Treasury yields fell led by the front end. The US dollar index extended its recent decline reaching new lows for the year. US payroll growth in the year to March was revised down. FOMC minutes pointed to a September rate cut

Global equity markets are generally higher with limited economic data or other catalysts to provide direction. The S&P is up 0.3% consolidating its recent strong gains, as market looks ahead to speech by Fed chair Jay Powell at Jackson Hole on Friday night, when he is expected to provide guidance on the path for US interest rates. Bond yields fell following a large downward annual revision to US payrolls. The US dollar continued its recent decline and is broadly weaker against G10 currencies. Brent crude prices fell to US$76 per barrel, close to the lows for the year.

While not normally a focus for markets, the annual revision to US payrolls growth gained attention given the recent cooling in the labour market. The Bureau of Labor Statistics reported that US payroll growth in the year to March was preliminarily revised down by 818k or 68k per month. It was the largest downward revision since 2009. The data will be finalised next year. Overall, the labour data revisions support the Fed’s shift to a more balanced policy stance that is sensitive to growth dynamics.

The minutes for the July FOMC revealed that several Fed officials saw a case for cutting at the meeting before unanimously voting to keep them steady. The ‘vast majority’ of policy makers observed that if the data continued to evolve as expected, then it would be appropriate to ease at the September meeting. Striking a more balanced tone, most participants noted that risks to its employment goal had increased while inflation risks had decreased.

US treasury yields traded lower in yield across the curve led by the front end. 2-year yields declined 9bps to 3.90%, reaching the session lows after the FOMC minutes. The long end reaction was more muted with 10-year yields falling 4bps to 3.76%. The US$16 billion 20-year auction went smoothly and cleared close to the prevailing market levels.

The US dollar extended its recent decline and fell to its lowest level for the year as measured by the dollar index (DXY). The DXY fell 0.3% aligned with the fall in front end treasury yields. The index has lost more than 3% in August as investors look ahead to lower US rates.

The dollar’s fall overnight was broad based against developed market currencies. Sterling and yen were amongst the top performers while the AUD lagged. NZD/USD traded to marginal new upleg highs near 0.6165 amid the weaker US dollar backdrop. The NZD was mixed on the cross rates. NZD/AUD traded higher towards 0.9140.

NZ fixed income ended the local session yesterday lower in yield in quiet trading conditions in the absence of domestic economic data. 2-year swap rates dropped 3bps to 3.87%. The curve flattened with 10-year rates down 5bps to 3.88%, with the 2y/10y curve getting close to re-inverting. 10-year rates government bonds modestly underperformed swaps declining 3bps to 4.17%. The new May 2036 line closed at a spread May 35s of 8bps, marginally tighter compared with levels at Tuesday’s syndication pricing.

The weekly government bond tender has been cancelled today as is standard practice given the bond syndication earlier in the week.

Australian 10-year bond futures are ~3bps lower in yield since the local bond market close yesterday, suggesting a modest downward bias for NZGB yields on the open.

There is no domestic or Asia regional data today. The focus will be on advance PMIs in Europe and the US. Manufacturing PMIs have generally been in contractionary territory while service sector activity has been firmer. The US composite PMI is running well ahead of a weighted average of the ISM surveys, mostly due to a big gap between the readings for the services sector which can be expected to correct at some point.

The pullback in US initial jobless claims has helped push back on fears the labour market was slowing more sharply than expected and will be closely monitored by investors. The consensus looks for a modest increase relative to last week.