Equities have pushed higher in the US, brushing aside equity declines in Europe on disappointing earnings. US bond yields and the US dollar are marginally lower, with commodity currencies outperforming. The NZD has hit fresh highs for the week.
A breakthrough on the US fiscal talks remains elusive. House Speaker Pelosi said negotiations on a new virus relief package were making progress, but the two sides still have major differences. President Trump said he was prepared to act alone if a deal wasn’t done by the end of the week, telling staff to work on an executive order covering a payroll tax cut, eviction protections, GBP unemployment benefits and student loan repayments. It still looks like something will get done in the end.
Meanwhile, US data continues to beat expectations. Initial jobless claims fell to 1,186k. The largest improvement in almost two months was much better than expectations fending off recent signs the labour market was stalling. The improvement comes as the resurgence in virus cases has begun to ebb, but the near-term outlook is heavily dependent on the outcome of the fiscal talks. Even with the drop, initial claims are still more than five times pre-crisis levels.
European equities declined on some poor earnings updates, including miner Glencore. The Euro Stoxx 50 index closed nearly 0.9% lower, despite much stronger than expected German factory orders.
US equity futures initially followed the European lead, but eased losses on the better US data. Sentiment was further improvement with the US State Department lifted its advisory against all international travel. The S&P500, which had been oscillating around flat for much of the session, pushed more clearly into the positive, to currently sit up 0.5%.
The tech sector outperformed again, with the NASDAQ up 0.9%. There was no hit from news that Amazon founder, Jeff Bezos, had sold 1 million of the tech giant’s shares for a cool $3.1 billion. It’s hardly a selling out, given Bezos still holds 54 million shares in the company.
The AUD and NZD sit at the top of the overnight currency leader board, with both seeing limited pullback on early equity weakness before pushing firmly higher on the better US data and improving risk sentiment. The AUD continues to probe its highest level since early 2019, up 0.6% on the day. The NZD is currently probing its highs for the week, up toward 0.6680.
In other news, the Bank of England held policy steady as expected, with unanimous votes to keep rates on hold at 0.1% and maintain its asset purchase target at 745 billion pounds. While risks abound, the MPC did issue a more upbeat set of economic forecasts including a lower 7.5% peak in the unemployment rate compared to nearly 10% before. On negative rates, BoE Governor said ‘they are part of our toolbox, but at the moment we don’t have a plan to use them’. GBP/USD initially jumped above 1.3180 on the news, but has since given back most of the gains to currently sit up 0.3%.
Gold has continued its stellar run higher with strong positive momentum, piling on another 1% overnight to push through $US2,050/oz.
US bond yields reflected the down and up pattern across other markets. US 10-year Treasury yields fell more than 4bps testing lows around 0.502 before bouncing back to be currently sit around 0.535, down about 1bp on the day.
NZ bond yields pushed higher and steeper yesterday, driven by the longer end that followed offshore movements in the previous session. A strong tender checked the gains in the afternoon with the market also eyeing the RBNZ’s LSAP today. NZGB31’s closed 3bps higher at 0.775%, with 23’s and 24’s up 1.5bps. There was less movement across the NZ swap curve.
There was no reaction to yesterday’s RBNZ survey of expectations, as we suggested would be the case. The survey did see a general turn for the better across a range of indicators. The once closely followed 2-year ahead inflation expectations rose to 1.43% from its record low of 1.24% in the previous quarter. Longer term inflation expectations were closer to the RBNZ’s CPI target mid-point of 2%. Respondents saw monetary conditions as currently very easy and expected them to remain so over the coming year. All this adds to other indicators suggesting there is no urgency for the RBNZ to alter policy settings at next week’s Monetary Policy Statement.
Over the coming 24 hours, there will be some focus on Chinese trade data for July although limited change is expected. This is ahead of US payrolls tonight where another large employment gain is expected with further reduction in the unemployment rate.
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