US equities rebound into the end of last week. US Treasury yields higher. US consumer sentiment improves but concerns remain about the labour market

US equity markets recovered late last week after several soft sessions. The Nasdaq Composite advanced close to 2%, partially reversing a 4.5% three‑day decline. Earlier weakness reflected investor concern about AI‑related disruption and the scale of tech‑sector capex, with four major technology firms projecting around US$650 billion of spending in 2026, mostly on data‑centre infrastructure. The US dollar declined against G10 currencies and treasury yields firmed.

Oil prices edged higher as markets assessed progress in US–Iran nuclear discussions. The escalation risk continues to inject a premium into crude prices set against signs that global supply may still run ahead of demand. Brent crude traded above US$68 per barrel but still made the first weekly decline since December, with diplomatic signals helping to temper concerns about the potential for conflict between the US and Iran.

US consumer sentiment improved in February, rising to a six‑month high as short‑term inflation uncertainty eased and tariff concerns moderated. The headline index increased to 57.3, driven by stronger assessments of current conditions, while expectations dipped slightly. Despite easing inflation fears, labour‑market anxiety persists. Consumers see a high probability of job loss - the highest since July 2020 - and 60% expect the unemployment rate to rise over the next 12 months. Overall, sentiment appears to be stabilising, but job‑security concerns are a constraint on confidence.

US treasury yields rebounded having declined in the previous session on concerns about the labour market following a surge in job-cut announcements, an unexpected increase in jobless claims and a slide in job openings. 10-year yields retraced from a 4.16% low aligned with the recovery in risk sentiment and closed the week at 4.21%. The market was pricing 63bp of easing by the Fed this year when equities were at the lows, but this had declined to 56bp by the close.

Fed Vice Chair Jefferson struck a cautiously optimistic tone on the US outlook, arguing that easing tariff‑related inflation and strong productivity gains should help guide inflation back to the 2% target. He noted that the Fed’s recent policy moves have positioned the federal funds rate near neutral. With inflation risks seen as temporary, he emphasised the Fed will maintain flexibility to respond to evolving economic data.

The US dollar declined in offshore trade on Friday. Risk sensitive currencies including the AUD and NZD were amongst the strongest performers. NZD/USD, which had traded towards 0.5930 earlier in the session, made a sharp recovery and closed out the week back above 0.6000. The Canadian dollar showed limited impact to a mixed labour market report where the unemployment rate unexpectedly dropped to 6.5%.

The yen was stable against the dollar ahead of the lower-house election on Sunday. The currency had earlier looked past hawkish signalling from Bank of Japan Board Member Masu. He said that an “appropriate and timely” policy rate increase is warranted, emphasising growing confidence that Japan has now entered a sustained inflationary phase. Japanese equities are expected to gain support alongside higher JGB yields after a strong showing by Prime Minister Takaichi in the election providing clear support for the stimulus policies.

NZ swap rates were unchanged in the local session last Thursday ahead of the public holiday while the government curve closed 2-3bp lower with a marginal flattening bias. Australian 10‑year bond futures have retraced from a rally in the intervening period and are little changed since the local close on Thursday, suggesting limited directional bias for NZ yields on the open.

There is no significant domestic economic data scheduled today. Household spending data will be released in Australia, and the pace is expected to moderate following two months of strong consumer spending gains. Japan’s wage figures are expected to reinforce evidence of a firm labour market at year‑end, with cash earnings likely to post a strong December rebound.

Stuart Ritson is a Markets Strategist at BNZ Markets.