Friday marked a calm conclusion to a hectic week, with US equities reaching new record highs and crude oil prices declining for the second day in a row. Bonds and currencies experienced minimal overall movement. The NZD ended the week near 0.59.
The US-Iran conflict remains unchanged. On Friday, Iranian media reported that Iran is open to diplomacy if the US abandons its expansionist approach, threatening rhetoric, and provocative action. Iran submitted the text of its latest negotiation proposal to mediator Pakistan, although details were not made public. The WSJ indicated the proposal included signs of compromise aimed at reviving negotiations. Nevertheless, sources noted that the parties are still far apart on substantial issues, including reopening the Strait of Hormuz and Iran’s nuclear programme. President Trump stated he was dissatisfied with the deal.
Updating events over the weekend, peace proposals have been exchanged between the US and Iran via mediator Pakistan. From what we can gather, Iran’s proposal reopens the Strait of Hormuz alongside an end to the US blockade, ahead of month-long talks on a nuclear agreement. The US has previously rejected that sequencing.
US oil executives have cautioned that the market is at a pivotal point, as buffers are dwindling and stockpiles decrease. These buffers have mitigated the impact of the Strait of Hormuz closure on oil prices, but an inflection point with higher prices may be approaching if the closure persists.
In Friday trading, markets placed greater emphasis on Iran’s apparent willingness to compromise rather than on warnings about possible oil shortages, leading Brent crude to drop for a second consecutive day, closing 5% lower at approximately USD108.
US equity investors remain more focused on the influence of artificial intelligence and robust earnings than on the effects of elevated petrol prices. Earnings reports from Visa and Mastercard showed US consumers continued to demonstrate resilience. Information technology stocks led gains, with the Nasdaq rising 0.9% and the S&P 500 up 0.3%, both ending at new record highs. The Euro Stoxx 600 index remained unchanged.
Tariffs have not been discussed recently, but on Friday President Trump announced that the EU tariff on cars and trucks will increase to 25% in the coming week, citing the EU’s non-compliance with its trade agreement. An EU spokesperson stated that the bloc is fulfilling its commitments and will seek clarification from the US.
In economic news, the US ISM manufacturing composite remained steady at 52.7, matching its highest reading since 2022, though expectations were for a slight increase. Amid elevated commodity prices, the prices paid index surged to a four-year high of 84.6. One economist neatly summarised the survey by noting that the US economy is holding up well despite the energy shock and possible supply disruptions, but respondents are concerned about rising input costs and the potential for output to be affected if the conflict continues.
US Treasury yields were largely unchanged for the day, with the 10-year yield closing flat at 4.37%, down a couple of basis points from the NZ close after opening higher during the Asian trading session. The three Fed Presidents who dissented from the FOMC policy statement each explained their reasons, all citing a more balanced perspective and considering that the next move may need to be a rate increase to address inflationary pressures, hence their disagreement with the Statement’s implied easing bias.
Currency movements were also minimal. The NZD continued to show resistance in the 0.5920-0.5930 range, ending the week flat near 0.59. The AUD was steady at 0.72. NZD cross movements were unremarkable. Bloomberg estimated that Japan likely spent USD34.5 billion to support the yen in its latest intervention, based on BoJ accounts analysis. Analysts view intervention as a temporary fix for the weak yen, attributing its more than 50-year real exchange rate low primarily to the BoJ’s ongoing ultra-easy monetary policy stance.
The domestic rates market was relatively quiet on Friday, with global factors pushing rates lower. Swaps dropped by about 7bps, while NZGBs showed a steeper curve, with short-term rates down 6bps compared to a 3-4bps decline for longer-term rates. The ANZ NZ consumer confidence index fell sharply to 80.3 in April, deepening further into pessimistic territory, although this was not much lower than late-March responses in the prior survey. Two-year inflation expectations increased from 5.7% to 6.6%, now surpassing levels observed during the peak of the COVID inflation surge. The RBNZ is vigilant regarding rising inflation expectations, and this will be an important factor in its policy outlook.
The economic calendar is light at the start of the week. The key domestic event in the coming days will be Wednesday’s labour market reports. The RBA is widely expected to raise rates for a third consecutive meeting tomorrow, although this is not certain given the narrow voting margin at the previous meeting. Following major central bank meetings last week, many policymakers will deliver speeches now that the blackout period has ended. The key global economic release will be the US labour market reports at the end of the week.
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Jason Wong is the senior Markets Strategist at BNZ Markets.
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