Risk-sensitive assets underpinned on hopes for a ceasefire extension and further US-Iran talks. S&P reaches fresh record high. Brent crude prices stable near US$95 per barrel. US Treasury yields higher

US equities remained well-underpinned as optimism grew around a potential Middle East peace deal. The S&P traded above 7,000 to a fresh record high. Markets have been steadily pricing out much of the risk premium that built up after the conflict began, as the US and Iran move toward a second round of negotiations. Brent crude was up less than 1% to around $96 a barrel as the US maintained a naval blockade of the Strait of Hormuz. US Treasury Secretary Bessent said waivers for purchases of Iranian and Russian oil would not be renewed. Treasury yields are higher and US the dollar was little changed.

It was reported the US and Iran are considering a two-week ceasefire extension to buy more time for negotiations, as mediators push for technical talks to resolve key sticking points such as reopening the Strait of Hormuz and determining the future of Iran’s nuclear program. President Trump has said the war is “close to over.” Hopes of a de-escalation have supported the recent gains in risk-sensitive assets and pullback in the US dollar.

There was limited economic data to give markets direction. The Empire State manufacturing index was stronger than expected, though the survey is volatile and does not correlate well with national measures. Even so, the result suggests the manufacturing sector is holding up at present. Separately, the NAHB Housing Market Index fell to a seven-month low, indicating that the conflict is weighing on homebuilder sentiment. The decline likely reflects higher interest rates and weaker consumer confidence.

US treasury yields rose across the curve, with the long end underperforming slightly and pushing the curve steeper. The 10-year yield climbed 4bp on the session to 4.29%. European bond yields also rose by similar amounts.

The US dollar was little changed against major currencies in offshore trade. The yen showed little reaction to comments from Japan’s Finance Minister Katayama, who said she held close discussions on foreign exchange issues with Treasury Secretary Bessent. She added that Japanese authorities stand ready to take bold action under the Japan-US agreement on foreign exchange.

G10 commodity currencies are firmer overall against the US dollar, led by the AUD. The AUD has largely retraced its conflict-driven selloff and is only marginally below the multi-year highs near 0.7190 set in early March. The NZD consolidated around 0.5900, with little net change on most key crosses. NZD/AUD dipped below 0.8250, extending the pullback from 0.8300 in recent sessions.

NZ fixed income extended the previous day’s rally in yesterday’s local session. Swap rates were 4 - 5bp lower across the curve beyond the one-year point, largely tracking offshore moves in the absence of fresh domestic drivers. The NZGB curve saw a similar 4bp parallel shift lower. NZ Debt Management will auction three NZGB lines in today’s weekly tender: May-31 ($225m), May-36 ($175m) and May-54 ($50m).

There is no domestic data today. Australia releases March labour market data, with the unemployment rate expected to hold at 4.3%. While the survey period includes the escalation in the Middle East conflict, it is likely too early for any impact to be evident in the results. China also releases Q1 GDP alongside the monthly activity indicators. In the US, initial jobless claims and the Philly Fed business outlook survey will be watched.

Stuart Ritson is a Markets Strategist at BNZ Markets.