Month-end flows a factor in overnight moves. US equities weaker after a huge month. USD stronger after a poor month. NZD lower after printing a fresh 2½-year high

US and European equity markets are weaker on the last day of a very strong month, with month-end flows likely explaining some of the move. The same can be said for currency markets, with the USD strengthening after the London fix. After recording a fresh high, the NZD is back down to around 0.7025. The US 10-year rate has nudged higher.

While NZ kicks off its first day of summer (or for those in Wellington, the tenth month of winter), trading for the last day of November in overnight markets looks to have an element of month-end flows dominating. The S&P500 is currently down 0.7%, shaving its gains for the month to just over 10%. Until the overnight move, the MSCI World Index was on track to show its strongest ever monthly gain, with other markets outperforming the US – some European markets are up over 20%.

Moderna’s updated vaccine news had a positive impact on its share price (up over 16%), but little spillover for the overall equity market. The company plans to request clearance for its COVID19 vaccine, following updated analysis of its phase-3 trial. The vaccine proved 94.1% effective, only down slightly from the preliminary finding of 94.5%. All 30 severe cases observed in the trial occurred in participants who received a placebo, suggesting 100% efficacy against severe disease for the vaccine. Both Pfizer’s and Moderna’s vaccine could be rolled out later in the December if regulators approve the vaccine. Distribution can begin promptly, with millions of doses already manufactured.

Economic news was also largely ignored. The US Chicago PMI and pending home sales data were softer than the market expected, although both indicators peeled off very high levels. The widely followed jobless claims figures lost some respect, after a government watchdog said that the figures have been “flawed” through the pandemic. A disclaimer will be put on future reports.

Yesterday, stronger than expected China PMI data showed the country’s economic recovery was well on track. ANZ’s NZ business outlook survey showed a further improvement in the key own-activity indicator, although remaining well below average. We found the most interesting result of the survey being the rise in inflation indicators so early into the recovery cycle, raising a question mark about whether near-term inflation outcomes will be as weak as the RBNZ currently expects. Released this morning, the Corelogic measure of NZ house prices surged by 2.1% m/m in November to be up 9.2% y/y. The data lags the REINZ data so doesn’t tell us much new, but the report should ensure another 24-hour news cycle on NZ’s out of control housing market.

The final retirement date for key Libor tenors – 3, 6, and 12 month rates – might be extended by 18 months until the end of June-2023. A period of consultation on this plan will take place. This would allow most legacy Libor contracts to mature and avoid having them shift to a new benchmark. The announcement saw increased trading volumes and prices for longer-dated Eurodollar futures. The move supported a bid in US 2-year Treasuries, with its yield down slightly while the 10-year rate is about 1bp higher to 0.845%. Against a backdrop of a surge in equity prices for the month, bond yields haven’t moved a great deal (the US 10-year rate began the month at 0.87%), given the strong influence of central bank buying.

The NZD saw a new 2½-year high of 0.7051 ahead of the London fix, before falling to 0.7012, still on track for a gain of over 6% for the month when New York closes. Analysis of potential month-end flows suggested there would be strong demand for the USD at the fix, which proved to be the case. However, the USD remains near a 2½-year low on the BBDXY index, and is on track for a 2½% fall for the month overall.

The AUD pushed above 0.74 yesterday, but has fallen to 0.7350. While deteriorating Australia-China diplomatic relations were evident through the month, macro forces dominated and the currency has still managed to gain over 4½%. In the latest spat, China’s foreign ministry posted a “deeply offensive” tweet. Australia PM Morrison said that the government had protested and demanded the tweet be taken down, which China’s foreign ministry rejected.

NZD crosses are mixed. NZD/AUD has pushed up through 0.9550, a fresh 7-month high, while NZD/GBP has fallen to 0.5260 after printing a fresh high for the year of 0.5289. There is hope that an EU-UK trade deal can be struck over coming days, but “deadlines” keep getting pushed out. Bitcoin recovered from its recent hiccup, posting a new record high of $19,857, before peeling off.

The domestic rates market saw falls of 2-3bps across the swaps curve and 3-4bps across the NZGB curve. The move capped off a month of significant underperformance for the NZ rates market, reflecting the re-pricing of RBNZ monetary policy expectations. Against a backdrop of little movement in global rates for the month, the NZGB 10-year rate rose by 32bps.

In the day ahead, the economic calendar is full. In the mix, after last month’s rate cut and expansion of QE, the RBA will likely leave policy settings unchanged and the announcement should pass with little market reaction. Tonight, Fed Chair Powell faces Q&A in front of the Senate Banking Committee, where he is likely to maintain a dovish stance and encourage policy makers to ease fiscal policy further. The key ISM manufacturing index is expected to fall to 58.0 but remain elevated, consistent with the recovery in the manufacturing sector.