There was subdued activity across global markets in the absence of first tier economic releases. The S&P 500 was little changed in mid-afternoon trade as investors digest mixed corporate results and look ahead for further information on the outlook for interest rates. Stocks in Hong Kong surged amid signs that policy makers would step up support. The US dollar made broad based gains and global bond yields moved higher.
Bloomberg reported that Chinese authorities are considering a range of measures to help stabilise equity markets after a significant period of weakness which has seen the Hang Seng China Enterprises Index (HSCEI) retest the pandemic lows. Policymakers are seeking to create a market stabilisation fund to buy onshore shares alongside other measures which could be announced as soon as this week if approved by top leadership. The HSCEI jumped almost 3% on the day but it still down 11% this year.
The Bank of Japan left its policy rate and yield curve control parameters unchanged which was unanimously expected by economists. The BoJ reduced its CPI forecast from 2.8% to 2.4% for the fiscal year to March 2025. The BOJ is seeing ‘higher certainty’ of reaching its price target, but Governor Ueda said its difficult to say exactly how close it is to an exit from ultra-easy monetary policy.
US treasury yields are modestly higher with the curve steepening. 2-year yields are up 2bps to 4.41% ahead of US$60 billion of supply. 10-year yields increased 4bps to 4.14%. European bonds closed higher in yield with 10-year gilts increasing 9bps to 3.99% and bunds adding 6bps to 2.35%.
After a temporary dip in Asian trade, the US Dollar traded higher overnight with the dollar index (DXY) making fresh highs for the year. The DXY has gained more than 2% since the start of January and has now retraced about 50% of its fall from the final 2 months of 2023. The dollar’s gains were broad based across G10 currencies with EUR/USD trading towards 1.0820 which is the lowest level in 6-weeks. NZD/USD initially recovered from 2024 lows below 0.6070 reached in the local session yesterday. After trading to a high near 0.6115, the pairing reversed course in line with the move in the DXY. NZD cross rates are little changed with a modest outperformance against the euro and pound.
NZ government bond yields ended the local session yesterday 3-4bps lower in yield in a parallel curve shift. 10-year government bonds closed at 4.62%. The services PMI slipped back below 50 to 48.8, a 4-month low, and combined with the weak manufacturing PMI highlight the headwinds facing domestic activity. Australian 10-year bond futures are ~7bp higher in yield since the local close yesterday and combined with the move in treasuries suggest an upward bias for NZGB yields on the open.
The New Zealand Local Government Funding Agency (LGFA) is tendering bonds today. It is offering NZ$180 million of bonds today split across 4 maturities.
The domestic focus in the day ahead will be Q4 CPI data. Our forecast is in line with the consensus for a 0.5% q/q increase. Although this is below the RBNZ’s 0.8% projection from the November Monetary Policy Statement, the breakdown between tradables and non-tradables will be important given the central bank’s focus on the latter. Advance PMIs are released overnight, and the Bank of Canada is expected to leave rates on hold at 5% with the first 25bps cut not priced by the market till June.
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