Last week ended on a quiet note, but that didn’t stop US equities extending their record-breaking run. There were only small moves in US Treasury yields and currency movements were modest. The NZD traded a tight range and closed the week around 0.6070.
There were only second-tier economic releases on Friday night. US housing starts fell 0.5% m/m in September, in line with expectations, with weakness in multi-family homes offsetting strength in single-family homes. Permits fell by 2.9% m/m. UK retail sales volumes (ex-auto fuel) unexpectedly rose 0.3% in September, after strength over July/August, meaning that spending in Q3 was strong overall.
The data had little impact on the market. US equities showed a modest gain, with the S&P500 up 0.4%, taking its weekly gain to 0.9%, making it a sixth successive week of gains. The equally weighted index closed at a fresh record high, suggesting increasing breadth to the rally. The earnings seasons so far has been solid, economic data have been robust and the odds of Trump winning the presidential race has risen, all market-supportive factors. US Treasury yields showed little net movement for the day, with the 2-year rate closing down 2bps at 3.95% and the 10-year rate was down by less than 1bp to 4.08%.
During the NZ trading session on Friday, China monthly activity data for September were stronger than expected, with retail sales and industrial production picking up during the month. Q3 GDP rose 0.9% q/q, up from a downwardly revised 0.5% in Q2, still weak by China standards. Easier policy should help sustain positive momentum into Q4. After the figures were released, PBoC Governor Pan flagged the real estate and stock markets as key challenges in the economy that require targeted support, comments which supported Chinese equities, with the CSI300 index closing up 3.6%, while also supporting the yuan.
Japan CPI inflation fell to 2.5% y/y in September (from 3.0%), with the figure weighed down by the impact of government subsidies for utilities. The figure was in line with expectations, but high by global standards where most of the G10 now has inflation below 2%. Inflation has tracked above the 2% target for a full 2½ years now, making BoJ rhetoric that deflation has yet to be beaten laughable. The core measures were a tenth higher than expected, with the ex-fresh food and energy measure up a tick to 2.1%. Inflation just needs to hang around this rate for the BoJ’s normalisation process to continue, but another hike at month-end can be ruled out due to the timing of the Lower House election, making December the earliest possible date.
Currency movements on Friday were modest. The NZD continued to trade in a tight range and closed just over 0.6070. The AUD finished the week just over 0.67 and NZD/AUD was a touch higher around 0.9055.
The yen was the strongest of the majors, reversing course after its brief run above 150 on USD/JPY, closing the week closer to 149.50. GBP and EUR made small gains.
Domestic bonds performed well on Friday, outperforming on a cross-market performance despite the looming syndication deal this week. Against the backdrop of higher global rates, NZGB yields rose only 3-4bps across most of the curve (4-years and beyond) and swap rates were up 3-5bps.
The economic calendar is light in the week ahead, with a dearth of top tier data.
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