US equities are little changed with the S&P starting the month near flat and consolidating near a record high. Treasury yields increased, and the US dollar rebounded from earlier losses to be little changed. President Trump’s tax and spending bill has passed the Senate. The Congressional Budget Office has estimated the bill would increase the deficit by $3.3tn over the next decade.
The ISM manufacturing index increased marginally to 49.0 in June reflecting some easing of the initial supply-side disruptions. However, new orders are weak and higher input costs remain an issue for producers. The prices paid index increased to 69.7, which could relate to the increase in commodity prices, during the Middle East tensions. The employment index declined to 45.0.
US JOLTS job openings increased to 7.77 million in May, which was well above consensus estimates, and the highest level since last November. The jump in job openings were concentrated in the leisure and hospitality sector, and don’t appear consistent with other labour market indicators, that point to slowing demand for workers. Some analysts note the low response rate to the survey and the typically large revisions.
Fed Chair Powell reiterated the central bank’s patient stance during a panel event at the ECB Forum on Central Banking in Portugal. He noted that the Fed would have probably cut rates further this year were it not for the tariff uncertainty. When questioned, he refused to rule out a July cut and said that it will depend on the incoming data.
US treasuries moved higher in yield led by the front end of the curve. The move higher gained momentum after the stronger than expected JOLTs data. 2-year yields increased 6bp to 3.78%. 10-year treasuries had dipped below 4.2% earlier in the session before reversing higher to 4.25%. The 2y/10y curve flattened to 47bp. European bond markets closed lower in yield. Gilts were supported by comments by Bank of England Governor Bailey who said the bank was considering reducing the pace of quantitative tightening.
The dollar index dropped to a new multi-year low but rebounded with support from higher front end US yields. The euro held steady after euro-zone inflation was in line with consensus estimates at 2%. Absolute moves in G10 currencies have been small since the local close yesterday. NZD/USD made a fresh 2025 high near 0.6120 in early European trade but has since retraced and is stable on the major crosses.
Japan’s Tankan survey of large manufacturers was stronger than expected and suggests exporters are holding up well despite pressure from US trade policy. Within the survey, price related indicators are consistent with the Bank of Japan’s 2% target. The central bank has been cautious about the impact of tariffs and is expected to leave rates unchanged at the end-July meeting according to market pricing.
After the Quarterly Survey of Business Opinion yesterday, we now expect the RBNZ to leave rates unchanged at 3.25% at the July Monetary Policy Review. While the report pointed towards weak inflationary pressures, we don’t believe it was sufficient for the RBNZ to cut the OCR in July, given the tone of the May statement. We still expect the OCR to reach a 2.75% low but have pushed back the trough to October.
Yields moved 3-5bp lower across the NZ swap curve in the local session yesterday with a flattening bias. The move aligned with a rally in offshore markets, and the soft inflation metrics in the QSBO, also supported the move. Terminal OCR pricing has dipped to 2.85%.
NZ government bonds followed the move in swaps with 10-year yields declining 4bp to 4.49%. We had anticipated the tap of the NZGB May-2031 to launch yesterday but is now expected today for pricing on Thursday. Australian 10-year government bond futures are around 2bp higher in yield since the local close yesterday suggesting a modest upwards bias for NZ yields on the open.
There is no domestic data on the economic calendar today. Retail sales are released in Australia along with building approvals. The ADP measure of private US payrolls is released overnight. We note the normal caveat that the relationship with the official data, which is released later in the week, has not been strong.
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