The dramatic events in Russia over the weekend haven’t perturbed the market, with small changes in asset prices across the board to start the new week. Global equity markets and global rates show small falls. In currency markets, further yuan weakness has been a drag on AUD performance, while the NZD has managed a modest lift to 0.6170.
There has been no obvious impact on markets from Russia’s weekend political events that saw a brief challenge against Putin’s rule by Wagner chief Prigozhin. Speaking from an unknown location, he denied the aim was to overthrow Putin’s government and claimed it was a protest against moves to absorb the Wagner group into the armed forces and the deadly strike against it. Commentators are debating what the move implies for Putin’s grip on power and the war on Ukraine, but no one has the answers. Markets will no doubt be keeping a close eye on internal political events in Russia for some time but for now it’s a case of little overall impact.
Commodity markets are normally at the vanguard of any geopolitical events but market movements have been small. Gold prices are barely higher and oil prices are up about ½%. The cautious tone seen in equity markets last week has been sustained, but with small moves overall, with the S&P500 currently down 0.2% and the Euro Stoxx 600 index closed down 0.1%.
Global rates show small falls with the US 10-year rate down 2bps from last week’s close to 3.71% and trading a range for the day of less than 6bps. Focus for the bond market this week turns to the ECB’s annual conference in Sintra, Portugal, which covers a range of central bank speakers including the heads of the ECB, Fed and BoE.
The only key data release overnight was Germany’s IFO survey, which showed a further deterioration in business confidence. The expectations component fell by more than expected, down nearly 5pts to 83.6, its lowest level this year, with the manufacturing sector showing particular weakness.
In currency markets, yesterday the PBoC set the CNY reference rate stronger than market estimates, with the premium being the largest so far this year, the first hint of some discomfort with the recent pace of yuan depreciation. Despite the signal, the yuan has weakened further, with USD/CNH up through 7.24 and USD/CNY closing just under 7.24. The PBoC doesn’t like one-sided currency trends so expect a period of stronger fixes ahead and other measures that will try to stem the yuan’s decline.
The AUD remains a favoured proxy to sell when the yuan is under pressure and has been flat at 0.6680 against a lift in most other currencies against the USD, albeit moves have been small. The NZD has been one of the better performers, rising almost ½% from last week’s close to 0.6170. The move has driven NZD/AUD up to 0.9240, almost two cents higher from a week ago, a chunky move that has unwound about half of the fall seen in the weeks after the RBNZ’s dovish May MPS. The NZD’s outperformance sees it modestly higher on all the other key crosses.
The domestic rates market saw rates dragged lower in response to the global moves seen during the Friday night session. In a quiet trading day, NZGBs were down 4-5bps across the curve and same for the swaps curve apart from a 6bps fall in the 2-year swap rate to 5.42%.
On the economic calendar, Canadian CPI, US durable goods orders, new home sales and consumer confidence data are released tonight.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.