Minutes from July FOMC suggest members were more concerned about inflation than employment. The US administration has continued to pressure Federal Reserve officials. Tech stocks decline

Technology stocks weighed on the performance of US equity indices for a second day as investors rotated into value sectors like consumer goods, energy companies and healthcare. The Nasdaq is around 1% lower and close to 3% below the recent peak. Global bond yields are little changed with limited data to provide the market with direction. The US dollar and treasury yields declined after President Trump continued to pressure Fed officials.

The Wall Street Journal reported that President Trump is considering firing Federal Reserve governor Lisa Cook. This followed allegations from the head of the Federal Housing Financing Agency that she may have submitted a misleading mortgage application. This continues the pressure on the US central bank and its staff from the Trump administration. Stephen Miran, who was named to temporarily replace Adriana Kugler after her resignation, is likely to vote for a cut and the administration is pushing for him to be confirmed by the September meeting.

US treasury yields declined initially. If Governor Cook was replaced, it would make room for a new candidate and potentially add one more vote for rate cuts. 2-year yields dropped 3bp to 3.72% before rebounding after the July FOMC minutes were released. The minutes, which are now dated given the July labour market data, showed most participants were more concerned about inflation risks than employment. The US$16 billion 20-year bond auction cleared close to prevailing market mid-rates.

UK inflation CPI data was higher than expected in July. The annual headline rate was 3.8%, above the consensus estimate of 3.7% and the services reading was 5%, also above expectations. The Bank of England signalled growing concern over inflation at its last meeting, and forecast a peak of 4% in September, which has led to reduced expectations for further easing this year. There is around 13bp of cuts priced by December, which was little changed after the CPI data.

The RBNZ reduced the Official Cash Rate by 25bp to 3.0% as expected yesterday, but also made a significant dovish shift, noting the subdued growth backdrop and persistent output gap. Two Committee members voted for a larger 50bp cut, and the Bank outlined a continued easing bias, saying there is scope to lower rates further if medium term inflation pressures continue to ease. The modelled OCR track was revised significantly lower.

The NZ dollar fell sharply after the Monetary Policy Statement, dipping towards the 200-day moving average at 0.5830, and to the lowest level since April. NZD/USD oscillated in a narrow range overnight, set against the backdrop of a modestly weaker US dollar, relative to the euro and yen. After falling sharply on the key crosses in the local session yesterday, the NZD was stable against the AUD and pound overnight but declined further against the euro and yen.

The dovish RBNZ tilt and revised OCR track contributed to a large rally across the NZ rates complex. The move lower was led by the front end of the rates market. Terminal OCR pricing reached 2.55% which largely aligns with the trough in the Bank’s modelled OCR track. 2-year swap rates dropped 17bp to 2.95%, a fresh low for the cycle. The curve steepened with 10-year yields dropping 10bp to 2.95%. The government curve largely matched the moves in swaps. 10-year NZGBs closed at 4.38%, the lowest level since the market volatility in April.

The weekly government bond tender takes place today set against lower absolute and cross market yield levels. NZ Debt Management is offering NZ$450 million of nominal bonds. Recent tenders have seen solid demand from investors with cover ratios running close to four in the new fiscal year. Bonds offered today are May-30 ($225m), May-35 ($175m) and May-41 ($50m).

The NZ trade balance for July is the only domestic data of note. Advance readings of the August manufacturing and services PMIs for the US and Europe are released this evening and will provide insights into economic activity. Readings for the services PMI have been resilient while manufacturing have been weaker, but greater trade certainty may help sentiment.