US equites are flat in afternoon trade with Fed Chair Powell’s testimony to lawmakers providing little fresh information on the monetary policy outlook for investors. Global bond yields moved higher with larger moves seen in European markets. The US dollar declined despite a further ratchetting up in trade tensions after the European Union said it will respond to any tariffs the US might impose on it.
Powell reiterated that the central bank doesn’t need to hurry to cut interest rates in his semi-annual Senate Testimony. Powell noted that the Fed’s policy stance is now significantly less restrictive, the labour market is broadly in balance and that longer term inflation expectations appear well anchored. He said that the Fed’s policy settings are well placed to deal with risks and uncertainties and that it is too soon to gauge the impact of tariffs on the economy.
Powell’s testimony had limited impact on market pricing for Fed policy. A 25bp rate cut is not fully priced until September and there is around 35bp of easing implied by the December FOMC.
US treasury yields traded modestly higher with a curve steepening bias. 10-year yields increased 3bp to 4.54%. European bonds underperformed treasuries. 10-year bund yields steadily increased and closed 7bp higher at 2.42%. Some noted an unexpected new 30-year bond offering in France as contributing to the move higher in European yields.
President Trump imposed 25% tariffs on all US steel and aluminium imports which will go into effect on March 4. The announcement in the NZ trading session yesterday, provided a temporary lift to the US dollar, but the impact soon faded. The European Union has vowed to respond, and EU trade ministers are scheduled to meet and discuss the next steps.
The US dollar is weaker against G10 currencies in overnight trade with the dollar index falling ~0.3% compared to the NZ close. NZD/USD traded modestly higher in line with the broader US dollar move and the NZD was stable on most of the major crosses. The exception was NZD/JPY which gained close to 0.5% and traded up towards 86.20.
NZ fixed income yields ended little changed in the local session yesterday with the market focused on the NZGB syndication. Swap rates closed 1 to 3bp lower across the curve with a flattening bias. 10-year NZGB yields closed 1bp lower at 4.60% which saw 10-year asset swap spreads widen back above 50bp.
New Zealand Debt Management issued an additional NZ$5.5 billion in the syndicated tap of the May-2035 line yesterday. This was towards the upper end of the indicated range of issuance volumes reflecting robust investor. The book size exceeded NZ$21.5 billion and was issued at a spread of 11bp over the reference May-2034 bond.
NZ Local Government Funding Agency will undertake its monthly tender today offering the May-32 (NZ$50m) and April-37 (NZ$50m) lines.
Australian 10-year government bond futures are about 5bp higher in yield terms since the local close yesterday implying an upward bias for NZ yields on the open.
There is no domestic or regional data of note today. US CPI is released later this evening and will be a key focus for markets. The consensus looks for a 0.3% monthly increase in both the headline and core readings. This would see the annual core rate edge lower to 3.1% from 3.2% in December. The January print is likely to be the last reading preceding the implementation of tariffs on US imports.
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