Market movements modest ahead of tonight’s key US CPI release, with little net change in US equities and Treasury yields; modest currency changes

Market movements have been modest ahead of tonight’s key CPI release, with little net change in US equities and Treasury yields and modest changes in currencies. The AUD has outperformed, seeing NZD/AUD push lower as the NZD remains flat just under 0.59.

It has been a typically quiet start to the week, particularly so with the key release this week being the US CPI report due tonight. The US 10-year rate traded as high as 4.695% overnight, before falling back to 4.64%, down a touch from last week’s close and the NZ close. US equities are in a consolidation mode, after rising for nine of the past ten days on the S&P500 index. After a weak open, the index is currently little changed for the session.

The data calendar has been light. China credit growth figures released last night showed relatively steady growth of 9.3% y/y in aggregate financing, with the mix showing strong growth in government debt and relatively weaker private sector loan growth. Almost 85% of net credit extended in October was from the sale of government bonds.

In currency markets, net movements have been modest. The best performer of the majors we track has been the AUD, up 0.4% to 0.6385, a small recovery after being the worst performer last week with its 2.3% fall. The NZD has traded a tight range and shows little net change from last week’s close and sits at 0.5890, seeing NZD/AUD push down to 0.9220. NZD crosses are mainly slightly weaker, with NZD/GBP and NZD/EUR trading close to 0.48 and 0.55 respectively.

USD/JPY hit a fresh year-to-date high of 151.91, before plunging 70pips but, rather than suggesting it was the hand of Japan’s MoF, traders speculate that the sharp move was a result of options expiring. The currency immediately reversed course and currently sits at 151.60. While the market clearly remains jittery, Intervention at current levels isn’t seen likely, given that the pace of yen depreciation is more important than the level, and the rate of depreciation recently hasn’t been notable.

The domestic rates market had a sleepy session, with moves by the end of the day reflecting global forces, with NZGB yields up 5bps across most of the curve and swap rates up 4-5bps. The market ignored yet another weak data print. NZ’s performance of services index fell to 48.9 in October from the temporary lift to 50.6 in September, thus now making it four of the past five months in contractionary territory. When combined with the poor PMI published last week, it raises the chance of GDP contracting over the second half of this year.

In the day ahead, Stats NZ publishes its inaugural release of monthly price indices which will include the usual food and rental price indices, along with indicators for fuel and airfares and other measures that will feed into the CPI. The key overnight release will be the US CPI, where the market sees lower gasoline prices driving a softer 0.1% m/m increase in the headline measure, while an ex-food and energy lift of 0.3% m/m would leave the annual core increase at a 4.1% y/y.