Early signs of recovery in Beijing and Shanghai property markets after policy easing. US equity futures down a touch; US Treasury futures point to small lift in rates

With the US on holiday, there has been little news and little price action in markets at the beginning of the week. S&P futures are currently down less than 0.1% and Treasury futures point to some small upside pressure on yields, with the implied 10-year rate up about 2bps. The net change in the Euro Stoxx 600 index was close to zero and European 10-year rates are up in the order of 3bps for the likes of the UK and Germany.

All key major currencies sit within 0.3% of Friday’s close. The NZD has traded a range of about 0.5930-0.5960 on rounded figures and currently sits at 0.5940, down a touch from last week’s close. The AUD is a touch higher at 0.6460 and NZD/AUD has drifted down to just below 0.92. GBP has been the best of the majors, up 0.3% to 1.2630, seeing NZD/GBP down to 0.47.

Sentiment on China has improved a little following the relaxation of mortgage down payments and lower mortgage rates announced towards the end of last week. The Hang Seng index rose 2½% yesterday and China’s CSI300 rose 1½%, with indices related to property developers on both markets up in the order of 8%. Reports from weekend house sales activity showed a strong pick-up for Beijing and Shanghai. One report noted in Shanghai the same number of transactions in one day as for the entire month of August. Existing home sales on Saturday in Beijing were double the previous Saturday, while there were 1800 units of new homes sold that day, more than half the 3100 units sold throughout August.

While improved sentiment supported Chinese stocks, there was no obvious impact on the currency market, with the yuan a touch weaker and the heavy hand of the PBoC in its daily reference rate fix merely stabilising the currency rather than driving any sustained recovery.

The domestic rates market traded heavy yesterday, with rates higher following the US Treasuries move on Friday night and some added underperformance, as the Australian bond market struggled as well. Both the NZGB and swaps curves steepened, with rises of 4-9bps.  The 9bps lift in the NZGB 10-year rate took it up to 4.91%.

The market remains nervous ahead of next week’s pre-election economic and fiscal update, where it is well acknowledged that the fiscal accounts are running much weaker than Budget estimates and this could see NZDM upscale the already-heavy issuance programme. Since the NZ close, the Australian 10-year bond future has risen another 4bps in yield terms.

In the day ahead, Governor Lowe will be presiding over his last RBA policy meeting, where there is a strong consensus of no change likely to the cash rate and almost no chance priced by the market. Ahead of that, Australian current account and China Caixin services PMI data are released.