Another day, another record high for the S&P500, but risk sentiment has nudged lower in the last few hours to see the index back to flat. The USD has been broadly weaker, but after breaking 0.72 to the upside again, the NZD has drifted back down, alongside other commodity currencies.
After posting a record high on President Biden’s inauguration day, early trading in the US saw another fresh high in the S&P500, supported by a string of better than expected US data releases. The index is currently flat, while outperformance by the tech sector sees the Nasdaq index currently up 0.4%. Jobless claims rose by “only” 900k last week, lower than the downwardly revised previous week’s figure of 926k, housing starts and permits surged further ahead, the former rising to a 14-year high, and there was a strong bounce-back in the Philly Fed business outlook indicator, driven by much stronger new orders and employment.
The ECB left all policy settings unchanged, with President Lagarde saying “Risks surrounding the euro-area growth outlook remain tilted to the downside, but less pronounced”, adding “the roll-out of vaccines...allows for greater confidence in the resolution of the health crisis”. She said that the euro’s strength was being monitored very carefully because it has an impact on inflation that is already far below the ECB’s goal. None of this came as a surprise to the market, and EUR is modestly higher at 1.2150 on a day in which the USD is broadly weaker.
The bond market seemed to take notice of the line in the policy statement suggesting that the full extent of the €1.85 trillion Pandemic bond purchase programme might not be required, seeing Germany’s 10-year rate up 3bps to minus 0.50%, but we’d note that Lagarde mentioned this verbally at the previous meeting. The rise in European rates and the stronger US data saw the US 10-year rate print as high at 1.12%, before peeling back down to 1.10%, up 2 bps from the NZ close.
The BoJ didn’t surprise either, with a slightly stronger growth outlook for the next fiscal year and slightly weaker current conditions. The focus remains on the Bank’s policy review – due in March – which is investigating ways to make the policy framework more sustainable. This could include a wider range for its 10-year bond yield target.
The BBDXY USD index is weaker for the fourth day on the trot, but losses have been small or modest each of those days. Against a backdrop of a softer USD, the NZD reached a high of 0.7223 overnight, before lower risk sentiment saw it falling back down to about 0.7180. Another good Australian employment report showing the unemployment rate falling further helped the AUD. After stretching up to 0.7782 overnight, it has since fallen to 0.7750. NZD/AUD saw a break from its recent downward trend, pushing up through 0.9285, but now steady from the NZ close at 0.9270.
The NZGB market saw another active day of bond trading and another strong tender by the government, with the rates for the nominal bonds some 2-3 points through pre-tender mids and bid-cover ratios of 4-5. Still, for the day there was little change in rates across the curve, while swap rates were down in the order of 1bp.
In the day ahead, NZ CPI data for Q4 will be of some interest, although this quarter’s offering will still show a low inflationary environment. More interest lies in the future. Global PMI data are released, with the consensus picking widespread slippage in activity in January compared to December, given greater restrictions as COVID-19 spread across the US and Europe.