Investor risk sentiment remains fragile with global equities extending recent losses amid disappointing earnings from large US tech companies. The S&P is down more than 1%, falling further below the 4,200 level which formed the topside of the range through the first half of the year. Major equity benchmarks also declined in Europe and Asia. US treasury yields are lower, and the dollar index is little changed.
The ECB held rates steady at 4% as expected and outlined the economy is broadly evolving as anticipated. The accompanying statement was little changed from the September meeting noting that interest rates are at levels that, if maintained for a sufficiently long duration, will bring inflation back to its target. This reinforces market expectations that the tightening cycle is now complete. Reinvestments from the pandemic emergency purchase programme (PEPP) will run until at least the end of 2024. The meeting outcomes were in line with expectations and there was little market initial reaction as a result.
US GDP expanded at a 4.9% annual rate in Q3, marginally higher than consensus estimates of 4.5%. That was a jump from a 2.1% rate in the second quarter, and the strongest figure since the Q4-21. Growth was underpinned by strong consumer spending. The 2.4% increase in the core PCE price index was the slowest pace since Q4-2019 after removing some of the distortions during covid.
US Durable goods orders jumped 4.7% m/m in September which was well above the consensus and reflected a large rise in aircraft orders. The core reading, which exclude defence and aircraft orders rose 0.6% after an upwardly revised 1.1% in August. Meanwhile jobless claims printed close to expectations at 210k. Claims are stabilising at current levels after the adjustment lower in September.
Futures market pricing for the Fed funds rate was little changed following the data. There is about 5bp of tightening priced for the remaining two FOMC meetings this year.
US treasury yields moved lower across the curve amid rising risk aversion. 2-year yields declined close to 10bp from session highs of 5.14%. There was a similar decline in the longer end with 10-year yields moving lower in a largely parallel move. This continues the choppy price action of late with large moves in either direction. The US$38 billion 7-year auction saw strong demand despite the fall in yields. 10-year German bund yields fell 3bp to 2.86% while the equivalent maturity Gilt was little changed at 4.6%.
A US dollar dip aligned the move lower in treasury yields proved short lived and the dollar index is broadly unchanged in offshore trade. In the majors, EUR/USD is marginally lower while price action in USD/JPY was erratic with the market on edge for any signs of intervention by the Bank of Japan. The move above 150 to 1-year highs in the Asian session yesterday prompted comments from finance minister Suzuki that he was ‘watching FX moves with the same sense of urgency’. USD/JPY traded up to 150.80 before dropping close to a big-figure in a matter of seconds but has since recovered.
After slipping below 0.5800 in the local session yesterday, NZD/USD recovered in offshore trade. The NZD outperformed within the G10 and made gains on the European crosses. NZD/AUD was stable near 0.9210.
In a continuation of choppy price action, NZ fixed interest markets moved higher in yield in the local session yesterday reflecting the moves in offshore markets. 10-year government bond yields increased 8bp to 5.50%. Shorter maturities outperformed leading to a steeper curve. Bonds outperformed swaps with the government bond market pricing in a reduced chance of a further syndication this year.
The weekly government bond tender saw decent demand with NZ$1.4 billion in bids for the NZ$500 million on offer. All 3 lines cleared below the pre-tender mid pricing. Australian bond futures have moved lower in yield since the local close yesterday, and combined with the more in treasuries, suggest a downward bias for NZGB yields on the open.
ANZ consumer confidence is the only domestic economic release of note today and will be closely scrutinised to see if there is a post-election bounce from what are depressed levels. Much of the US personal income and spending data is known following Q3 GDP.
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