The key market movement overnight has been a notable rally in US Treasuries, led by the long end of the curve, with rates down between 4-9bps. There have been a number of potential drivers listed by traders explaining the move. Tomorrow, the US Treasury will announce its debt-issuance plans and the expected strategy is one that keeps a lid on longer-term yields, by preferring to issue cheaper short-term debt. Traders might also be reducing short positions, ahead of the Fed’s monetary policy update tomorrow, where there is a chance of the door being opened for a September rate cut.
Some month-end buying has also been cited as a possible driver of lower yields. Economic data released (noted below) were mixed, but a focus on the easier labour market indicators could explain lower rates. Rates were lower heading into the auction for $44b of 7-year notes and that didn’t deter buyers. Demand was strong and the note was awarded more than 2bps lower than the prevailing rate.
The US 10-year rate is currently 4.33%, showing a fairly steady decline overnight and down 7bps from the NZ close. European yields showed small increases, with Germany’s 10-year rate up 2bps 2.71%.
The US JOLTS report showed job openings fell 275k in June, a larger drop than expected from an upwardly revised figure for May. The bigger picture is one of stabilisation over the past six months. The Conference Board measure of consumer confidence rose 2pts in July to 97.2, driven by the expectations component, which lifted to a 5-month high. The labour market indicator, representing the difference between those saying jobs were plentiful against those saying jobs were hard to get, continued to ease, indicative of a softening labour market.
The goods trade balance showed a much smaller deficit than expected of $86b in June, with a steep fall in imports, continuing to reverse strength in Q1 when businesses front-loaded imports ahead of higher tariffs. The data support a net exports-led bounce back in Q2 GDP from the contraction in Q1. The data are released tonight, with the consensus sitting at an annualised 2.5%. The Atlanta Fed GDPNow estimate was revised up to 2.9% after the trade figures, boosted by a more than 4% contribution from net exports.
The IMF revised upward its global growth estimates, now seeing 3.0% for 2025 (up two-tenths) and 3.1% for 2026 (up one-tenth). The IMF cited stronger-than-expected front-loading in anticipation of higher tariffs; lower average effective US tariff rates than announced in April; an improvement in financial conditions, including due to a weaker US dollar; and fiscal expansion in some major jurisdictions. The IMF’s inflation outlook was little changed, with forecasts predicting inflation will remain above target in the US and be more subdued in other large economies.
Talks led by US Treasury Secretary Bessent and China Vice Premier He on trade ended after a two-day meeting in Stockholm. Bessent told reporters the US and China will continue discussing the terms of a tariff truce extension and President Trump will make the final call. The truce ends 12-August and Bessent said one option was adding an extra 90 days. Chinese trade negotiator Li told reporters that both sides agreed on maintaining the truce.
Updating the timeline hinted at yesterday, President Trump said he will give Russia 10 days to reach a truce with Ukraine or face economic penalties. Oil prices extended their rally after this comment and Brent crude is up nearly 4% for the day to over USD72 per barrel.
Despite the decent fall in Treasury yields, US equities are weaker, with the S&P500 down 0.3% with an hour left of trading. This could indicate some asset allocation ahead of month-end, with investors rebalancing portfolios by selling equities after their strong run and buying bonds.
One US earnings report that got our attention was Procter and Gamble announcing plans to raise prices for household products by about 5% in the US this year, to help offset the impact of a $1b hit to costs from higher tariffs. Many US companies have been avoiding publicly announcing tariff-related price increases, doing so less visibly, to avoid attention from President Trump.
The USD is broadly stronger again. Despite higher European-US rate spreads, the euro has weakened further, in the wake of the US-EU trade “deal”. EUR fell to a low of 1.1520 before finding some support. The NZD shows a small fall to around 0.5955 and NZD/EUR has nudged up to 0.5160. Other NZD cross movements have been small.
In another quiet domestic trading session yesterday, NZGB and swap rates fell 1-2bps across the curve. In overnight trading, Australian bond futures have moved less than US rates, with the implied 10-year rate down 3bps.
The economic calendar is busy for the day ahead. Close to home, the ANZ NZ business outlook survey and Australian Q2 CPI data are released. A 0.7 q/q% lift in the trimmed mean core CPI estimate, in line with consensus, would cement expectations for a 25bps rate cut by the RBA next month.
Euro area GDP is expected to be flat in Q2, while US GDP is expected to bounce back to an annualised 2.5% in Q2, following the 0.5% contraction in Q1 – the quarterly profile is distorted by the front-running of imports in Q1, ahead of higher tariffs. The Bank of Canada is universally expected to keep policy on hold.
The Fed is also expected to keep policy unchanged. There will be some interest in whether Chair Powell opens the door for a possible rate cut in September. Two Fed Governors are likely to dissent, voting in favour of a rate cut in tomorrow’s meeting, which would be a rare event.
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.