Fed Chair Powell faces lawmakers; reiterates that easier policy is likely at some point this year. US ADP employment and JOLTS data in line. US Treasury yields down. USD broadly weaker with DXY index down to it lowest in over a month

US Treasury yields are lower, the USD is weaker and US equities have recovered some of yesterday's losses.  Chair Powell reiterated the Fed’s view of easier policy later this year in front of lawmakers, while US labour market data were line. The NZD has recovered to 0.6135 and, alongside the AUD has slightly outperformed, seeing most crosses modestly higher.

Overnight, Fed Chair Powell faced lawmakers where he reiterated the outlook on monetary policy heard at the last FOMC meeting and supported by seemingly united committee members over recent weeks viz, “We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year.” The Fed remains data dependent and awaits “just some more good relatively low inflation readings…more of the same”.

US labour market data were broadly in line with market expectations, with a 140k lift in private payrolls in the ADP employment – recently a poor guide to the more important non-farm payrolls report due at the end of the week – and the JOLTS reports showing job openings nudging down to 8.86m.  Job openings were revised down for most of 2023 and the ratio of job openings to unemployed was relatively steady at 1.4. The number of people voluntarily quitting their job was the fewest in three years, suggesting workers felt less confident in their ability to find new jobs and positions that pay better.

Without any hawkish surprises by Powell and labour market data in line, US Treasury yields have pushed lower, with rates down 2-6bps, with a flatter curve. The 10-year rate has fallen to as low as 4.08% and currently sits at 4.10%. Fed Funds futures have nudged down in yield terms, with a rate cut by June almost fully priced.

US yields have fallen by slightly more than other markets, seeing the USD broadly weaker, with the DXY index down 0.5% on the day and at its lowest level in over a month.

The Bank of Canada kept its policy rate on hold at 5.0% for a fifth consecutive meeting and Governor Macklem said, “it’s still too early to consider lowering the policy interest rate”. Remaining in the statement was the line “the council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation”. Market reaction was well contained, with the first full rate cut still not priced until July.

There wasn’t much in the UK Budget to grab the attention of markets. The Treasury announced plans to increase borrowing by £5b more than expected to £265b worth of gilts in the year to March 2025, up from £237b in the current financial year.

The broadly weaker USD saw EUR regain the 1.09 handle for the first time since late January and GBP is stronger at 1.2750. USD/JPY has fallen to 149.30. The NZD and AUD have slightly outperformed, rising to 0.6135 and 0.6575 respectively. NZD/AUD is slightly weaker at 0.9330 but the NZD is modestly strongly on the other key cross rates.

In US politics, Trump made almost a clean sweep in the Republican primary contests held on “Super Tuesday”, pushing Haley into abandoning her campaign for president. The November Presidential contest looks to be a battle between Trump and Biden, barring any surprise political moves behind the scenes.

Lower global rates pushed down NZ rates yesterday and with a bias for some curve flattening. NZGB yields fell 4-8bps across the curve, with the 10-year rate down 8bps to 4.67%. Swaps showed smaller moves, with the 2-year rate down 3bps to 5.02% and the 10-year rate down 5bps to 4.48%. The Australian 10-year bond future is down 3bps in yield terms since the NZ close, suggesting a bias to lower NZ rates on the open.

In the day ahead, in NZ we’ll get more quarterly indicators to provide a better estimate of Q4 GDP, following yesterday’s stronger than expected construction data, which suggested less of a drag on growth from that sector. Key global data include China trade and US jobless claims.  The ECB is expected to keep policy unchanged, with the market on the lookout for clues on the timing of the first easing. Fed Chair Powell faces another session in front of lawmakers.