There has been a mild risk-off vibe in overnight trading, with US equities falling and Treasuries well-bid. Rotation out of tech stocks has continued, while oil prices are higher as US-Iran nuclear talks reach a pivotal moment. The USD is broadly stronger overnight and the NZD has fallen to 0.5960.
After the bell yesterday, Nvidia produced another blockbuster quarterly earnings report, with revenue and profit beating expectations and with stronger than expected guidance on future revenue, but that hasn’t been enough to calm fears about the future of AI-related stocks. What’s good for Nvidia, is bad for its customers, as the company’s massive cashflow is sucked away from them.
Nvidia is down 4% in early afternoon trading and the rest of the tech sector is also underperforming. The S&P500 is down 1% against a 1.7% fall in the Nasdaq index. The Euro Stoxx 600 index closed flat.
Another round of talks between the US and Iran is underway, with the US demanding a permanent dismantling of Iran’s nuclear capabilities for warfare and a return of enriched uranium to the US. During a break in talks, Iranian state media reported that Iran won’t allow any of its highly enriched uranium to be moved out of the country. Trump’s deadline before a possible military strike is fast approaching.
The oil market has taken a pessimistic outlook for the outcome of the meeting, sending Brent crude up 2% to USD72.50, near the seven-month highs it has been oscillating around over the past couple of weeks.
Weaker risk sentiment has supported Treasuries, with rates down 2-3bps across the curve and the 10-year rate at 4.02%.
US jobless claims nudged up 4k last week to 212k, a slightly smaller lift than expected and remaining subdued, consistent with the low-firing environment.
The USD is broadly stronger overnight. The NZD has fallen to around 0.5960, but remaining within the tight range it has been in all week, after a brief look above 0.60 yesterday afternoon. The AUD has fallen back below 0.71. NZD/AUD is at 0.8425 after finding support just below the multi-year low of 0.8410. Reflecting the weaker risk backdrop, NZD/JPY has weakened to 93.25 after a brief dip below 93.
The domestic rates market had an uneventful session yesterday, with NZGBs flat to a touch lower in yield across the curve. There was strong bidding interest at the weekly bond tender, with bid-cover ratios around 4½-5 for the 5-year and 8-year bonds on offer. The 2-year swap rate fell 1bp to 2.95% while the 10-year rate fell 2bps to 3.96%.
There was no market reaction to the ANZ business outlook survey which continued to exhibit high levels of confidence in the NZ economy and own-activity, combined with an inflationary pulse inconsistent with the RBNZ’s 2% inflation target. Year-ahead inflation expectations continued to trend higher, rising to 2.93%, while a net 79% of firms expect higher costs in the next three months and a net 53% expect to raise prices.
NZ consumer confidence and Tokyo CPI data are released today. The key releases tonight are German CPI, Canadian Q4 GDP and US PPI data.
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Jason Wong is the senior Markets Strategist at BNZ Markets.
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