Newsflow remains light. US equities have edged higher, US Treasury yields show small movements but a clear curve steepening bias, and the US is broadly weaker. The NZD is probing a fresh seven-month high just over 0.6250 and is up for the day on the key crosses.
US equities remain in a consolidation mode, with the S&P500 tracking sideways over the past week and currently showing a small gain for the day. There is much anticipation over Nvidia’s earnings report, released tomorrow. Trading in the options market is consistent with a potential 9% move in either direction for Nvidia on the day following the report. The Euro Stoxx 600 index closed up 0.2%.
The US Treasuries market is also in a consolidation mode. The 10-year rate traded as high as 3.865% overnight and is currently up 1bp for the day at 3.83%. The yield curve has steepened, with the 2-year rate down 4bps to 3.90%. The market had no problem absorbing $69b of new two-year notes.
The economic calendar remains light. US consumer confidence, as measured by the Conference Board, rose more than expected to a six-month high of 103.3, with the expectations component up to a one-year high. The lift in confidence was supported by expectations of lower interest rates. The key labour market indicator weakened, with the difference between those saying jobs were plentiful and hard to get falling to a more than three-year low, consistent with the rising unemployment rate trend.
In other news, sentiment around the health of the Chinese consumer deepened further after PDD Holdings, owner of Temu in China, plunged 29% after a gloomy earnings outlook. The company’s goods are priced at the lower end of the market, and therefore the company was previously thought to be insulated from the softer economy, as consumers “traded down” to cheaper goods, but that has proven not to be the case.
Oil prices are down over 2% following the 3% gain yesterday after a political dispute in Libya saw the Eastern government shutdown export shipments. Brent crude is back below USD80 per barrel.
In currency markets the USD is broadly weaker, with the DXY index down 0.3% to 100.5, still hovering around the support level seen last December. GBP rose to a fresh two-year high just over 1.3260. On Monday we noted the different tone of speech between Fed Chair Powell and BoE Governor Bailey at Jackson Hole – Powell having more confidence that inflation was beaten and now focused on the health of the labour market while Bailey noting the job wasn’t done in fighting inflation. While the market sees the Fed cutting sequentially at every meeting as we head into 2025, the market still sees the BoE easing at a slower pace, with a likely pause at the next meeting in September.
The NZD has outperformed since this time yesterday for no obvious reason and is higher on all the key crosses. Meanwhile, the AUD has shown the least upward movement of the majors against the USD. The NZD is probing a fresh seven-month high just over 0.6250 while the AUD has yet to break the 0.68 resistance level. NZD/AUD has pushed up to 0.92.
Of note, NZ’s TWI index has risen 1½% since the RBNZ’s rate cut in at the August MPS, which surprised some in the market and led to a significant fall in NZ interest rates, a reminder that global forces are a much more important driver for the NZD than domestic forces. Also of note, the TWI is up over 3% compared to the RBNZ’s assumption of 69.5. If sustained, on its own it would reduce CPI inflation forecast over the next 18 months by about 0.3% according to the RBNZ’s model.
Global forces sent NZ rates higher across the curve yesterday, with some small cross-market underperformance thrown in. NZGB yields were up 4-6bps across the curve with a steepening bias as the ultra-long bonds underperformed. The swaps curve was also mildly steeper, with the 2-year rate up 3bps to 3.87% and the 10-year rate up 5bps to 3.94%.
On the economic calendar, in the day ahead NZ filled jobs and Australia’s monthly CPI indicator are released.
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