Global equity markets ease. The US dollar up off the recent lows. Oil prices looked past higher Middle East and declined on signs that supply disruptions in Libya are easing

Global equity markets are little changed in the absence of first-tier economic data or other catalysts. The S&P is marginally lower in afternoon trade while stocks in Europe also closed modestly lower. Global bond yields moved higher, and the US dollar bounced strongly off the recent lows. NZD/USD, which traded above 0.6350 yesterday, has fallen back below 0.6270.

Oil prices looked past a further ratcheting up of tensions in the Middle East and declined on signs that supply disruptions in Libya are easing. Brent crude fell to a low near US$73 per barrel before staging a modest recovery.

In Asia, the Hang Seng opened 3% higher with investor sentiment underpinned by the Chinese authorities wide-ranging stimulus package unveiled the previous day. However, the index pared the bulk of its earlier gains,
though remains 5% higher than levels at beginning of the week. A sustained improvement in market sentiment and a rebound in equity valuations will be dependent on an economic recovery in China as well as corporate earnings growth bottoming out.

US new homes sales declined less than expected in August, after a fall in mortgage rates, and optimism for further declines, following the Federal Reserve’s 50bps rate cut last week. The annualised rate of new home sales was 716k during the month, marginally above consensus expectations. A further fall in mortgage rates should provide support to housing demand over the next couple of months. The average 30-year-mortgage rate in the US declined by about 38bps to 6.35% during August.

US treasuries moved 4-5bps higher in a largely parallel curve adjustment ahead of 5-year supply. 10-year yields increased 5bps to 3.78% and are close to 20bps above the mid-September lows. The back in yields supported the US$70 billion 5-year auction which cleared in line with prevailing market levels. The market has a further US$44 billion of 7-year notes to digest tomorrow. European bonds also closed higher in yield with German 10-year bunds increasing 3bps to 2.17%.

In currency markets, the US dollar staged a strong recovery in offshore trade. There didn’t appear to be an obvious catalyst for the move but the dollar index, which had dropped to back towards multi-month lows in Asian session, climbed almost 0.5%. The move was broad-based against G10 currencies. Commodity currencies, which had benefited from the Chinese stimulus plans, were amongst the weakest performers.

NZD/USD retraced sharply from the 2024 high above 0.6350 reached yesterday. The NZD is lower against the GBP and EUR.

NZ fixed income yields moved lower in the local session yesterday led by the front end of the curve. 2-year swap rates closed 5bps lower at 3.58%, a new low for the cycle. The yield curve continued with the recent steepening trend. The 2y/10y curve extended to 28bps also a new high for the cycle. 10-year government bonds were unchanged at 4.20% with a further modest underperformance against swaps.

The NZGB market looks ahead to the weekly bond tender this afternoon. New Zealand Debt Management (NZDM) is tendering NZ$500 million of nominal NZGBs today split across May-29 ($250m), May-35 ($225m) and Apr-37 ($25m). NZDM announced yesterday that it is expects to undertake a syndicated tap of the existing 15 May 2030 nominal bond before the end of the year.

Australian 10-year government bond futures are ~2bps higher in yield since the local close yesterday, suggesting a modest upward bias for NZ yields on the open.

There is no domestic or regional economic data in the day ahead. US initial jobless claims are expected to increase after being artificially depressed the previous week by seasonal adjustments. There is commentary from several Fed speakers that will outline how they are thinking about the path forward after the FOMC last week.