD/CAD shows little net movement on the day.

The US Conference Board measure of consumer confidence was close to expectations, falling to 100.4 in May from a downwardly revised 101.3, driven by the expectations component. The labour market indicator – the difference between those indicating jobs are “plentiful” versus jobs “hard to get” – rose for the first time this year, raising a question mark whether labour market conditions are in fact deteriorating.

Currency movements have been small, with a hint of broad USD strength, but not significantly so.  The key majors we follow haven’t moved more than 0.2% against the USD for the day. The NZD edged lower towards 0.61 overnight and is currently back near 0.6120. The AUD is around 0.6650 and NZD/AUD is steady around 0.92.

Of particular interest to NZ, Denmark is moving ahead with the world’s first carbon tax on agriculture, looking to charge almost €100 a year (€16 per tonne of CO₂ equivalent emissions from livestock) for the greenhouse gas emissions from each of their cows. The tax will also apply to pig farmers. The FT report noted that a large cooperative group owned by farmers suggested that it was crucial for the tax to be “anchored in Europe” rather than for Denmark to act unilaterally.

The domestic rates market had another quiet session, with rates marked lower on global forces.  NZGB yields fell 1-3bps across the curve, with a slight flattening bias, while swap rates were down 1-2bps.

On the calendar today, Australian monthly CPI data will be of interest, where the RBA’s tolerance for upside surprises to inflation data is limited. Elsewhere, there are only second-tier releases.