US equities bounce-back after Friday's lurch down as investors buy the dip. Oil prices down as market eyes greater OPEC+ supply

After a spicy end to markets last week following the shocking downward revision to US non-farm payrolls and Trump’s sacking of the head of the Bureau of Labor Statistics, the new week has begun with mixed results.  US equities have bounced back strongly, with the S&P500 up 1.3% with an hour left of trading – investors seeing dips in the market as a buying opportunity and not fearing signs that the labour market might be much weaker than previously thought. European markets have also bounced back, although not to the same extent, with the Euro Stoxx 600 index up 0.9%.

By comparison, US Treasuries show small net movements.  After chunky falls on Friday, the 2-year rate is flat for the day, while the 10-year rate is down slightly, with a 2bps flattening of the 2s10s curve. While the 10-year rate is down less than 2bps from Friday’s close, this followed a push higher during NZ trading hours, so the current yield of 4.20% is down 4bps from the NZ close. European rates markets caught up to moves in Treasuries late-Friday, seeing Germany’s 10-year rate fall 5bps to 2.62%.

Fed rate expectations have changed little from Friday’s close, with the market pricing in a high chance of the Fed delivering a 25bps cut in September (23bps priced) and 61bps of cuts in total over the three meetings left for the year – the market paying little heed to Chair Powell’s comment at the post-FOMC press conference that policy makers would be paying more attention to the unemployment rate than the jobs numbers and followed up by NY Fed President William’s comments post-jobs figures where he claimed that the labour market was still solid.

In currency markets, movements have been modest since last week’s close.  CHF is the weakest of the majors, falling ½% against the USD, with Switzerland still smarting from the punishing 39% tariff that Trump imposed and the government vowing to present a more attractive offer to the US.  The NZD is on the weaker side of the ledger, flirting with 0.5900 and thereby nudging down on the key crosses, the currency underperforming since landing with a 15% tariff and thereby losing its competitive trade advantage relative to peers.  NZD/AUD has nudged down to 0.9130.

The yen is the strongest of the majors, adding to Friday’s substantial gain, seeing USD/JPY just below 147 and NZD/JPY fall to 86.7. NZD/EUR has nudged down to 0.5100 while NZD/GBP is trading at 0.4445.

On a slow news day, one can always rely on President Trump’s social media account for some “news”, although sometimes it takes a bit of work to get through it all.  Last night’s missives include doubling down on his claim that last week’s job report was “RIGGED”, calling out Sydney Sweeney having the “HOTTEST” ad out there, calling Elizabeth “Pocahontas” Warren a LOSER, and calling out India for buying massive amounts of Russian oil, selling it for big profits on the open market and thereby “I will be substantially raising the Tariff paid by India to the USA”.

Trump didn’t indicate the higher tariff rate that India will be facing, but he has previously indicated that it will be added to the new 25% rate that India will face from the end of the week.  Brent crude is currently down about 1½% to a USD68 handle in a session where prices have ranged between USD68-70 per barrel.  Not helping sentiment was the decision by OPEC+ at the weekend to endorse an additional 547,000 barrels per day increase in output from September.

Global forces drove down NZ rates yesterday, although nowhere near matching the fall in US Treasury yields on Friday night, resulting in higher NZ-US rate spreads.  Both NZGB and swap yields closed down 4-6bps across the curve.  The 10-year NZGB yield closed at a two-month low of 4.47%. Since the NZ close, the Australian 10-year bond future is down 4bps in yield terms, which will support further downside pressure on NZ rates on the open.

The economic calendar is light through the rest of the week. China PMI services data, the US trade balance and the ISM services survey are all released over the coming 24 hours.