The S&P 500 fluctuated near its all-time high as investors looked ahead to results from major technology companies, Microsoft and Alphabet in addition to the Federal Reserve’s first interest rate decision of the year tomorrow morning (NZT). Higher than expected job openings from the JOLTs survey underpinned US treasury yields and the US dollar was little changed.
The Eurozone narrowly avoided a technical recession in H2 2023. The economy stagnated in the final quarter of last year compared with consensus estimates for a 0.1% q/q decline. Regional data showed the German economy contracted 0.3% in Q4 which was offset by a stronger than expected rebound in Spain and Italy. The market is close to fully pricing a 25bps April rate cut by the ECB. Eurozone CPI data for January is released later this week.
US job openings were higher than expected in December. Job vacancies increased to 9mn beating consensus estimates of 8.7mn and rising to a 3-month high. This points to resilience in the labour market. However, the data is often revised and has a limited relationship with payrolls numbers. Separately the ‘quits rate’ was unchanged at 2.2% last month.
The Conference Board’s index of consumer confidence jumped to 114.8 in January which is the highest level since December 2021 and is in line with increases in other confidence surveys. Confidence is underpinned by the ongoing rally in the stock market, drop in gas prices late last year and the fall in inflation and interest rates.
US treasury yields moved higher in response to the JOLTs report led by the front end of the curve which reduced hopes for imminent interest rate cuts from the Federal Reserve. The market is pricing about 10bps of cuts for the March FOMC. 2-year treasuries jumped almost 10bps off the session lows near 4.28% before settling near 4.36% while 10-year yields are marginally higher at 4.08%.
Yields on Chinese 10-year bonds fell below 2.50% to the lowest level in more than 20 years on increasing expectations of monetary easing amid a fragile economic recovery. Demand for safe-haven assets has increased following the slump in onshore equities and the downturn in the property market. Official manufacturing and services PMIs are released today and are expected to show a modest recovery relative to December levels.
The US dollar rebounded from the session lows following the move higher in front end treasury yields but currency markets were broadly subdued and confined to narrow ranges.
NZD/USD slipped in offshore trade after making highs near 0.6150 in the local session yesterday. The NZD gained traction after a widely anticipated speech by RBNZ chief economist Paul Conway. The speech downplayed recent softer than expected growth and inflation data and implied the RBNZ forecasting team see little reason for the bank to change its hawkish monetary policy stance.
The NZ government bond yield curve bull-flattened in the local session yesterday with 10-year bonds closing down 4bps at 4.67% while shorter maturities were unchanged. The market marginally reduced expectations for easier monetary policy following the RBNZ speech. Australian 3 and 10-year bond futures are ~2bps higher in yield since the local close yesterday suggesting modest upward bias for NZGB yields on the open.
The ANZ business survey is released today, and Q4 CPI data will be the focus in Australia. The median economist estimate for headline CPI is 4.3% y/y which is below the RBA’s 4.5% projection in the November SoMP.
[chart;daily exchange rates]
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