Newsflow and trading conditions remain light. US equities are notably weaker ahead of Nvidia’s earnings report just after the NY close. US Treasury yields remain in a consolidation mode with a curve steepening bias. A risk-off vibe and technical factors have seen the USD broadly stronger with European currencies underperforming. The NZD is modestly weaker at 0.6240 while NZD/EUR has pushed up through 0.56.
Nvidia, Nvidia, Nvidia….that’s all you’ll read about if you follow the financial press, with plenty of hype around its earnings report, due for release not long after the NY close at 8am NZ time. Its quarterly earnings report is now seen as important as a key top-tier US data release. The stock is down nearly 3% today with some last-minute nerves. The S&P500 is currently down 0.8% and the Nasdaq index is down 1.3%, dragged by weaker IT stocks. The Euro Stoxx 600 index rose 0.3% to come within a whisker (less than 1%) of its all-time high reached early June.
US Treasuries remain on a consolidation mode with the 10-year trading within a 4bps range overnight and it is currently up 2bps at 3.84%. The 2-year rate is down 3bps to 3.87%, resulting in further curve steepening, the 2s10s gap closing in on flat. The market didn’t have any trouble absorbing $70b of 5-year Treasuries auctioned.
The USD is broadly stronger, reflecting the risk-off tone and recovering from a technically oversold level, with the DXY index up a notable 0.6%. This takes the RSI back above the 30 level, the usual trigger for calling a currency oversold. EUR, which makes up the largest weight in the DXY index by far, was looking overbought (RSI above 70) at 1.12 and it has been the weakest major for the day, falling to just over 1.11. Other European currencies have underperformed, with GBP almost matching the fall in EUR, and trades down at 1.3180.
The NZD has shown a modest fall to trade near 0.6240, down from yesterday’s 7-month high of 0.6255. NZD/EUR has risen to a six-week high, regaining the 0.56 handle while NZD/GBP is up to 0.4730.
The AUD broke above 0.68 for the first time since January following slightly stronger than expected monthly CPI data, but the move wasn’t sustained, and it trades this morning down at 0.6770. NZD/AUD fell below 0.9170 and trades back just over 0.92. Australia’s monthly CPI indicator fell three-tenths to 3.5% yoy in July, with most of that reflecting government subsidies on electricity, not quite meeting the fall to 3.4% expected by the consensus. The lack of a smoking gun for rate cuts this year resulted in Australian rates pushing higher and, unlike the AUD, that move has been sustained overnight.
USD/JPY is modestly higher at 144.70. BoJ Deputy Governor Himino stuck to the playbook in a speech yesterday, echoing Governor Ueda’s comments in front of lawmakers at the end of last week – if the Bank “has growing confidence that its outlook for economic activity and prices will be realised, it will adjust the degree of monetary accommodation”. The other message was that the state of financial markets will matter as these affect the likelihood of whether the inflation outlook will be realised. Another rate hike isn’t seen imminent by the market, with the odds increasing of another hike by late this year, early next year.
In the domestic rates market, NZGBs traded heavy, underperforming the swap market at the long end of the market, ahead of the NZDM’s tender today where there is plenty of duration on offer, including $50m 2051s and $200m of 2035s, hot on the heels of last week’s $6b of new 2036 bonds sold. NZGB yields rose 1-5bps, with some clear curve steepening, against 0-2bps moves in the swaps market. Not market moving, NZ filled jobs fell 0.1% m/m in July alongside downward revisions to prior months that cumulate to the level being 0.4% weaker than previous estimates. The weaker data add to the chance that the unemployment rate for Q3 rises to a 5% handle, on its way towards the 5.5% level we have been projecting for some time.
On the calendar ahead the ANZ business outlook survey is released where we’ll be looking for any sign of the impact of the RBNZ’s August rate cut, although it’s still early days and some responses might have pre-dated the event. Tonight sees the release of German CPI, the second estimate of US Q2 GDP, where the market sees no change from the initial 2.8% annualised increase, and jobless claims.
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