Solid gains in US equities again and US 10-year rate up through 3.5%. Currency moves modest but JPY notably weaker again

Newsflow has been light to start the new week but the move higher in equities and bond rates seen Friday night has been extended. The S&P500 is currently up 1¼% adding to the near-2% gain on Friday, seeing the index trade back above the key 200-moving average, a level it has breached but failed to sustainably break above over recent months. Investors are seemingly encouraged by the recent downdraft in inflation and signals that the Fed will further dial down its rate hike to just 25bps next week, never mind that there is still a question mark over how high rates will peak this cycle.

Tech companies are leading the charge again, with the Nasdaq index up 1.9%, adding to Friday’s 2.7% gain. The US earnings season ramps up this week and, while sales are falling short of expectations, companies are focused on cost control. Spotify was the latest high profile tech company to announce major job layoffs, looking to cull about 6% of its workforce.

US Treasury rates are higher again, with rates up 5-6bps, with the 10-year rate currently at 3.52%, now about 20bps higher than last week’s low driven by short-covering post the BoJ’s lack of policy action. Traders are focused on the increased supply this week, with some $120b of new 2s, 5s and 7s being issued and $20-25b of new investment grade corporate bond issuance on the cards this week.

The higher global rates backdrop continues to put downward pressure on the yen, with USD/JPY up 1% overnight to 130.65. Continued short covering after the BoJ’s lack of policy action last week caught the market off guard will be a factor as well. The BoJ has regained some control of the yield curve through its extraordinary loan operations, which saw demand of just over 3 trillion yen for the 1 trillion yen of 5-year loans on offer.

It has been an uneventful day for the NZD, with some evident resistance around 0.65 and currently marginally higher from last week’s close at 0.6475. The AUD has been the strongest of the majors overnight, back up through 0.70, and meeting some resistance at 0.7040. NZD/AUD has pushed down to 0.9220 after making a run towards 0.93 yesterday afternoon.

EUR made a fresh nine-month high around 1.0925 last night and has since slipped back to 1.0860. There have been a number of ECB speakers over the past week and the general message has been while another 50bps hike next week looks like a done deal, there will be plenty of debate about whether to guide another 50bps for March or whether the pace of hikes should slow.

Domestic rates pushed higher yesterday in response to Friday’s night’s selloff in US Treasuries. The swaps curve was steeper, with the 2-year rate up 3bps to 4.98% and the 10-year rate up 6bps to 4.24%. NZGBs were marked 5-6bps higher. Trading activity was light due to the Wellington holiday. Focus this week will be on tomorrow’s NZ and Australian CPI prints which have the potential to shape policy expectations for the next meetings.

New PM-elect Chris Hipkins did the media rounds yesterday. There was plenty of talk about which policies to scrap ahead of the election later this year. He seems keen to engage with businesses and a lift in business confidence with a new leader at the helm looks likely over coming months. Market implications remain insignificant, with domestic politics well down the list of being a key driver of rates or the NZ dollar.

In the day ahead, the performance of services index for NZ is released with global PMIs the focus tonight, which are expected to be broader higher across continental Europe and fairly flat for the UK and US.