US Fed vice-chair Jefferson echoes Powell saying that another cut in December was "not a forgone conclusion". Japanese PM Takaichi to meet BoJ after Japan GDP contracted in Q3

The new week has begun with small net changes in US equities and Treasuries and modest changes in currencies. The NZD trades this morning at 0.5670, up slightly overnight but down slightly from last week’s close.

US equities have been oscillating to kick-start the week, with the S&P500 shifting between small gains and losses.  Focus this week will be on Nvidia’s earnings report, due after Wednesday’s close, so Thursday morning NZ time.

The US 10-year rate has traded a tight 4.11-4.14% range overnight.  There was a temporary jump from the bottom to the top of the range following an announcement that Amazon was looking to borrow $12b, its first bond issuance since 2022.  Plenty of other investment grade supply is expected to come this market this week.  The 10-year rate is currently 4.13%, down a touch from the NZ close.

Fed vice-chair Jefferson echoed Chair Powell’s view in saying that another cut in December was “not a forgone conclusion” and taking a meeting-by-meeting approach to policy was “an especially prudent approach at this time”.  That said, his comments weren’t as hawkish compared to voting Fed Presidents last week, as he said “I see the balance of risks in the economy as having shifted in recent months with increased downside risks to employment compared to the upside risks to inflation, which have likely declined somewhat recently”. His comments weren’t market moving, and pricing for the December meeting is around 10bps, so the market sees more chance of the Fed on hold than cutting again next month.

In economic news, the Empire survey, which measures manufacturing activity in NY state, rose 8pts to 18.7, its highest level in a year. The data are too volatile to jump to conclusions, but the index has been trending higher over the past six months and the lift was broadly based, including new orders and employment.  Following the end of the US government shutdown, market attention will be on the delayed September nonfarm payrolls report and household labour force survey, due Thursday night, NZ time.

Canadian annual CPI inflation fell by slightly less than expected from 2.4% to 2.2% in October, while the core measure (average of trim and median) fell slightly more than expected to 2.95%. The data had little net impact on the market, with the Bank of Canada easing cycle seen to be over, with its policy rate already having been lowered substantially to 2.25%.

PM Takaichi will meet with BoJ Governor Ueda later today following data showing Japan GDP contracted by 0.4% q/q in Q3, albeit a smaller contraction than the 0.6% expected by the consensus. There will be interest in the outcome of the meeting, given Takaiichi’s reputation as an advocate of easy monetary policy (and fiscal policy) and the market wondering when, or if, the BoJ will tighten policy over coming months.

Currency movements have been modest. JPY is the weakest of the majors relative to last week’s close, with USD/JPY up 0.4% to 155.20.  AUD is also struggling, although it found some support at 0.65 overnight and is currently 0.6510. The NZD softened during NZ trading hours but has recovered a little overnight to 0.5670, to be down only slightly from last week’s close.  NZD/AUD is back over 0.87 and NZD/JPY around 88. 

In the domestic rates market, NZDM launched the syndicated tap of 2036 bonds, looking to raise $4-6b with price guidance of 12-15bps over the 2035 bond.  The afternoon update showed a firm orderbook close to $15b and price guidance narrowed to 12-14bps.  Market movements were modest, with NZGB yields closing the day up 1-2bps across the curve and swap rates up 2-3bps.

NZ data didn’t move the needle.  NZ’s performance of service index rose 0.4 to 48.7 in October, doing nothing to change the general sentiment of a soft service sector.  REINZ housing market continued to convey a market with flat pricing on a seasonally adjusted basis and modest sales activity.  Monthly pricing indicators had no impact of our Q4 CPI estimate of 0.3% q/q and 2.8% y/y. The domestic focus is on next week’s MPS, where a 25bps rate cut is widely anticipated and fully priced.

The global economic calendar will be light over the coming 24 hours.

Jason Wong is the senior Markets Strategist at BNZ Markets.