US equities push higher, US Treasuries curve steepens a little. NZD down slightly, AUD up slightly, GBP underperforms

It has been a quiet start to an action-packed week. The key market mover has been weakness in oil prices, down in the order of 4%. US equities are modestly higher and the US Treasuries curve is slightly steeper. In currency markets, GBP has underperformed while the NZD is down slightly to 0.6120 against a slightly stronger AUD.

It is a big week ahead with policy meetings from the Fed, ECB and BoJ and some top tier data including the US CPI tonight. Ahead of all that it has been quiet. US equities continue their good run, with the S&P500 currently up 0.5% and the 4300 level proving to show little resistance so far.

Treasuries traded a little heavy ahead of $40b of 3-year supply and $32b of 10-year supply. The net result has been a steepening of the curve with the 2-year rate little changed since Friday’s close and the 10-year rate up 3bps to 3.77%. There has been no key data released. In the realms of second-tier data, a NY Fed consumer survey showed year-ahead median inflation expectations fell three-tenths to 4.1%, its lowest reading since May 2021, although both 3-year and 5-year ahead figures ticked higher to 3.0% and 2.7% respectively.

BoE MPC member Mann, the most hawkish member, said she’s still concerned about persistent pressures on inflation, with “very significant concern” on sticky core inflation.  UK gilts are up 10bps for 2 to 10-year rates, but higher rates offered no support to GBP, which is on the weak side of the ledger, down 0.6% since Friday’s close to 1.25.

Other key currencies we monitor show relatively small movements. The NZD began the week on a soft note. An overnight move above 0.6150 proved temporary and the currency is back to trading around 0.6120, so no net progress overnight. The AUD has fared slightly better, and trades this morning at 0.6750, leaving NZD/AUD slightly lower at 0.9060.

Oil prices are down 4% on fears of a near-term production glut relative to demand. The market is unperturbed by Saudi Arabia’s plan to cut production, with Russian supply seen to be an offsetting force. Russian oil exports to China and India surged to record high levels in May. Softer demand coming out of China is also seen as a risk. Not helping market sentiment, Goldman Sachs revised down its oil price forecasts for the third time in six months. Brent crude traded below USD72 per barrel overnight and WTI below USD67.

It was a quiet day for the domestic rates market, with most of Australia on holiday. Swap rates were marked 2bps higher across the curve. Short-dated NZGBs were up a similar amount while the 10-year rate was flat at 4.52%. There was no market reaction to a very weak print for card spending, which fell 1.9% m/m in May, adding to the evidence of a very weak consumer spending backdrop. Unless there is a strong bounce-back in June, real retail sales will likely show a third consecutive quarterly contraction.

The economic calendar revs up over the next 24 hours. The key release will be the US CPI where any deviation from the widely expected 0.3-0.4% m/m increase in the core rate would likely provoke a market reaction and set the tone for the FOMC meeting early Thursday morning. Ahead of that UK labour market data will be closely watched for any signs of moderating wage inflation. Locally, net migration will be of some interest after recent data showing it surging higher.