Newsflow remains light with modest changes in pricing across equities, bonds and currencies, as the market shows signs of consolidation following last week’s significant moves.
The key market mover has been lower oil prices, with Brent crude down 2½% for the day after yesterday’s 4.2% drop, seeing it trade below USD80 per barrel for the first time since July. When prices were above USD90 the narrative was very tight market conditions, with record demand and tight supplies leading to projections of falling inventories. The focus at the moment is apparently weaker demand, led by China’s tepid economy, while Russian export shipments are running near a four-month high, according to Bloomberg tracking data.
Lower oil prices have supported a bond market rally, led by the long end, with 10-year rates down 4-5bp across Europe and the US 10-year Treasury yield down a few bps to 4.53%, with the market eyeing up the 4.48% low in the aftermath of last week’s non-farm payrolls report. The curve is slightly flatter, with the 2-year rate little changed on the day.
Fed Chair Powell gave some opening remarks at a Fed Research Conference, but he didn’t comment on the outlook for Fed policy. But he will be speaking again on a panel at an IMF conference in just over 24 hours. Soon after we go to print today, NY Fed President Williams will be delivering the keynote address at the Fed Research Conference.
The economic calendar has been devoid of new releases with the only snippet we could find being a five-member German council of economic experts that advise Chancellor Scholz slashing their forecast for GDP next year by almost half to just 0.7%, following an expected 0.4% contraction this year. The council noted a sluggish recovery in the global economy, especially in China, being a drag on German exports.
Currency markets show only modest movements but at the margin, commodity currencies are slightly weaker overall. The NZD has been range bound, consolidating between about 0.5910 and 0.5940. The AUD has consolidated just over 0.64 and NZD/AUD continues to consolidate its post-RBA gains and trades at 0.9230. The yen is on the weak side of the ledger, with USD/JPY up to 150.90 and NZD/JPY nudging up to 89.3. NZD/GBP and NZD/EUR are a touch softer.
Global forces sent NZ rates lower from the open yesterday, with lower long-term rates led by the swaps curve, with 5 and 10-year rates down 11bps and 13bps respectively, the latter closing the day at a 7-week low of 4.97%. The 2s10s curve flattened notably, with 2-year swap down “only” 5bps to 5.26%, its lowest level since early June. The sharp fall in rates over the past week could soon see some downward pressure on fixed mortgage rates, a reversal of the recent trend.
NZGBs didn’t keep pace with the fall in swap yields but still managed a 9-10bps fall from 5-years out, seeing the 10-year rate close at 5.10%, extending its fall over the six trading days of November to 46bps. There was no market reaction to the RBNZ survey of expectations which showed 2-year ahead inflation expectations down to a two-year low of 2.76%, although when rounded to 1 decimal place, the 2.8% figure has been unchanged over the past few quarters, playing to the sticky inflation narrative.
Finally, a story which will get our agricultural economist excited, the FT reported that US beef prices have climbed to record highs, as the western US faces the worst dry spell seen in 1,200 years and more than a third of the lower 48 states are still in drought.
In the day ahead the calendar remains light, with China inflation data and US jobless claims. Overnight, ECB President Lagarde will be speaking.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.