Flat US equities after yesterday's record high. US 10-year rate pushes higher. GBP under pressure as trade deal no guarantee. NZD prints fresh high before paring gains and underperforms AUD

Flat US equities after yesterday's record high. US 10-year rate pushes higher. GBP under pressure as trade deal no guarantee. NZD prints fresh high before paring gains and underperforms AUD

Global equity markets are treading water, with the S&P500 flat, after posting a record high the previous day. The US 10-year rate has pushed higher, despite softer than expected employment data. GBP has underperformed on negative headlines around the EU-UK trade deal. After printing a fresh 2½-year high, the NZD is back down to where it sat this time yesterday.

It has been a fairly uneventful overnight session for markets, with global equities pausing for breath after their recent strong run. After posting a record high the previous session, the S&P500 opened weaker, but has pushed up into positive territory. The EuroStoxx 600 index closed flat.

Headlining the news, the UK became the first western country to approve a COVID19 vaccine, with the Pfizer/BioNTech shot approved and ready to be deployed as soon as next week. EU and US FDA regulators are likely to give approval sometime mid-December. With looser rules, China and Russia’s vaccine rollouts have already been deployed over recent months.

US President-elect Biden gave an interview with the NY Times. He said that his “top priority” is getting a generous stimulus package through Congress, even before he takes office. On dealing with China, he noted that he would not make any immediate moves, including removing the tariffs that Trump imposed. He first wants to consult with traditional allies in Asia and Europe to develop a “coherent strategy” and getting allies on the same page.

Overnight economic news has been sparse. Ahead of the key US employment report at the end of the week, there was further evidence of a softer labour market, with ADP private payrolls rising by 307k in November, the weakest result since July and coming in below market expectations.

Despite the soft data, the US 10-year rate pushed higher as US markets opened and is up almost 4bps from the NZ close, to 0.95%. This follows the meaty 8bps rise in the previous session, helped by optimism that a new $900b fiscal proposal might have some hope of passing.  On that note, there have been no fresh developments.

In currency markets, GBP has been the notable underperformer, trading as low as sub-1.33 overnight and now down “only” 0.5% at 1.3360. Chief EU negotiator Barnier told diplomats that there was no guarantee of an EU-UK trade deal and three disagreements are still unsolved. While the aim was to have a deal by the end of the weekend, talks could yet continue for another week, ahead of the next EU leaders summit. A pushing out of “deadlines” has been a regular occurrence. In a further blow to GBP, the Times reported that “France and other hardline countries are pushing for no deal in Brexit talks to soften up Britain before a reset in negotiations next year, unless the government makes significant concessions in the coming days.”

The NZD made a fresh 2½-year high of 0.7084 last night, before paring gains and this morning it sits around 0.7060, little changed from this time yesterday. RBNZ Governor Orr’s speech last night treaded familiar ground, with copious references to the messages of the Bank’s November MPS. Orr continued to downplay signs of a strong bounce-back in activity and said the Bank was focused on the medium-term, where economic risks remained skewed to the downside. He kept open the option of a negative OCR next year, saying “its actual use will always depend on the economic context at the time and its relative efficacy”.

Earlier in the day, latest housing market data from Auckland’s Barfoot and Thompson were consistent with the idea that the housing market needed no further stimulus, with sales close to a record high, up over 60% y/y in November and close to double-digit house price inflation. NZ’s terms of trade fell nearly 5% in Q3, more than expected, but coming off an all-time high and a rebound is shaping up for Q4, evidenced by recent strength in NZ commodity export prices. Weaker terms of trade in Q3 suggested stronger than expected net export volumes, adding to the view that a large bounce-back in Q3 GDP will be reported.

The AUD has recovered after underperforming in the previous session, nudging up through 0.74 as we go to print.  NZD/AUD is down ½ a cent or so to 0.9540. Reported yesterday, Australian GDP recovered slightly stronger than expected in Q3 while in testimony to Parliament, RBA Governor Lowe said that he was keeping an open mind about whether or not the recently announced $100bn six-month QE programme would need to be extended.

EUR and JPY have showed little movement overnight. NZD/EUR is down a bit to 0.5835, while NZD/JPY is flat around 73.8.

The domestic rates market was heavy yesterday, influenced by higher US and Australian rates at the long end, driving a steeping bias. The 2-year swap rate rose by 1bp to 0.26% while the 10-year rate rose by 5bps to 0.92%.  NZGB rates were 2-7bps higher for the day.

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