US labour market data in line with consensus expectations. The S&P rebounded from earlier losses to close higher. Fed chair Powell reiterated the central bank doesn’t need to hurry to cut rates

US equity markets rebounded from initial losses to close 0.5% higher with US labour market data closely matching expectations. US treasury yields moved higher as equities recovered while European bond markets ended little changed after the large selloff in previous sessions. The US dollar extended its decline against European currencies. Brent crude stabilised above US$71 per barrel and gold prices were stable, with data revealing China has expanded its reserves, for the fourth consecutive month in February.

Weak investor risk appetite is supporting allocations towards US money market funds. Assets have increased to US$7 trillion after US$51 billion of inflows over the past week. This likely reflects investor caution amid a pullback in US equities set against the backdrop of rapid changes in US trade policy. The VIX measure of implied S&P volatility increased sharply, reflecting a growing demand for insurance, given the uncertain macro backdrop.

US payrolls rose by 151k in February, which was trivially below the 160k consensus estimate. Net revisions to previous months were negligible. The unemployment rate increased to 4.1%, from 4.0% in January. Hourly earnings met consensus estimates, increasing 0.3% in the month which saw the annual rate edge higher to 4.0%, partially related to base effects from a low print in February 2024.

The labour market data points to ongoing resilience. However, the report pre-dates the increase in economic policy uncertainty, that has caused a sharp fall in business and consumer confidence, which could weigh on job creation and investment in coming months.

Fed officials provided comments on the outlook for monetary policy. Fed Chair Powell said the central bank doesn’t need to hurry to ease policy further and the path to 2% inflation is expected to be bumpy. Fed governor Waller said he wouldn’t support a March cut but sees room to cut rates by two to three times this year. He reiterated that the impact of tariffs on inflation would not be significant.

The market pared expectations for Fed easing this year after Powell’s comments. The amount of easing priced by December decreased to 70bp, from 80bp immediately following the labour data. US Treasury yields retraced from an earlier dip to end the session higher in yield. Some of the rebound was attributed to hedging ahead of corporate and treasury supply next week. 10-year notes closed 2bp higher at 4.30% having traded to an earlier 4.21% low.

After the significant sell-off in German bunds through last week, which saw 10-year yields 50bp higher at one point, price action was more subdued. Bunds closed the day unchanged at 2.84% after an earlier rally retraced with similar small moves across other European sovereign markets.

The US dollar was generally a bit weaker against European currencies but gained against the NZD, AUD and CAD. The EUR/USD rally faded ahead of 1.09 and the CAD was the weakest of the G10 currencies after job growth undershot expectations for February. NZD/USD traded below 0.5700 and ended the week marginally weaker relative to the NZ close.

There was a retracement in NZ swap rates in the local session on Friday after the sharp move higher in the preceding days. The move lower was largely in sympathy with offshore markets in the absence of domestic data.
2-year swap rates closed 6bp lower at 3.44%. Although the 2y10y curve flattened at the margin, it remains close to the 73bp cycle high, having broken outside of the 2025 trading range during last week.

Government bonds largely matched the moves in swaps rallying 7-8bps across the curve. The current 10-year May-2035 maturity closed 7bp lower at 4.62%. Australian 10-year government bond futures are little changed since the local close on Friday, suggesting limited directional bias, for NZ yields on the open.

It is a quiet start to the week for economic data with no domestic or regional releases of note. The NZ focus this week will be on GDP partials as well as high frequency activity data covering electronic card transactions and the manufacturing PMI. Inflation partials for February will also be closely monitored. The key international release is US CPI data.