Global asset market markets were broadly stable ahead of the US Federal Reserve’s interest rate decision. The S&P was confined to a narrow range with the index consolidating just below its record high. Moves in European equity markets were also subdued with the Euro Stoxx closing 0.3% higher. The US Dollar remained well underpinned against G10 currencies and global bond yields are little changed with limited economic data or other catalysts to provide direction.
UK headline CPI accelerated to a 2.6% annual rate in November, which was in line with consensus estimates, and compared with a 2.3% increase in October. Core and services inflation were both marginally lower than estimated. Base effects in the goods sector and higher energy prices have pushed prices above Bank of England’s 2% target, and aren’t expected to decline for several months, which supports its gradual approach to cutting interest rates.
The BOE is universally expected to keep rates unchanged at 4.75% at its policy meeting later this evening and market pricing implies around 60bp of easing by the end of next year. There isn’t a press conference or updated economic forecasts alongside the December meeting.
An initial drift higher in US treasury yields reversed and 10-year notes are unchanged at 4.40%. European bond yields are modestly higher - 10-year bunds increased 2bp to 2.24% while gilts added 3bp to close at 4.56%.
Chinese government bond yields stabilised near record lows, on reports the Peoples Bank of China (PBOC) has signalled to investors, that the rally has gone far enough for now. The guidance suggests the yields find some support near current levels while the market looks for fresh catalysts from the macro data.
The US dollar was well-underpinned ahead of the FOMC. In the majors, the euro and yen are about 0.3% weaker. The pound was the best performing G10 currency and is unchanged against the dollar. The Australasian currencies remained under pressure, and both declined to fresh lows for the year.
NZD/USD extended lower and traded below 0.5720. The NZD is modestly weaker on the major crosses. The largest move was in NZD/GBP which is approaching 0.4500.
It was a quiet session for NZ fixed income in the local session yesterday. Swap rates decreased 2-3bp across the curve. 2-year yields closed at 3.57% with the early October low of 3.51% remaining a near term target. The market looked past consumer confidence data, which revealed a further lift in Q4, and is consistent with a pickup in spending next year.
The modest rally in swaps was matched by the government curve. 10-year bonds closed 2bp lower at 4.44%. Australian 10-year government bond futures are unchanged since the local close yesterday.
The initial focus for markets this morning (8am NZT) will be the December FOMC, which is followed by a news conference by Fed Chair Jerome Powell, 30 minutes later. The Fed is widely expected to cut rates by 25bp, and this outcome is largely discounted by market pricing. Updated projections are likely to show less easing for 2025, compared with September, and open the way for a pause in the cutting cycle, dependent on the incoming economic data.
NZ Q3 GDP data is likely to confirm the economy contracted for the second consecutive quarter. We forecast a 0.4% contraction, which is below the RBNZ’s -0.2% forecast, from the November Monetary Policy Statement. There will also be significant revisions included in this release.
The Bank of Japan is expected to hold rates steady and set the ground for a hike in January.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.