Weak risk sentiment has dominated markets to begin the new trading week. US equity market futures fell in Asia, and saw further losses overnight, before staging a partial recovery from the lows. The losses were led by technology stocks reflecting concerns that unexpected advances by a Chinese AI company DeepSeek, could challenge the US’s technical edge in artificial intelligence. The S&P dropped close to 3% at one point with larger falls in the Nasdaq. Global bond yields declined, and defensive currencies outperformed.
The soft risk tone contributed to safe haven demand for US treasuries with only limited economic data to provide direction. The yield on the 10-year notes fell to an intra-day low of 4.50%, marking a significant decline from the ~4.80% yield high, from the middle of the month. The market is pricing 50bp of easing by the Fed for this year, up from 42bp at the end of last week.
European markets saw relatively modest moves compared with the US. The Euro Stoxx closed 0.5% lower and 10-year bund yields closed 4bp lower at 2.53%, lagging the move in US treasuries.
China’s manufacturing and service sector PMIs were weaker than expected in January, suggesting growth lost momentum, despite the increased stimulus at the end of last year. The manufacturing PMI slipped to 49.1 from 50.1 in December. The service sector index slowed sharply to 50.2. The data suggests the need for more support from policy makers. Chinese markets are closed over the next week for the Lunar New Year Holiday.
Defensive currencies like the yen and Swiss franc outperformed amid the soft risk backdrop. USD/JPY traded below 154, marking a fall of close to 1%, taking the pairing to the lowest level in more than a month. EUR/USD recovered from an initial dip to be little changed.
NZD/USD began the week with a soft tone in Asian trade. The weak Chinese PMIs contributed to the move down towards 0.5670. The NZD is little changed against the dollar overnight but is weaker against the yen and euro.
It was a quiet session for NZ fixed income in the local session yesterday given regional holidays and with Australia also observing a public holiday. NZ swap rates were marked 2bp lower across the curve reflecting moves in offshore markets. 2-year rates closed at 3.50%, the lowest level in two weeks. The government curve matched the adjustment in swaps with 10-year NZGBs closing at 4.61%, 2bp lower on the day.
Australian 10-year government bond futures have traded lower in yield terms since the local close yesterday, and combined with the move in US treasuries, suggests a lower bias for NZ yields on the open.
Filled jobs for December is the only domestic data of note in the day ahead and are expected to show subdued growth. The BNZ and Seek employment report released yesterday, revealed that Job ads declined a further 2.1% in December, as the labour market continues its trend deterioration. Job ads are down 21.9% on a year earlier.
In Australia the NAB Business Survey is published. Later this evening, US durable goods orders and the Conference Board’s index of consumer confidence are released.
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