Newsflow has been light. US equities are up slightly, paring strong gains after the open. The US 10-year rate took another peak below 4% but yields are now modestly higher. Currency movements have been modest and the NZD is down a touch around 0.5710.
There have been slim pickings for the market to trade on. A late selloff in US equities yesterday was triggered by President Trump saying China not buying US soybeans was an economically hostile act and he threatened to retributions. US equities bounced back on today’s open, rising as much as 1.2%, before paring gains and the index now only shows a small gain.
US Treasury Secretary Bessent gave wide ranging remarks at a CNBC forum in Washington. His comments around the trade war were both positive and negative. On the negative side, he called out of one of the lower-level China trade negotiators as “unhinged” and “disrespectful” and he said the US had lots of levers to pull that could damage China. On the positive side, he was optimistic on China, he believed the Xi-Trump meeting will still go ahead and he suggested a longer US-China trade truce in return for China putting off it plans to tighten limits on critical rare earths. On his other trade comments, US-Canada is “back on track” and the US is on the brink of finalising new terms on a trade deal with South Korea.
Fed Governor Miran, on temporary leave from his White House role, has used the US-China trade war as a pretext to advocate his dovish view on policy. He said, “there’s now more downside risks than there was a week ago, and I think it’s incumbent upon us as policymakers to lower interest rates quickly”. He wasn’t necessarily arguing for lower rates than previously, but a case that new tail risks make it “more urgent that we get to a more neutral place quickly”.
The first Fed regional manufacturing survey for October showed a strong rebound for New York state (the Empire survey), supported by a surge in new orders and shipments. Inflation pressures intensified, with both the prices paid and received indexes rising by six points, the latter hitting its highest level since April.
US Treasuries have traded a tight range. For the 10-year rate there has been a couple of peeks just below 4% but no follow-through and the yield is currently 4.03%, little changed for the day and up slightly from the NZ close.
Political uncertainty continues to overhang Japan. LDP leader Takaichi is lobbying opposition parties to support her bid to become the next PM a day after news that the DPP’s Tamaki was gaining the upper hand and had a chance of winning the vote. Despite the uncertain backdrop there was some relief yesterday when Japan’s first sale of ultra-long (20-year) bonds since the political turmoil attracted solid demand, after the recent lift in yields.
Currency markets show modest movements. Since the NZ close, the NZD hasn’t traded a range of much more than 25pips and it is down slightly around 0.5710. The AUD is hovering around 0.65. European currencies are slightly stronger, leaving NZD/EUR probing fresh 15-year lows around 0.4910 and NZD/GBP probing fresh 10-year lows around 0.4265.
Against a backdrop of lower global yields, NZ rates were pushed down to fresh cycle lows yesterday. Hedge funds still have a penchant for receiving NZ short end swaps, without much pushback from the payside such as the mortgage books. The 2-year swap rate closed down 5bps to 2.49%, with the same fall in the 10-year rate to 3.59%. NZGB yields were down 5-7bps across the curve, with the ultra-long bonds losing their 5% handle for the first time since April.
In the day ahead, RBA Governor Bullock will be speaking this morning, ahead of NZ monthly CPI data which will help us finalise our Q3 CPI estimate (due Monday). Australia’s employment report is expected to show a modest lift in employment, not strong enough to prevent a tick up in the unemployment rate to 4.3%. Tonight sees the release of monthly UK GDP data and second-tier US data.
Daily exchange rates
Select chart tabs
Jason Wong is the Senior Markets Strategist at BNZ Markets.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.