US equities are flat, global rates are down slightly and the USD is slightly stronger. Oil prices continue to trend lower, with Brent crude down 2% to slip to a 7-week low below USD80

Newsflow has been light and market movements have been well contained at the start of a busy week. US equities are flat, global rates are down slightly and the USD is slightly stronger, with the NZD probing fresh multi-month lows below 0.5860.

It is an action-packed week ahead with policy meetings from the BoJ, BoE and Fed and top-tier economic releases including the US employment report, employment cost index, Australian CPI, China PMI, and euro area CPI and GDP data.  The US earnings season is in full swing with Amazon, Apple, Meta and Microsoft reporting this week.

McDonald’s earnings report offered some insight into the macro economy, with US same-store sales down 1% in the June quarter, the weakest outcome in four years.  Global sales also fell by 1%. The CEO said lower-income consumers began reducing their visits last year, but the slowdown has deepened and broadened across the US and other major markets.  The weak trends are continuing in the current quarter.  He added that consumers have been buying fewer items per visit or selecting cheaper ones, while many people are opting to dine at home.

After falling over the past two weeks, the S&P500 has started the new week relatively flat.  In bond markets, the US 10-year rate has traded a tight range of 4.15-4.19% since the Asian open.  European 10-year rates are down 5bps across most markets. The Fed is expected to guide towards a September rate cut, conditional on the data between now and then, which is fully priced. This a strong consensus view and was endorsed by Nick Timiraos in a WSJ article.

Oil prices continue to trend lower, with Brent crude down 2% to slip to a 7-week low below USD80, with fears of global demand more than offsetting tensions in the Middle East – the alleged attack on Israeli-occupied territory by Hizbollah over the weekend, providing no support to prices. The widespread downturn in commodity prices continues, with Bloomberg’s industrial metals price index down 1%, making it lower 10 of the past 11 days.

In the currency market, the USD is broadly stronger, although gains have been small.  The NZD and AUD continue to struggle against the backdrop of lower commodity prices. The NZD has traded fresh three-month low just below 0.5860, with support at the April low holding, and it currently trades at 0.5875. The AUD is currently at 0.6545 and NZD/AUD continues to find support near 0.8975.

They aren’t the weakest majors to start the week though, with CHF and EUR slightly underperforming, seeing EUR at 1.0820 and NZD/EUR a whisker higher at 0.5430.

In other news, the FT reports that the EU is developing a two-step trade strategy to deal with Donald Trump, offering him a quick deal if he wins a second term as president, and targeted retaliation if he opts for punitive tariffs instead.  Should talks over improving trade fail and Trump applies higher tariffs, the European Commission’s trade department is drawing up lists of imports it could hit with duties of 50% or more.

It was an uneventful trading session in the domestic rates market, with NZGB yields marked down 2bps across the curve, the 10-year swap rate also marked down 2bps, while the 2-year swap rate was unchanged at 4.19%. NZ filled jobs fell for the third consecutive month in June, with downward revisions for prior months and Q2 now showing a 0.3% q/q drop. While the quarterly movements don’t always follow employment as measured by the HLFS, the data tilt the balance of risk to the downside for next week’s labour market figures.

In the day ahead the economic calendar kicks up a gear, with euro area Q2 GDP data, expected to show a modest 0.2% q/q lift. German CPI data, the US JOLTs labour market report and US consumer confidence will also be of interest to markets.

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