After recovering from a dip on tariff concerns, the S&P500 closed at a record high. US core PCE deflator benign but above expectations. Real consumption soft. OPEC+ is considering a further increase in supply

The S&P closed at fresh record high on Friday in a whipsaw session. Equities dipped temporarily after news that President Trump had terminated trade discussions with Canada in response to the country’s planned implementation of a digital services tax targeting American companies. A late rebound saw the S&P close 0.5% higher aligning with the solid gains made by European indices. Treasury yields were little changed, and the US dollar was mixed against G10 currencies.

China has confirmed details of a trade framework with the US. It has agreed to approve applications for export of controlled items like rare earths while the US will cancel restrictive measures. The deal followings negotiations in London and a phone call between presidents Trump and Xi with both countries aiming to promote stable economic and trade ties.

Oil prices were stable with Brent crude closing the week near US$68 despite news that OPEC+ is considering extending its production increases at a meeting next month. The alliance has increased supply by 411k barrels-a-day in each of the previous three months and a similar size increase is being considered.

US real consumption fell by 0.3% in May which was weaker than expected, and there were downward revisions to previous months, which puts Q2 activity on a weak trajectory. The Federal Reserve’s preferred inflation gauge, the core PCE deflator, rose 0.2% which slightly above the consensus estimate. The annual core rate increased to 2.7% from 2.5% in May. Core PCE goods prices rose by 0.3%, showing some modest pressure from the tariffs, which is likely to be more pronounced in coming months. Michigan consumer confidence was little changed from the preliminary reading and 5-to-10-year inflation expectations dipped to 4.0%.

Market pricing for the Fed was little changed after the data. There is ~64bp of cumulative easing implied by the December FOMC. US treasury yields dipped as equity markets retraced from the session highs but ultimately ended marginally higher. 10-year yields ended the session at 4.28%. European bond markets also had a modest lift in yields. Preliminary the CPI data from Spain and France suggest an upward bias for eurozone reading this week. 10-year bunds closed at 2.58%, 2bp higher.

Tokyo CPI, which serves as a leading indicator for nationwide data, was below consensus estimates. The core measure, which excludes fresh food and energy, increased at a 3.1% annual rate in June. Although CPI undershot expectations, inflation remains well above the Bank of Japan's 2% target, with the Bank likely to resume tightening when the uncertainty from US trade policies diminish.

The US dollar was stable on the major crosses but made modest gains against the dollar-bloc currencies. Although the moves were not large, the Canadian dollar (CAD) was the weakest G10 currency after the trade policy developments. NZD/USD dipped in line with the CAD, trading to a low near 0.6040 before recovering to be little changed from the local close on Friday.

NZ consumer confidence improved to 98.8 in June, up from 92.9 in May. The index remains a subdued level but has moved steadily higher. However, based on historical relationships, the level of confidence is consistent with weak household spending. Within the report, inflation expectations increased to 4.9%, which is the highest level since April 2023.

NZ fixed income was little changed in the local session on Friday. Yields were 1-2 bp higher across the swap curve. There was a modest steepening bias in the government curve with front end bonds unchanged while 10-year yields closed 3bp higher at 4.51%. The market looks ahead to the likely launch of the May-2031 tap syndication this week.

Australian 10-year government bond futures are ~3bp higher in yield terms since the local close on Friday, which suggests an upward bias for NZ yields on the open.

May employment indicators and ANZ business confidence are released today. China June PMI data will be monitored for evidence the US-China trade reset has eased pressure on manufacturers. European Central Bank President Lagarde begins the Forum on Central Banking in Sintra with a keynote speech tomorrow morning (NZT).