US equities on track for anther solid gain, backing up Friday's rally, with big tech leading the charge. Another Fed voter supports a December rate cut taking chance to 70%

Newsflow has been light. The only market movement of note has been an extension of Friday’s rally in US equities, with another solid gain to kick off the new week.  Currencies and bonds show only small movements, and the NZD continues to languish just over 0.56.

US equities are on track for another solid increase, building on the recovery seen on Friday.  The S&P500 is up 1.6% in early afternoon trading with a larger 2.6% gain for the Nasdaq, and Bloomberg’s Magnificent Seven index up 3.5%, as concerns about a possible AI bubble fade.

Recall that Friday’s rally was supported by NY Fed President Willams’ speech in which he said he still sees room for a further rate cut in the near term to bring policy closer to neutral.  Overnight, on Fox Business Fed Governor Waller repeated his dovish views saying he was advocating for a rate cut at the December meeting as “my concern is mainly the labour market, in terms of our dual mandate” and then “you may see a more of a meeting-by-meeting approach once you get to January”, admitting that a flood of data could reveal more information about the economy and make the January decision “a little trickier”.

Following Waller’s reaffirmation of support for a near-term rate cut, the market has moved to move in a slightly higher chance of a December move, with the implied probability over 70%, with 18bps priced. US Treasuries continue to trade a tight range, and the 10-year rate is currently down 2bps from last week’s close to 4.04%, while the 2-year rate is up less than 1bp. 

Although not moving the market, President Xi initiated a call with President Trump, an unusual move, and Chinese state media provided an account of the conversation.  Xi supports all efforts committed to peace between Russia and Ukraine and Xi highlighted the issue of Taiwan, seeing its return to China as an important component of the postwar international order.  Trump said it was a very good call and that Xi invited him to visit Beijing in April.

The outcome of yesterday’s talks on the US peace plan for Ukraine was that significant sticking points remain and there was still work to be done.  Overnight, President Trump questioned on social media whether big progress is being made on peace talks and ended with “don’t believe it until you see it, but something good may just be happening”.  Ukraine’s deputy foreign minister told the FT that the US and Ukraine have drafted a new 19-point peace deal (down from 28-points) but left the most politically sensitive elements to be decided by the countries’ presidents.

In economic news, Germany’s IFO survey showed the business expectations index in November slipped a point to 90.6, against the consensus view for a steady result.  The data suggested a cloud hung over prospects for a recovery in Germany’s economy.

Currency movements have been insignificant.  Relative to last week’s close, the yen has been the largest mover, and even that is small, with USD/JPY up 0.3% to 156.90. The NZD has traded a range of not much more than 20 pips and currently sits just over the 0.56 mark, with no evident support from higher risk appetite. NZD cross movements have been minimal.

The domestic rates market was quiet yesterday and by the close there was little net movement in NZGB yields from the previous close, implying a small cross market under performance following the rally in US Treasuries on Friday night. Swap rates were 1-2bps lower for the day.  The market is likely to remain quiet in the lead-up to Wednesday’s RBNZ MPS, where a 25bps cut is a strong consensus view.

On the economic calendar, delayed US retail sales and PPI data for September are due tonight.  The Conference Board’s consumer survey and pending home sales are also released.

Jason Wong is the Senior Markets Strategist at BNZ Markets.