US equities are probing fresh record highs, the US Treasuries curve has flattened and the USD is broadly weaker.
After the bell yesterday, Nvidia’s earnings report was broadly in line with expectations but the market focused on its data centre segment, where that fell a little short of expectations. Furthermore, the company excluded any AI chip revenue from China from its projections as it awaits further information from the US government codifying the recently imposed export tax on chips to China. The stock was down as much as 5% in afterhours trading yesterday but nearly all of that fall has been evaporated in today’s session.
The S&P500 currently shows a modest gain, taking the index up to a fresh record high. The VIX index has fallen to just over 14, its lowest level this year. Our risk appetite index, where the VIX has a one-third weighting, pushed up to a fresh high for the year of 78% earlier this week.
In economic news, US Q2 GDP growth was revised up by three-tenths to an annualised 3.3% pace, driven by business investment revised up to 5.7%, from 1.9%, and a two-tenths upward revision in private consumption to 1.6%. The first reading of gross domestic income was an annualised 4.8% increase.
The Q2 GDP and GDI figures are exaggerated by negative growth recorded in Q1, driven by the tariff-related volatility in net exports, but the US economy is showing some resilience, running stronger than many believed, evidenced by Citigroup’s economic surprise index rising to its highest level this year. The Atlanta Fed GDPnow estimate for Q3 is running at 2.2%. The Dallas Fed’s weekly economic index has been picking up over recent weeks and is at a 7-week high of 2.6% (scaled to represent a smoothed annual GDP run-rate)
US initial jobless claims fell 4k last week to 229k, consistent with some ongoing resilience in the labour market, even if a range of indicators suggest an overall easing in conditions.
In the rates market, the US Treasuries curve is flatter, reversing some of the move seen over the past two sessions, with the 2-year rate up 3bps to 3.64% and the 10-year rate down 3bps to 4.21%.
As expected, Fed Governor Cook filed a lawsuit, seeking to block Trump’s move to fire her. Cook has asked the court to allow her to remain on the board by declaring Trump’s attempt to fire her unlawful and void. Cook claims a clerical error explains the dispute over her mortgage application and this would not be the type of offense that would constitute “cause” for her removal. Meanwhile, Trump’s pick Miran, to replace Governor Kugler who stepped down recently, will soon face a Senate hearing to fast-track his appointment to the Fed Board of Governors ahead of the next September FOMC meeting.
Against a backdrop of higher risk appetite, the USD is broadly weaker, with dollar indices down 0.3-0.4% for the day. The NZD has outperformed overnight, rising 0.5% to around 0.5890 and resulting in small gains on the crosses. The AUD has pushed up to 0.6530 and, after falling to a six-month low of 0.8989 yesterday, NZD/AUD has recovered to 0.9010. GBP has shown the smallest lift against the USD overnight and NZD/GBP is up 0.4% to 0.4355.
Peace in Ukraine looks like a distant prospect, with another deadly drone attack in Kyiv, which saw damage to the EU mission and British Council buildings. EC president von der Leyen accused Moscow of deliberately targeting the EU mission. German Chancellor Merz said there will be no meeting between Zelensky and Putin. Trump’s spokeswoman said he was not happy about Russian strikes on Ukraine and the president would make a statement later.
Downward pressure remained on NZ rates yesterday, seeing swap rates probe fresh multi-year lows, with yields down 3-4bps, seeing the 2-year rate close at 2.86% and the 5-year rate at 3.31%. The low in the OCR is still seen close to 2.5%, based on OIS pricing. There was strong demand for the two lines of NZGBs on offer at the weekly tender with $2.4b of bids for the $450m of 2030/2035s on offer. The 10-year rate closed down 4bps to just under 4.34%, its lowest close this year.
NZ economic data didn’t move the needle. Filled jobs rose 0.2% m/m in July, continuing the run of more positive economic momentum at the start of Q3, after the pothole the economy hit in Q2. The ANZ business outlook survey showed insignificant changes across the board, with the survey portraying a positive economic outlook.
The economic calendar in the day ahead is full. This morning sees the release of NZ consumer confidence and Tokyo CPI inflation figures, with a speech by Fed Governor Waller on monetary policy also in the mix. Tonight sees the release of German CPI inflation and Canadian GDP data while in the US the focus will be on personal spending data and the core PCE deflator, expected to show a 0.3% m/m increase, seeing annual increase push up to a 5-month high of 2.9%.
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