Further signs of cooling in the US labour market contributed to lower yields across bond markets and global equities remained soft after the sharp decline in the previous session. The S&P opened lower and is currently close to flat. Equities fell in Europe – the Euro Stoxx closed 1.3% lower – and Asian stocks also declined with the Nikkei falling 4%. The US dollar fell with the move concentrated against the yen. Brent crude traded below US$73 per barrel to fresh lows for the year. It was reported that OPEC+ members are close to agreement to delay a planned production increase amid weak global demand and increased supply.
US job openings, which are considered a proxy for labour demand, fell to the lowest level in more than three years. There were 7.7 million openings in July compared with consensus estimates for 8.1 million. This provides further evidence the labour market conditions have normalised. However, job vacancies haven’t been a reliable indictor for payrolls since the pandemic. The quits rate edged up to 2.1% which suggest people are less confident about their ability to find a new position.
US treasury yields fell led by the front end of the curve. 2-year yields are down 8bps to 3.78% with a modest steepening bias. The 2y/10y curve briefly traded into positive territory for the first time in almost two years. 10-year yields are down 5bps at 3.78% and are retesting the lower end of the range that prevailed from the middle of August. European yields matched the move in treasuries with 10-year bunds closing 5bps lower at 2.22%.
The Bank of Canada (BoC) cut interest rates for the third time in a row. The 25bps cut lowered the policy rate to 4.25% which was in line with expectations. The bank reiterated it is reasonable to expect more easing conditional on inflation continuing to fall and noted it sees little evidence of broad-based price pressures.
The US dollar followed treasury yields lower with the dollar index falling close to 0.5%. The yen was a notable outperformer within G10 currencies gaining 0.8% in offshore trade. The BoC rates decision didn’t leave any lasting impact on the Canadian Dollar, which is marginally stronger, but in line with other G10 currencies.
The Australasian currencies are marginally firmer against the dollar. NZD/USD reached a high above 0.6210 after the JOLTs data but has since retraced. The NZD is generally stable on the key cross rates though NZD/JPY has slipped back to 89.20.
NZ fixed income yields ended the local session lower in yield reflecting the safe haven moves in offshore markets. Swap rates dropped 9-10bps across the curve with 2-year rates closing at 3.85% and 10-year rates at 3.93%. 10-year NZ Government Bonds closed 9bps lower at 4.21% and outperformed on a cross-market basis against Australian government bonds.
LGFA saw good demand in the monthly bond tender. It received NZ$605 million of bids for the NZ$200 million bonds being offered. The May-2030 bond saw the strongest demand with 3.6 times bid-cover.
The NZGB market looks ahead to the weekly bond tender today. New Zealand Debt Management is offering NZ$500 million of nominal NZGBs today split across May-30 ($225m), May-34 ($225m) and May-41 ($50m). The May-41 continues to be the preferred ultra-long tender line with the 30-year sector only featuring once in the new fiscal year.
Australian 10-year government bond futures are ~2bps lower in yield since the local close yesterday, suggesting a modest downward bias for NZ yields on the open.
There is no domestic data released in the day ahead. US initial jobless claims and ADP payrolls data will be closely monitored ahead of the US labour market report tomorrow night (NZT). The consensus looks for claims to remain stable and for ADP private payrolls to pick up from July but the relationship with official payrolls is not strong. A small dip in the regional Fed services reports points towards a modest decline in ISM services from 51.4 in July.
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