Gold prices slump -6% following parabolic move higher; ditto silver prices. Global equity markets continue to push higher. Global rates are lower

The key market move overnight has been a slump in gold and silver prices following their explosive run higher.  Global equity markets continue to push higher, with many bourses reaching new highs.  Global rates are lower, with the US 10-year rate nudging down to 3.95%.  Net currency moves have been modest apart from the yen weakening after Takaichi won the vote to become Japan’s PM.

Spot gold prices are down over 5% to just over USD4100 per ounce, falling over 6% at its nadir, its largest fall in 12 years following a parabolic run. There hasn’t been any particular catalyst, but technical indicators have put the metal well into over-bought territory for some time so it was overdue for a big correction. Same goes for silver prices, which are down over 7% to USD48.50.

Newsflow remains light.  US equities have been in and out of positive territory through the trading session and currently show a small gain.  Many equity markets are close to record highs and markets to reach that milestone yesterday include Australia, Japan, Korea and Taiwan.  The Euro Stoxx 600 closed up 0.2%, just shy of its recent record high.

Global bond markets have also been well supported, with no obvious catalysts for modestly lower rates overnight.  The US 10-year rate nudged down to as low as 3.95%, and is currently 3.96%, a couple of basis points lower than the NZ close and with a flatter curve.

LDP leader Takaichi won a parliamentary vote to become Japan’s PM, supported by a coalition deal with Ishin and six other opposition lawmakers.  The new government now leans more right of the political spectrum.  Takaichi repeated her recent comments regarding monetary policy, saying that the BoJ will maintain close coordination and communication with the government, adding “I believe the BoJ should retain discretion over the tools of monetary policy”. The market sees almost no chance of the BoJ hiking next week, but 19bps is priced for the December meeting, up from 16bps. Still, the yen weakened and shows the largest fall for the day.  USD/JPY is up towards 152 while NZD/JPY has gained to 87.2.

Canada’s CPI rose 2.4% y/y in September, a greater lift than expected from 1.9% in August and the core measures were also stronger than expected, averaging 3.15% for the weighted median and trimmed mean. The market pared the extent of further easing priced.  Another full cut is essentially priced by the December meeting, but the Bank of Canada cutting again as soon as next week is given a two-thirds chance. While Canadian short-term rates were slightly higher, the net impact on the CAD wasn’t significant and NZD/CAD is unchanged overnight at 0.8050.

Apart from a weaker yen, net currency movements have been modest.  The NZD has swung between 0.5710-0.5750 overnight and currently sits towards the upper end of the range.  In addition to the gain against the yen, NZD crosses against AUD, EUR and GBP are all modestly higher.  The AUD has weakened below 0.65, seeing NZD/AUD push up to 0.8850.

European nations are working on a 12-point proposal to end Russia’s war along current battle lines, pushing back against Trump’s insistence that Ukraine surrenders territory.  The proposal includes a gradual easing of sanctions on Russia.  However, there is no sign of Putin shifting his demands, including ceding any territory that Russia currently holds in the war zone. President Trump no longer plans to meet President Putin in Budapest for peace talks.

Brent crude is up ½% to USD61.30, after an early spike higher following the announcement that the US would buy 1m barrels for its strategic reserve.

Yesterday, domestic rates followed global rates lower, with NZGBs down 3-4bps.  The 2-year swap rate was unchanged at 2.46% while the 10-year rate pushed down 3bps to 3.53%.  Despite lower US Treasury yields overnight, the Australian 10-year bond future shows little net change from the NZ close.

On the economic calendar, today sees the release of UK CPI data, which could determine whether the BoE eases policy again this year.

Jason Wong is the Senior Markets Strategist at BNZ Markets.