It was a fairly uneventful end to last week, with a late rally in US equities cutting into the loss of the S&P500 index’s weekly return. Currency movements were modest, with the USD showing some small, broadly-based increases, while the NZD was flat around 0.6550.
The S&P500 ended last week on a good note, up 1.6% higher but not making up for losses earlier in the week, to mark a fourth consecutive weekly fall, down 0.6%. Tech stocks outperformed, with the Nasdaq composite up 2.3% for the day and 1.1% for the week. After the close, a spokesman for House Speaker Pelosi said that she had talked with Treasury secretary Mnuchin on Friday regarding a fiscal stimulus package. Pelosi told CNN that there’s a chance of a deal and that if a deal isn’t struck soon, Democrats might vote on a House-only version of a relief package.
Over the weekend, President Trump nominated Amy Coney Barrett to the Supreme Court, a name widely touted last week in the run up to his decision, so we don’t see much scope for any material market reaction to the choice, apart from the healthcare sector where Trump is linking the appointment of Barrett to the removal of Obamacare.
During Friday trading, there was little headline news, with investors still focused on new daily case numbers of COVID19, given the recent surge in European cases and the trend in new daily US case numbers moving higher, not lower. Of note, New York state reported 1005 new daily cases for the first time since early June, ahead of some easing of restrictions such as some public kindergarten and school reopenings, and indoor dining being allowed with reduced occupancy.
The economic dataflow was light. Durable goods orders showed further sign of recovery, up for a fourth consecutive month, but underwhelming expectations with just a 0.4% m/m rise in August. The underlying tone of the data was stronger, with orders for non-defence capital goods excluding aircraft up a stronger 1.8%.
The US 10-year rate fell by 1bp to 0.65%, remaining in the very tight range that has been evident, with a trading range of just over 5bps for the entire week. Enough said.
The USD found a bid after the NZ close, but broadly-based gains were small. EUR was on the weak side, down 0.35% for the day to 1.1630, not helped by the surge in COVID-19 cases of late and the market still shaking out of long positions.
Some members of the ECB’s governing council are looking to see the Bank loosen up on its inflation target as a result of the strategic review due by mid-2021. Banque de France Governor Francois Villeroy Galhau was cautious in his comments in a speech, but he outlined the debate about whether the ECB’s current “below, but close to” 2% target gave the impression of “asymmetry” in the target. He also noted the target “cannot ignore the past”, a nod to the Fed’s recent loosening of inflation target that argues for a period of higher than target inflation after a period of undershooting the target.
The NZD ended Friday flat for the day near 0.6550, after a brief run-up to 0.6592 after the NZ close. It capped off a poor week for the NZD, down 3.2%, although not as bad as the AUD which fell by 3.5% for the week to 0.7030, with expectations of further RBA easing weighing on the currency. NZD/AUD closed above the 0.93 mark for the first time since late-July, at 0.9310.
The domestic rates market was uneventful Friday, with little change in rates, although capping off another historic week which saw record lows in bond and swap rates. This was driven by NZDM reducing its bond supply for October and the RBNZ tapering its quantum of asset purchases but by a lesser amount, so that it will be sucking an increasing amount of bonds out of the market.
The economic calendar is bare to start the week, but gains momentum from mid-week, with the release of China PMI data and US ISM manufacturing, while US non-farm payrolls will close the week. The first Presidential debate on Tuesday will be closely watched, as will any possible developments on a US fiscal stimulus package. Domestically, the main release of note is the ANZ business outlook survey mid-week.