US equity markets were little changed in early afternoon trade and are consolidating the large gains made in November. Global bonds are higher in yield while the US dollar advanced. It was reported that OPEC+ members agreed to make an additional 1 million barrels a day of supply cuts. The agreement was in line with expectations and Brent crude prices were stable near US$83 per barrel.
Chinese manufacturing and services PMIs for November were below consensus estimates indicating weakening economic momentum. The manufacturing PMI was 49.4, and points to activity contracting for the second consecutive month. The non-manufacturing PMI came in at 50.2 which is the lowest reading since the economy was impacted by Covid last December.
Eurozone CPI fell to 2.4% y/y in November, which was below 2.7% expectations, and is the slowest annual pace since July 2021. The softer print was well flagged following below consensus readings across the larger European economies. The drop in inflation has prompted investors to bring forward pricing of rate cuts by the European Central Bank. The market is now pricing a 25bps rate cut by April next year.
US real personal consumption rose 0.2% in October which was above 0.1% consensus but lower than the 0.3% average monthly increase in the Q3. The data suggests consumer spending lost momentum at the start of Q4.
The US Federal Reserve’s preferred inflation measure, the core PCE index increased 3.5% y/y in October, down from 3.7% the previous month. This was the lowest level in more than 2 years and was in line with consensus estimates.
US initial jobless were in line with expectations at 218k. Continuing claims, a proxy for people receiving unemployment benefits, have risen to their highest level since late 2021, which indicates that is harder for those who lose their jobs to find new employment.
US treasury yields moved higher across the curve. 10-year yields increased 7bps to 4.32%, rebounding off multi-week lows near 4.25% with US policymakers pushing back against the markets dovish interpretation on Fed policy. San Francisco Fed President Mary Daly said that she is not thinking about rate cuts, and it is too early to call an end to hikes. And New York Fed President Williams noted that monetary conditions are restrictive but should remain so for some time to bring inflation back to 2%.
In currency markets the US Dollar made broad based gains, particularly against European currencies. The 0.5% increase in the Dollar index trimmed its monthly losses to close to 3%. EUR/USD fell more than 0.5% in a move which gained momentum following the soft European inflation data.
NZD/USD had choppy price action in offshore trade and is marginally weaker against the US dollar. A dip towards 0.6120 proved short-lived. The NZD is stronger on the European crosses and NZDAUD is near the post RBNZ highs at 0.9320.
NZ fixed interest markets moved lower in yield during the local session yesterday reflecting international markets. 10-year government bond yields fell 4bps to 4.88%, just above the November lows. The weekly government bond tender saw decent demand with NZ$1.5 billion in bids for the NZ$500 million on offer. The May 2051 maturity achieved a bid-cover of close to 2 despite the reduced NZ$50 million on offer.
Australian bond futures have moved ~10bps higher in yield since the local close yesterday suggesting an upward bias for NZGB yields on the open.
US manufacturing ISM is released this evening and is expected to rebound from the fall in October which wasn’t replicated in the regional Fed surveys. Fed Chair Powell is speaking early tomorrow morning (NZT).
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