Risk sentiment firm. S&P500 higher and has retraced the post services ISM fall. US hits India with extra 25% tariff for Russia oil purchases. Soft demand in US 10-year auction. Yields modestly higher

Global equity indices are broadly higher. The S&P’s advance has almost fully retraced the decline after the weak services ISM print. President Trump said Indian imports will be subject to an additional 25% tariff, for its ongoing purchases of Russian oil, on top of the 25% rate they already face. The Swiss President was not successful in lowering the 39% tariff rate after travelling to Washington to present a proposal to US officials. Global bond markets are modestly higher in yield and the US dollar is weaker against G10 currencies.

There appears to be growing support for the US Federal Reserve to cut interest rates. Minneapolis Fed President Kashkari, who is a non-voter, said the US economy is slowing and it may be appropriate for an interest rate cut in the near term. He still expects the Fed to make two 25bp cuts by the end of the year, and noted the significant uncertainty, from the impact of tariffs on inflation.

Bloomberg reported that a temporary Fed governor could be nominated, to fill the vacant position to see out Kugler’s term, which expires next January. This would provide more time to interview candidates for the next Fed Chair, after Powell’s term expires in May of next year. The market has almost fully discounted a 25bp cut in September, and there is 60bp of easing priced by December, which is little changed since the large move following the weak labour market report.

Global bond yields are modestly higher with limited economic data to provide the market with direction. There was a short lived 6bp spike in 10-year treasury yields, with no clear reason for the sharp intra-day move, and an equally quick reversal lower. Front end treasury yields are little changed and 10-year notes settled ~2bp high in yield with a similar sized move for German bunds.

There was lacklustre demand from investors in the US$42 billion 10-year note auction. The auction cleared slightly more than a bp above prevailing market levels and the bid-cover ratio was the lowest in more than a year. This follows weak demand in the 3-year auction earlier in the week. Investor appetite for treasuries will be tested again tomorrow with US$25 billion of 30-year bonds being auctioned.

Measures of wages in Japan were softer than expected in June. Scheduled full time pay on a same sample basis dipped to 2.3% compared with a 2.5% consensus estimate. The data supports the Bank of Japan’s cautious stance towards further tightening in addition to the uncertain economic backdrop. Market pricing indicates the BoJ will remain on hold at the September meeting and there is around 14bp of tightening priced by the end of the year.

NZ Q2 labour market data came in close to consensus estimates. The unemployment rate increased to 5.2%, which was marginally better than expected, but was offset by a drop in the participation rate to 70.5%. Employment fell 0.1% during the June quarter and is 0.9% below year earlier levels. The labour cost index increased 0.6% in the quarter. There was little to alter expectations for a 25bp cut on August 20.

The US dollar is broadly weaker in offshore trading with European currencies making the largest gains. However, the Swiss franc underperformed after the delegation failed to get a reprieve from the US on tariffs. NZD/USD gained in the local session yesterday with investors seemingly positioned for a weaker labour market report but has lagged European currencies overnight.

The NZ swap curve ended the local session yesterday 2-3bp higher in yield with similar moves seen in the government curve. NZ Debt Management will offer NZ$450 million in the weekly tender today testing investor appetite for bonds after the recent decline in yields. 10-year bond yields are near the lowest level in three months. The tender lines are May-30 (NZ$225m), May-35 ($175m) and May-41 ($50m). There will also be a small parcel of Sep-40 ($25m) inflation indexed bonds.

Turning to the day ahead, the RBNZ’s Survey of Expectations will be monitored. 2-year inflation expectations edged higher in Q2, albeit within the context of being close to the midpoint of the central bank’s target range. The Bank of England is unanimously expected to reduce its policy rate by 25bp to 4.0%. Divergent views within the committee point to a split decision between those favouring a larger 50bp cut, the expected 25bp adjustment, and some members that prefer to keep rates steady.