A soft ADP employment print solidified market expectations for a Fed rate cut next week, but the net move in US Treasuries overnight has been small. US equities show a small gain. The USD continues its weaker run and the NZD has pushed up to monthly highs just over 0.5770.
In the US, ADP private payrolls fell 32k in November against expectations for a 10k lift, the fourth negative figure of the past six months. Digging deeper, smaller businesses are suffering more than larger businesses, as companies with fewer than 50 employees lost 120k jobs compared to a lift for larger companies. Workers who changed jobs saw a 6.3% increase in pay, the weakest since February 2021. With many on the FOMC focused on the labour market, the data cemented in market expectations that the Fed would cut by 25bps next week, which is almost fully priced.
The ISM services index ticked up to 52.6 in November, slightly stronger than expected. The employment index was slightly stronger at 48.9 but remained in contractionary territory. The prices paid index fell to a seven-month low of 65.4 from 70.0.
The US 10-year rate fell to an overnight low of 4.04% following the ADP data but the move quickly faded and it currently trades at 4.07%, little changed from the NZ close. Global rate movements have been small although of note, Japanese JGB yields continue to rise to multi-decade highs on expanding fiscal policy and the likelihood of an imminent BoJ rate hike, with the 10-year rate up 3bps to 1.89%.
There have been modest moves in equity markets. The S&P500 is up 0.3% in early afternoon trading while the Euro Stoxx 600 index closed up 0.1%.
Peace in the Ukraine-Russia war doesn’t look imminent. The WSJ report that a five-hour meeting at the Kremlin between President Putin and US envoys Witkoff and Kushner concluded without reaching an agreement to end the war, but the talks were “useful” and “constructive,” a senior Russian official said. The main stumbling block is territory, with Russia demanding all of the eastern Ukrainian region of the Donbas while Ukraine rejects surrendering territory that Russia hasn’t taken.
Meanwhile, the FT reports that the EU has proposed a legally contentious workaround to raise up to €210bn for Ukraine backed by immobilised Russian state assets, including emergency powers that in effect strip Hungary and other dissenting countries of their veto. Oil prices are up 1%, with Brent crude trading at USD63 per barrel.
In the currency market, the USD’s losing streak continues, with the DXY index down 0.5%, on track for an eighth consecutive daily fall. While seasonally the USD is typically weak in December, other factors overhanging the currency is next week’s expected Fed rate cut and recent speculation that Hassett, a person loyal to Trump, will get the nod as the next Fed chair, reinforcing expectations for further Fed easing through 2026.
GBP has led the gains for the majors, for no obvious reason, rising to 1.3345, up more than 1% since this time yesterday and up through its 200-day moving average. EUR shows a more modest gain to 1.1670.
The NZD is the best of the commodity currencies, pushing up to a monthly high of just over 0.5770. NZD/GBP is modestly weaker at 0.4325 but the NZD is modestly higher on the other key crosses.
Australian GDP rose by 0.4% q/q in Q3, three-tenths lower than the consensus, but digging deeper the report wasn’t as weak as it appeared, with upward revisions to prior data and strong domestic demand of 1.2% q/q. The initial market reaction of lower rates and a weaker AUD quickly faded. The RBA is seen to be on hold over coming meetings, with the rising chance of a rate hike as 2026 progresses.
NZGBs outperformed yesterday on a cross-market basis, with signs of a market being caught short of stock. Yields closed the day down 6-8bps across most of the curve, with the 10-year rate down 7bps to 4.30%. There were further signs that the post RBNZ MPS blowout in swaps had run its course, with the 2-year rate down 2bps to 2.84%, and down from the 2.90% levels of earlier in the week. The 10-year rate matched the fall in NZGBs, down 7bps to 3.98%.
On the calendar there are only second-tier data releases ahead, with NZ building work for Q3, Australian trade data and US jobless claims.
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Jason Wong is the Senior Markets Strategist at BNZ Markets.
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