US equities remained well underpinned in the absence of first tier economic data. The S&P reached another record intraday high and is closing in on the psychological 5,000 level. Markets continue to watch for any potential fallout from the US regional banking sector as shares in NYCB resumed losses. Meanwhile optimism towards China equities faded in the absence of additional details from policy makers about a support program for onshore markets. The Hang Seng China Enterprises Index (HSCEI) reversed an earlier 1.5% gain to close 1% lower.
German industrial production has fallen for the seventh consecutive month in December, which is the longest ever downturn, and exceeds the period surrounding the global financial crisis. Production fell 1.6% m/m which was below economists’ estimates for a 0.5% decline. The German economy is facing a potential recession after GDP declined 0.3% in the final quarter of last year.
ECB governing council member, Isabel Schnabel, pushed back against the prospect of near-term rate cuts in an interview with the Financial Times. She cited sticky services inflation, a resilient labour market, a loosening in financial conditions and tensions in the Red Sea as reasons for being cautious about adjusting the policy stance too soon. The market is pricing about 16bps of easing by the April meeting and a total of 124bps by the end of 2024.
US Fed speakers maintained a consistent stance. Fed President Kashkari said officials need to see a few more months of inflation data before cutting rates. He also said he thinks two to three cuts will likely be appropriate in 2024. Meanwhile, Richmond Fed president Barkin said it makes sense to be patient on rate cuts. Fed speakers continue to outline a patient and cautious approach toward a potential easing in monetary policy.
US treasuries were little changed with 10-year yields stable near 4.10% ahead of the record size US$42 billion 10-year auction this morning (NZT).
There was subdued activity in currency markets with the US dollar index oscillating in a narrow range. The pound was the best performing currency within the G10 after data revealed a strong rise in UK house prices. NZD/USD was little changed in offshore trade. NZD/AUD extended the gains from the local session and traded up towards 0.9375 which is the highest level for the year.
NZ yields ended the local session higher across the curve yesterday following Q4 labour market data which was stronger than consensus estimates and the RBNZ’s projections. 2-year swap rates increased 12bps to 5.0% and the market is now pricing a ~20% chance that the RBNZ hikes rates by 25bps at the February MPS. 10-year swap rates increased 9bps extending the curve flattening from recent weeks.
The weekly NZGB tender takes place today. There are NZ$500 million of nominal bonds being offered split across 15 May 2031 ($275m), 14 Apr 2033 ($150m) and 15 Apr 2037 ($75m). In addition, NZ$25 million of the Sep 2035 inflation indexed bonds (IIB) will be offered. IIBs have been offered in each of the weekly tenders this year, representing a notable pick up from 2023.
There is no domestic economic data on the calendar today. China January CPI and PPI data are expected to show continued deflationary pressures facing the economy. Economists forecast CPI to fall on an annual basis for the 4th consecutive month. Producer prices are also expected to decline and have been falling for more than a year. US initial jobless claims is the only data of note overnight.
[chart;daily exchange rates]
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.