Bessent for US Treasury Secretary is taking the top of US interest rate risk post-election. Oil prices eased on prospect of a cease-fire agreement in Lebanon

The US dollar opened the week lower on the major crosses and treasury yields fell sharply in response to President-elect Trump’s selection of Scott Bessent for Treasury Secretary. The nomination of Bessent, who is seen as a pragmatic pick given his deep familiarity with financial markets, is expected to prioritise economic and market stability.

In the first interview following his selection, Bessent said his policy priority will be to deliver on Trump’s various tax-cut pledges. More broadly he is thought to favour lower fiscal deficits, lower inflation and a gradual approach to tariffs. He said earlier this month that he would recommend tariffs be ‘layered in gradually’ to mitigate the risk of shocks in the market.

Global equity markets advanced with the S&P making a fresh intra-day record high above 6,000. The Russell 2000 index of small cap stocks, which is typically sensitive to interest rates and the domestic economy, made strong gains and also traded to a record high. Oil prices fell after Israel said it is potentially close to a cease-fire agreement with Hezbollah. Brent crude fell to US$73 per barrel.

After the initial move lower in the Asian time zone, US treasury yields continued to decline overnight. Yields on 10-year bonds dropped 10bp to 4.30% and back towards levels that prevailed ahead of the election. The yield curve flattened as 2-year yields dropped 7bp to 4.31%.

European sovereign bond yields also declined but the moves were relatively muted in comparison to treasuries. 10-year bunds closed 3bp lower at 2.21%.

The German Ifo index remained subdued reflecting the collapse of the German government and threat of tariffs.
The advance PMIs, released at the end of last week, showed private-sector activity contracting at a quicker pace with the composite index falling to 47.3. The German economy is expected to flat-line in Q4 before making a modest recovery next year.

After the initial gap on the global open yesterday, the moves in currency markets lost traction and the US dollar has rebounded overnight, despite the extension lower in treasury yields. Amongst the majors, EUR/USD peaked above 1.0520, before retracing. The Norwegian Krone underperformed within G10 currencies on softer oil prices.

The Australian currencies retraced overnight in line with the recovery in the US dollar. NZD/USD traded down toward 0.5840, only marginally above Fridays close. NZD/AUD has rebounded off the 2024 low and traded back towards 0.9000.

NZ retail sales volumes fell 0.1% in the September quarter. Although this was stronger than consensus estimates, retail sales remain exceptionally weak having contracted in ten of the past eleven quarters. This is the first major indicator for Q3 GDP and is consistent with another contraction.

There was a sharp move lower in NZ fixed income yields in the local session yesterday reflecting the move in global markets. NZ outperformed on a cross-market basis as investors looked ahead to the RBNZ’s Monetary Policy Statement on Wednesday.

The ongoing soft tone in retail sales also supported the move. Swaps rates rallied 9bp in a parallel curve adjustment. 2-year yields closed at 3.64%. There was a modest outperformance by the government bonds which closed 10-11bp lower across the curve.

Australian 10-year government bond futures are 4bp lower in yield terms since the local close yesterday, which suggests a downward bias, for NZ yields on the open.

There is no domestic or regional economic data today. US new home sales and consumer confidence are the only releases of note. The Fed will release the minutes of its November FOMC tomorrow morning (NZT). The meeting took place took place just after the US election, but the minutes are unlikely to mention the outcome or how it might alter the policy outlook.