US equities in a holding pattern ahead of Nvidia results. Treasury curve steepens amid politicisation of the Fed. US tariffs on India rise to 50%. A sharp increase in Australian CPI reflects timing of electricity subsidy payments

US and European equity indices are little changed, as investors look ahead to key technology stock Nvidia’s results, which are due after the market close. The results will be a test for the artificial intelligence driven move that underpinned the rally in US stock indices. There was limited economic data to provide the market with direction. The US has increased import tariffs on India to 50% in response to its purchases of discounted Russian oil. Brent crude was little changed near US$68 per barrel. The treasury curve extended its recent steepening trend and G10 currencies are firmer against the US dollar.

New York Fed President Williams has said the current level of rates is modestly restrictive and the central bank’s meeting next month would be a ‘live one’. These comments hint at the possibility of a cut. This is already well discounted by the market with around 21bp of easing priced. Fed officials are facing ongoing political pressure, which has triggered a steepening in the US treasury curve, as investors anticipate lower near-term interest rates but higher inflation in the future.

Short-dated US treasuries have continued to outperform. 2-year yields declined 5bp to 3.62%, which is the lowest level since early May. The 2y/10y curve steepened to 62bp and is closing in on the April peak. Investors require additional term premium, for risks associated with the politicisation of the Federal Reserve, along with concerns about inflation and government spending. 10-year treasury yields declined 2bp to 4.24%. The US$70 billion 5-year bond auction tailed by close to 1bp on soft demand.

The spread between French 10-year bonds and German bunds has continued to widen. This reflects concerns about the fiscal dynamics and political outlook after Prime Minister Francois Bayrou’s decision earlier in the week to call a vote of confidence in his government for Sept. 8. French 10-year bonds closed at 3.52%, 82bp above the equivalent maturity bund. This is the highest level since January and up from 65bp two weeks ago.

The monthly CPI indicator in Australia increased at a 2.8% annual rate in July, well above consensus expectations. The trimmed mean measure increased to 2.7% from 2.1 % in June. The upward surprise reflects the timing of electricity subsidy payments and is not as material as it initially appeared. The market trimmed easing expectations at the margin. There is 5bp of rate cuts priced for the Reserve Bank of Australia’s September meeting and a total of 27bp by November.

In currency markets, an initial move higher in the US dollar faded. After rallying in early Europe, the move lower in front end US interest rates corresponded with a reversal lower for the US dollar index. There was limited differentiation across the G10 currencies. The move was primarily driven by the US dollar with few other currency specific catalysts. NZD/USD dipped towards 0.5820 initially before rebounding sharply. Absolute moves on the major NZD crosses were small.

It was a quiet session for NZ fixed income in the local session yesterday. Yields were 1-2 higher across the swap curve. ASB issued NZ$1.2 billion in its 5-year fixed rate senior deal, which priced at a spread to swaps of +77bp, the tighter end of initial price guidance. Government bonds outperformed swaps and were flat to -1bp across the curve. The long end of the curve outperformed at the margin. The May-2035 10-year bond was unchanged and closed at 4.37%.

The weekly government bond tender takes place today set against the recent rally and tight cross market yield levels. NZ Debt Management is offering NZ$450 million of nominal bonds split across the May-30 ($250m) and May-35 ($200m) lines. The tender last week attracted decent demand from investors despite the post-RBNZ rally.

NZ filled jobs data for July and ANZ business confidence are released today. Filled jobs increased 0.1% in June but this series has been consistently revised lower in recent months. ANZ confidence is likely to continue to point towards a positive outlook for activity, employment, and investment. Initial jobless claims and the second reading of Q2 GDP will be monitored in the US.