It has been an uneventful trading session overnight, with no key economic releases and nothing new to drive the market.
The S&P500 is up 0.8%, on track to break the early-December record high, powered by a 2.3% gain in the IT sector. This followed yesterday’s “massive” announcement of President Trump unveiling a $100b AI infrastructure project that could rise to $500b, in partnership with Softbank, Oracle, OpenAI and others. However, there are already doubts about the scale of the project or whether it will get off the ground, with Elon Musk saying “they don’t actually have the money” referring to some of the partners. Gains for the S&P are narrow and most sectors show falls.
US Treasuries have traded a narrow range, with the 10-year rate currently sitting at the top of the range at 4.61%, a touch higher from the NZ close, after a fall to an overnight low of 4.55%.
President Trump continues to threaten to raise import tariffs in off-the-cuff comments. Yesterday, at an event at the White House Trump said “we’re talking about a tariff of 10% on China, based on the fact that they’re sending fentanyl to Mexico and Canada”. He added, “it’s not just China…we have a $350b deficit with the EU…they treat us very very badly, so they’re going to be in for tariffs”. Any mention by Trump on tariffs gets the attention of the market, but the blip in currencies proved short lived.
Trump’s “America First Trade Policy” focuses on 1 April as a key date for the conclusion of the various trade reviews and consultation reports to be delivered to President Trump, so all this chatter could continue for another couple of months without any concrete action.
Currency movements have been modest. The NZD has been sticky around the 0.5665 mark, little changed from this time yesterday as are most of the majors. AUD is 0.6275 and NZD/AUD is 0.9030. JPY is the weakest of the majors for no obvious reason. A 25bps BoJ rate hike tomorrow is well-priced and wouldn’t surprise the market. NZD/JPY is up ½% to 88.75.
Yesterday, NZ Q4 CPI data were broadly in line with market expectations, even if annual inflation remained steady at 2.2% rather than ticking down further. All annual core measures fell further and averaged 2.6% on six measures we look at. Non-tradeables inflation of 0.7% q/q was the weakest in nearly four years. One red flag was the seasonally adjusted CPI rising by a chunky 0.8% q/q, breaking a downward trend, a sign that the disinflation process could well be over.
The domestic rates market was relieved by the inflation report and rates initially fell, before reversing course into the close. The result was only small net changes in rates on the day. NZGB yields were flat to down 2bps across the curve. Today the market will have to absorb a lot of duration risk at the weekly bond tender. The 2-year swap rate fell 1bp to 3.54% while the 10-year rate rose 1bp to 4.16%. There is a strong market consensus that the RBNZ will deliver another 50bps cut at the 19-February meeting, with 48bps priced at the close.
In the day ahead there is only second-tier data – NZ migration today and overnight Canadian retail sales, US weekly jobless claims and euro area consumer confidence.
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