US data released were soft and there was a report that Trump is most likely to select the most dovish candidate, Hassett, as the next Fed chair. The USD is broadly weaker and the 10-year rate has slipped below 4%

There has been plenty of news overnight to digest.  Oil prices are lower as a Ukraine-Russia peace deal looks closer than ever. US data released were soft and there was a report that Trump is most likely to select the most dovish candidate as the next Fed chair.  The USD is broadly weaker and the 10-year rate has slipped below 4%.  The NZD has pushed higher but has underperformed against EUR, GBP and JPY ahead of the RBNZ’s meeting today.

A US official told ABC News that a Ukrainian delegation has agreed with the US on the terms of a potential peace deal adding “there are some minor details to be sorted out but they have agreed to a peace deal”.  This followed secret talks between the US army secretary and a Russian delegation in the UAE on Monday. A key question now is whether Russia accepts the slimmed down 19pt peace plan.  Russian Foreign minister Lavrov said that if the plan “erased…key understandings” that President Putin thought he had reached with President Trump at Alaska, the “situation will be fundamentally different”.

The market senses a possible end to the war and oil prices are down about 2%, with Brent crude trading down to USD62 per barrel. European natural gas prices have fallen to their lowest level in 18 months.

US economic data released overnight were mostly weaker than expected.  ADP private payrolls fell 13.5k per week in the four weeks ending 8 November.  The Conference Board measure of consumer confidence showed a chunky fall in November to 88.7, with the expectations component showing an even greater fall to 63.2.  Comments left by consumers in the survey noted prices and inflation, tariffs and trade, and politics, with increased mentions of the government shutdown. The labour market indicator measuring the difference between those saying jobs were plentiful and hard to get slipped a little but has been relatively steady over recent months.

Delayed retail sales data for September showed a weak end to the quarter, with the headline figure up just 0.2% m/m, the ex-auto and gas measure up 0.1% and the control group measure that feeds into GDP down 0.1%.  Sales growth for the quarter overall was strong but there was clearly weaker momentum heading towards Q4.  Delayed PPI data showed benign inflation pressure in September, dragging down the annual core figure to 2.6% y/y, the lowest since July 2024.

Th only positive surprise was pending home sales for October rising 1.9% m/m.

Conviction in the Fed cutting rates in December continues to increase, with market pricing implying a greater than 80% chance.  In addition to the softer data overnight, yesterday San Francisco President Daly said she supported a December rate cut.  While she is a non-voter this year, she has rarely taken a public position at odds with Chair Powell.  Her comments also follow NY Fed President Williams’ view at the end of last week which favoured a near-term rate cut.

Bloomberg reported White House Director Hassett is the frontrunner to be the next Fed Chair, according to sources. They noted Hassett is seen as someone who would bring the president’s approach to interest rate cutting to the Fed, which Trump has long wanted to control.  Hassett is seen to be the most dovish contender on the short list, compared to ex-Fed official Warsh and current Fed Governor Waller. Earlier, Treasury Secretary Bessent said Trump could announce his decision on the new chair within the next month.

US Treasuries have been well supported by the soft data, lower oil prices and speculation on Hassett being the Fed Chair frontrunner.  The curve is modestly flatter and the 10-year rate has traded just below 4%, down about 4bps from the NZ close.

In currency markets, the USD is broadly weaker with the DXY index down 0.4% for the day.  The euro got a lift after the ABC News report on Ukraine’s acceptance of the peace deal but GBP has performed even better, as positions are adjusted ahead of the UK Budget tonight.  JPY also found some support against the backdrop of lower global rates.  Commodity currencies are modestly higher, but have underperformed the other noted majors.

The NZD shows a modest gain, up through 0.5625.  While the NZD is slightly higher overnight against AUD and CAD, it is weaker on EUR, GBP and JPY crosses.

The S&P500 is trading at its highs for the session in early afternoon trading, recovering from a modest fall earlier in the session and is currently up 0.7%, despite a near-4% fall in Nvidia, with concern that it could lose market share after a report that Meta was in talks to spend billions on Google’s AI semiconductors.

The domestic rates market was quiet yesterday in the lead-up to today’s RBNZ MPS.  NZGB and swap yields closed the day marked 1-2bps lower. A 25bps cut is a strong consensus view and is well-priced.  Focus will be on the policy outlook, where most expect the door to be left open to further possible easing but there is keen interest in the conviction of any tone here.

Ahead of that, new monthly Australian CPI data will be released.  There is also keen interest in the UK Budget tonight, with tax increases required to fill a growing deficit.  UK gilts and GBP could move significantly in either direction. In the US, there will be the delayed releases of September durable goods orders, while timelier jobless claims and Chicago PMI data will be released.

Jason Wong is the Senior Markets Strategist at BNZ Markets.