US equities are weaker, led by a notable fall in tech stocks. The risk-off vibe has seen US Treasuries well supported, with modest falls in rates. Commodity currencies have underperformed

Newsflow has been light, but US equities are weaker, led by a notable fall in tech stocks. The risk-off vibe has seen US Treasuries well supported, with modest falls in rates.  Commodity currencies have underperformed, resulting in the NZD probing levels just below 0.59 again.

Nothing concrete came out of the high-profile meeting between President Trump and European leaders regarding the Russia-Ukraine war.  There was plenty of talk about possible further meetings, including a bilateral meeting between Putin and Zelensky and a possible trilateral meeting that might include Trump, but nothing is set in stone.

US and European officials are working on security guarantees for Ukraine. President Trump said that the US could play a role in a postwar security guarantee, possibly in the form of air support. Meanwhile, Russia continued to bombard Ukraine with drone attacks. Putin was briefed on the meeting and Russia’s foreign ministry said any top-level meeting with Ukraine had to be “prepared extremely carefully”.

On a day with little newsflow to drive markets, equity investors have decided to take profits on high-flying US equities, with some signs of sector rotation.  While a small majority of sectors are in positive territory, the S&P500 is currently down 0.7% with the Nasdaq down a chunkier 1½%, as the IT sector significantly underperformed. European markets were stronger, with the Euro Stoxx 600 index closing up 0.7%.

Against the backdrop of lower risk appetite, US Treasuries are well supported, with falls in rates led by the long end.  The 10-year rate is down 3bps for the day to 4.30%. Yesterday, S&P Global affirmed the US sovereign credit rating at AA+, noting “meaningful tariff revenue to generally offset weaker fiscal outcomes that might otherwise be associated with the recent fiscal legislation, which contains both cuts and increases in tax and spending”.  The stable outlook reflected that while the fiscal deficit won’t meaningfully improve, it also won’t persistently deteriorate over the next several years.

In economic news, Canada’s headline CPI rose 1.7% y/y in July, down from 1.9% and a tenth lower than expected.  The average of the two key core measures was steady at 3.05%. Canadian rates fell modestly after the data, with the market seeing an increased chance of another rate cut this year, with a cut by December now almost fully priced.  The CAD was also weaker, with USD/CAD up 0.4% for the day.

US housing data were mixed, with a 5.2% jump in housing starts in July against a 2.8% fall in building permits.  The latter is a fairer reflection of current housing market dynamics and is a less volatile series.

Commodity currencies have underperformed, and the NZD and AUD have fallen slightly more than CAD overnight. The AUD is down to 0.6450 while the NZD has probed levels just below 0.59.  NZD/AUD has pushed up to 0.9140, with some pre-positioning ahead of the RBNZ meeting today (see below).  Other key NZD crosses are weaker, with NZD/EUR at 0.5060, NZD/GBP at 0.4370 and NZD/JPY pushing just below 87.

In the domestic rates market there were some nerves evident ahead of the RBNZ meeting, with receivers of short-end swaps looking to reduce positions, leading to the 2-year swap rate rising 5bps to 3.12%, notably higher than the trough of just over 3% towards the end of last week. Swap rates closed the day up 5-6bps across the curve, with heavy trading conditions in the Australian market contributing to the sell-off and this was also a factor in NZGB yields rising 4bps across the curve.

In the day ahead, the domestic focus will be on the RBNZ MPS, where a 25bps cut in the cash rate to 3.0% is universally expected and well-priced.  Focus will be on the projections and policy guidance, in particular clues for how much further, if at all, the easing cycle might be extended.  Tonight sees the release of UK CPI inflation data, where the market expects continuation of high, sticky, inflation running well above target.