Stocks in Hong Kong fell sharply after a key briefing from Chinese officials underwhelmed investors. Oil prices retraced from recent highs. Global bond and currency markets little changed overall

US equities have rebounded from the previous session with the S&P up 0.8% in afternoon trade, despite falls in Asia and Europe, after Chinese officials held off announcing more stimulus. The Euro Stoxx closed 0.4% lower. Global bond markets are little changed in the absence of first-tier economic data to provide direction. The US dollar was generally stable, and oil prices retraced from recent highs. Brent crude fell toward US$77 per barrel having traded above US$81 earlier this week.

Stocks in Hong Kong made a dramatic reversal lower yesterday as mainland markets reopened after the Golden Week holiday. The Hang Seng China Enterprises Index closed ~9% lower after a briefing from China’s key planning body, the NDRC, which underwhelmed investors. The absence of new initiatives on the fiscal side weighed on China sensitive assets and commodity prices. Separately the latest World Bank forecasts show growth below the Chinese authorities target of 5% this year despite the recent stimulus measures.

US treasuries are little changed. 2-year yields retraced from the dip in the Asian session yesterday and are 3bps lower at 3.96%. 10-year yields are unchanged at 4.03% resulting in a marginally steeper curve. The 2y/10y UST curve appears to be stabilising near 6bps after the sharp curve flattening following the strong payrolls print.

The US$ 58 billion 3-year note auction attracted only tepid demand with below average bid-cover despite the back up in yields in recent sessions. The clearing rate was above the prevailing level in the market. The market has 10-and 30-year supply to absorb in the next few days.

Currency markets were subdued for the most part. The US dollar edged higher against the euro and yen. Oil sensitive currencies, the Canadian dollar and Norwegian Krone, underperformed within the G10 basket following the pullback in crude prices.

The Australasian currencies, which fell in the Asian session yesterday in line with other China sensitive assets, were generally stable. NZD/USD oscillated in a narrow range around 0.6120 ahead of the RBNZ’s policy decision today. There was limited movement on the major NZD cross rates.

NZ swap rates moved higher across the curve with a flattening bias in the local session yesterday. 2-year yields increased 4bps to 3.69% while 10-year rates increased 2bps to 4.0%. 10-year government bonds closed 2bps lower at 4.31%, with a notable outperformance relative to swaps, which appears to be flow related. 10-year asset swap spreads have compressed to 32bps from a recent peak near 40bps.

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

There is a consensus amongst economists for a 50bps reduction in the Official Cash Rate to 4.75% at the RBNZ Monetary Policy Review today. The market will be focussed on the accompanying record of meeting, to gauge the pace and magnitude of the easing cycle, and how the Bank assesses the economy is tracking relative to its August projections.

Minutes for the September FOMC are likely to outline that policy makers will be data dependent when assessing the pace of rate cuts. Recent commentary from Fed officials, suggests a consensus to reduce restrictive monetary policy settings, notwithstanding the dissenting vote from Governor Bowman, who preferred a smaller 25bps cut in September.