Trump calls for lower oil prices and lower interest rates, but these benchmarks move little. The NZD rises. Focus today on BoJ meeting where a rate hike is widely expected

Market movements for the day were uninspiring until President Trump spoke virtually to an audience at the World Economic Forum in Davos.  His comments saw Treasury yields nudge down, a weaker USD and lower oil prices. After closing at a fresh record high yesterday, the S&P 500 shows a small gain in early afternoon trading.

Much of the President Trump’s message was the same as we heard on the campaign trail, including “My message to every business in the world is very simple: Come make your product in America and we will give you among the lowest taxes of any nation on Earth…but if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff.”

Trump said he was going to ask Saudi Arabia and OPEC to bring down the cost of oil, which saw a 1.7% drop in Brent crude to USD78 per barrel, before paring some of that loss. Trump showed off his credentials as a low interest rates guy saying “I’ll demand that interest rates drop immediately. And likewise, they should be dropping all over the world. Interest rates should follow us all over”. This comment saw US Treasury yields nudge down a couple of basis points. The 2-year rate is trading near its low for the day at 4.28%.  The 10-year rate traded an overnight high of 4.66% and is currently 4.64%, up 4bps from the NZ close.

While the USD dropped as Trump spoke, the changes in currency markets have been small overall. The NZD is at 0.5680, slightly higher from this time yesterday and the NZ close. Same goes for the AUD at 0.6290, while NZD/AUD is flat at 0.9030. JPY has reversed some of yesterday’s loss, ahead of an expected rate hike today. Movements in NZD crosses are all minimal.

In economic news, US initial jobless claims increased 6k to 223k last week, a little inflated by the California wildfires, while continuing claims rose 46k to 1.9m for the prior week, a fresh three-year high, signalling it is taking unemployed people a longer time to find a new job, consistent with a softening in the labour market. Canadian retail sales were weaker than expected in November, flat for the headline and down 0.7% excluding autos, but the advance estimate for December showed a 1.6% m/m rebound, supported by the temporary sales tax holiday.

The domestic rates market showed only small net movement in rates yesterday.  The large amount of duration risk the market had to absorb at the weekly bond tender wasn’t a problem, with solid demand across the lines. The 10-year rate (2035) ended the day flat at 4.66%.  The 2-year swap rate closed down 1bp at 3.53% while the 10-year rate was flat at 4.16%.

In the day ahead, focus will turn to Japan, where the CPI is expected to lift to 3.4% y/y, getting close to three years on the trot with above-2% inflation. A third BoJ rate hike this cycle, with the policy rate up 25bps to 0.5%, is widely expected, which does nothing much to change the fact that real rates remain deeply negative.  Tonight sees the release of flash PMI data for January across Europe and the US.