US equities rebound on indications the US-Iran ceasefire remains in place despite recent clashes. Oil prices decline. Brent crude dips below US$110 per barrel. Treasury yields decline modestly

US equities gained and oil prices declined as indications that a US-Iran ceasefire is still in place reduced fears about a re-escalation that could impact the economic outlook. US officials have downplayed down Iran’s recent actions, including Iran’s targeting of American warships and attacks on other vessels in the Strait of Hormuz saying they were below the threshold for restarting the war. The recovery in equities drove the S&P back towards recent all-time highs. Treasury yields edged lower and the US dollar was generally weaker against G10 currencies.

Oil prices retreated, with Brent crude falling back below US$110 per barrel after briefly trading towards US$115 following fresh clashes between the US and Iran, as the US sought to clear a path through the Strait of Hormuz for stranded vessels. Prices unwound those gains after both sides have downplayed the risk of a return to active war.

US data were broadly in line with expectations. The ISM services index eased to 53.6 in April from 54.0 in March. The prices paid sub-index held at 70.7 (the highest since 2022), while new orders fell to a three-month low of 53.5. The employment index recovered to 48.0 from 45.2, although its relationship with the official payrolls data has been weak. Separately, JOLTS job openings edged down to 6,866K in March, matching consensus.

US Treasury yields are marginally lower across the curve, supported by the pullback in oil prices. The data generated little reaction. 10-year yields dipped to 4.42% after trading as high as 4.46% earlier in the week.

UK gilts underperformed the broadly firmer tone across global sovereign bond markets. Yields rose around 10bp across the curve as worries intensified over local government elections, strained public finances, and the impact of surging energy prices on the economy. 30-year yields traded to an intraday peak of 5.78%, the highest since 1998. The UK Debt Management Office announced it will begin selling 12-month Treasury bills at its weekly auctions, shifting borrowing towards shorter maturities.

In FX, the US dollar index was little changed versus the local close. Among the majors, the yen is weaker and the euro slightly firmer. The growth-sensitive Australasian and Scandinavian currencies have outperformed overnight, likely reflecting the improved risk tone. NZD/USD rebounded from 0.5860 in the local session to above 0.5900 before retracing. The NZD is higher versus the yen and euro, and little changed against the AUD.

The Reserve Bank of Australia increased rates by 25bp, in line with economists’ expectations and close to fully discounted in market pricing. This takes the Cash Rate to 4.35%, back at the peak of the post-COVID tightening cycle. The decision was made by an 8-1 majority, with the dissenter preferring to leave rates steady. The central bank assesses that inflation risks remain tilted to the upside. The market is pricing the terminal rate near 4.70% and was little changed in response.

There were modest net movements for NZ fixed income in the local session yesterday. Swap rates out to three years edged 1bp higher, while the belly and intermediate maturities were unchanged. It was a similar story for the government curve, with limited movement on the day.

The Household Labour Force Survey for Q1 is released today, and we forecast the unemployment rate to edge up to 5.5% from 5.4%. While employment is expected to rise, we think the increase in the labour force will more than offset it. A 5.5% print would mark a fresh 10-year high. The RBNZ will publish the Financial Stability Report ahead of the labour market data. It is a quiet international economic calendar. China’s RatingDog services PMI is scheduled, and US ADP private payrolls will be watched ahead of Friday night’s official labour market report.

Stuart Ritson is a senior Markets Strategist at BNZ Markets.