US equity futures have rebounded from a soft session in the Asian time zone yesterday as US tariffs loom over markets. The S&P is up around 0.5% in afternoon trade. Asset markets are likely to remain on edge in the leadup to ‘Liberation Day’. US treasury secretary Bessent said President Trump will announce reciprocal tariffs at 8am tomorrow (NZT). Treasury yields extended lower, and the US dollar was generally weaker against G10 currencies.
US job openings fell to 7.57 million in February, which was below consensus estimates, and consistent with a cooling labour market. Elevated economic policy uncertainty appears to be weighing on labour demand. The private sector quits rate remained at 2.2% implying workers have declining confidence for new employment at higher wages.
The US ISM manufacturing index was slightly weaker than expected, falling to 49.0, from 50.3 in February. The headline index would have fallen further without the jump in inventories, which likely reflects some pre-tariff stockpiling. The details pointed to a stagflationary mix with both new orders and employment declining, while prices paid rose to the highest level since 2022.
The weak ISM and evidence of a cooling labour market supported the rally in US treasuries. 10-year yields fell to 4.13%, the lowest level since early March. The market has increased the amount of easing priced by the Federal Reserve. Market pricing implies close to 80bp of rate cuts by December. European bonds also moved lower in yield with 10-year bunds closing at 2.68%.
Headline CPI in the Eurozone dipped to a 2.2% annual rate in March which was in line with consensus estimates. Core inflation increased 2.4%. The ECB has previously signalled it may slow the pace of easing because of the inflationary risks posed by the looming trade war. Markets are pricing around a 75% chance of a 25bp cut in April and total easing of 60bp by December.
The US dollar was generally weaker against G10 currencies although the absolute moves were not large since the local close yesterday. The dollar bloc currencies were the best performers while the euro lost ground against the US dollar. NZD/USD traded above 0.5700 before retracing and NZD/EUR moved steadily higher and up towards 0.5280.
The Reserve Bank of Australia left rates on hold at 4.1% as expected. The accompanying statement noted monetary policy remains restrictive, and the continued decline in underlying inflation is welcome, but there are two-sided risks, and the Board is cautious about the outlook. There was nothing in the statement to suggest the Bank won’t cut in May, assuming inflation dynamics are favourable.
NZ Debt Management launched the tap syndication of the May-2032 nominal line yesterday and the transaction will price later today. The last book update revealed strong investor appetite with firm orders of NZ$16 billion. The deal is capped at a maximum of NZ$4 billion. Pricing has been tightened to a +14bp spread over the May-2031 reference bond.
Moves across NZ fixed income were driven by offshore markets in the local session yesterday. An initial selloff in NZ rates reversed as global yields retraced off the session highs. Ultimately, NZ swap rates were left unchanged while 10-year government bonds closed 1bp lower at 4.57%. Australian 10y bond futures are around 3bp lower in yield terms since the local close yesterday, which suggests a downward bias, for NZ yields on the open.
The only domestic data of note in the day ahead is building permits for February. Building approvals are released in Australia. In the US, ADP private payrolls data is scheduled later this evening. The consensus expects a 125K rise in ADP’s payroll measure though this series does not have a strong relationship with official labour market data released at the end of the week.
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