Gasprom to cut Nordstream gas supply to 20% of capacity from Wednesday. EUR unperturbed and weak Germany business confidence data has little impact as well. US Treasury yields higher, reversing some of Friday's fall

It has been a quiet start to an eventful week ahead, with modest changes in European and US equity markets. US Treasury yields have pushed higher, reversing some of Friday’s large fall. The NZD has lagged gains for the AUD and CAD, while against higher US yields the yen has underperformed.

The week ahead is stacked full of potential market-moving events including the US Fed’s policy meeting, US GDP and employment cost index data, euro area CPI and GDP data and earnings reports from big tech companies. Ahead of all that, it is been a relatively uneventful trading session. The S&P500 currently shows a modest fall, while the tech-heavy Nasdaq index is down 0.8%. After a big rally on Friday night after weak data added to market fears of economic recession, US Treasury yields are 5-7bps higher across the curve since Friday’s close.  The 10-year rate is up 4bps from the NZ close, currently trading at 2.82%.

The weaker flow of economic data keeps on coming. Germany’s IFO business climate indicator was weaker than expected, falling to a two-year low of 88.6. The IFO release noted broadly based falls in confidence across sectors of the economy, with higher energy prices and the threat of a gas shortage weighing on the economy, and Germany was on the cusp of a recession.

As forewarned by President Putin last week, Gasprom will cut the Nordstream gas supply to Germany to 20% of its capacity from Wednesday, down from the current 40%, with one more gas turbine to be taken out of service. The optics seem to be Putin weaponising gas supply, with a German government spokeswoman indicating that there was no technical reason for a reduction in deliveries. European natural gas prices rose 9%, although they remain below the level seen earlier this month. A continuation of limited gas supply through this pipeline increases the chance of the EU energy crunch resulting in either power blackouts or the shutdown of factories later in the year as the colder months approach.

ECB-speak continues, following the central bank’s 50bps rate hike last week. ECB Governing Council member Kazaks from Latvia showed his hawkish credentials, suggesting the need for another 50bps hike at the next meeting in September. Italy’s GC member Visco was more open-minded, saying there “was no way to say now” whether a 25bps or 50bps hike in September should be needed, it would depend on the data.

In currency markets, the euro hasn’t been adversely affected by the data or news on gas supply, trading slightly up from Friday’s close at 1.0220, although underperforming the 0.5% gain in GBP to 1.2050. Against a backdrop of higher US rates, USD/JPY is 0.4% higher at 136.70.

Commodity currencies show modest gains to start the week, with the AUD and CAD up 0.4-0.5%, and the NZD has lagged that move, trading only slightly higher at 0.6265. NZD/AUD traded just under 0.90 earlier this morning, while NZD/CAD is down 0.4% to 0.8050.

Global forces remained the driving factor in the NZ rates market yesterday. NZGB and swap rates were down 8-10bps across much of the curve in direct response to Friday’s rally in US Treasuries. The 2-year swap rate closed at 4.00%, 10-year swap closed at 3.80% and the 10-year NZGB closed at 3.61%.

The economic calendar remains light today. US consumer confidence and new home sales data are expected to slip further, consistent with the prevalent theme of weaker economic growth momentum.