Rising geopolitical tensions hit risk sentiment and weigh on US equities. Limited market rection to US retail sales and PPI data. Oil prices extend recent gain. Metals continue winning streak

US equities have fallen amid rising geopolitical tensions while metals prices have continued to advance. The S&P is down close to 1% in afternoon trading with limited impact from US retail sales and PPI data. The Nikkei extended its recent gains. It was reported that plans for a snap general election in February have been outlined to senior colleagues by Japan’s Prime Minister Takaichi. Metals including gold, silver, copper, and tin have hit record highs as investors seek alternatives to traditional assets. Global government bond market yields are broadly lower, and the US dollar index declined at the margin.

Brent crude prices traded above US$66 per barrel which extends the recent gains to the highest level since October. Geopolitical tensions are underpinning prices as market participants wait for a US response to the turmoil in Iran. News that the US is evacuating some personnel from a military base in Qatar added to the concerns. The base was targeted by Iran in retaliatory air strikes last year.

US retail sales remained solid in November. Sales ex-autos and gas rose by 0.4% in the month, slightly above the consensus. Control retail sales increased 0.4% matching the median estimate. Two months of PPI data were released. Core PPI rose by 0.3% in October and was unchanged in November. Updated estimates suggests core PCE inflation for Q4 last year – the Fed’s preferred inflation gauge - appears to be tracking at 2.9%, which is below the 3.0% median estimate from FOMC members in December.

US treasuries have benefited from the soft risk tone and yields are 2-5bp lower across the curve led by the longer end. 10-year notes declined 4bp to 4.14% and towards the bottom end of the narrow well-defined trading range that has characterised price action this year. Although there was limited market reaction to the data, yields have remained lower after the release. The market is pricing a 25bp cut by June and a cumulative 55bp of easing by December.

The US dollar is modestly weaker against most G10 currencies since the local close yesterday. The largest move has been the yen, which has rebounded from a fresh 18-month low versus the dollar after Japanese officials renewed warnings against speculative moves. NZD/USD is little changed overnight. The AUD underperformed within G10 currencies and NZD/AUD traded towards 0.8610. The NZD lost ground against the yen, and little changed on the key European crosses.

NZ swap rates edged higher in the local session yesterday and have now fully unwound the modest rally from the start of the year. Rates closed 2bp higher across the curve. The domestic economic data has continued to be firm. Filled jobs increased 0.3% in November, and although the release will likely get revised lower, it remains consistent with our expectation that employment will post a modest gain in Q4. Government bonds underperformed with 10-year yields increasing 5bp to 4.48%.

NZ Debt Management will undertake the first government bond tender of the new year today after the typical seasonal pause in issuance since mid-December. There will be NZ$450 million of nominal bonds auctioned across the May-2030 ($200m) and May-2035 ($250m) lines. In addition, there will be a small parcel of Sep-2050 linkers offered. This is the first time the line will be tendered since it was syndicated in September.

There is no domestic economic data of note in the day ahead. In the UK, monthly GDP data for November is likely to provide additional evidence of subdued activity at the end of last year. Output is expected to have stagnated in the final quarter of 2025. Initial jobless claims and regional business surveys are released in the US.

Stuart Ritson is a Markets Strategist at BNZ Markets.