Global asset markets saw only modest moves. Fed Chair Warsh said inflation risks had eased since the last FOMC meeting. Softer-than-expected euro area CPI weakened the case for further ECB hikes

Global markets are little changed as investors looked for guidance from major central bankers gathered at the ECB’s annual Sintra forum. US equities have rebounded from earlier losses and are close to flat in afternoon trading. US economic data pointed to ongoing resilience in manufacturing and the labour market. Global bonds are generally steady and net moves in G10 currencies have been small. Brent crude slipped towards US$71 per barrel as the US said indirect talks with Iran were positive, while gold continues to hold near the psychological US$4,000 level after trending lower in recent months.

Appearing on a panel at the ECB forum, Fed Chair Kevin Warsh said inflation expectations and risks had eased over recent weeks. He repeated the message from last month’s post-FOMC press conference that the central bank remains committed to price stability. Warsh also reiterated that he would not provide “forward guidance” on upcoming interest-rate decisions, marking a notable shift in the Fed’s communications approach.

The US manufacturing ISM edged down to 53.3 in June but remained close to a four-year high. New orders growth moderated but stayed solid, while the prices paid index fell sharply to a still elevated 73.0 from 82.1 - its largest monthly decline in nearly four years. Separately, ADP reported a 98k rise in US private payrolls, below the 120k consensus ahead of the official labour market data tonight.

An initial rise in US Treasury yields as Warsh spoke quickly reversed. The 2-year yield briefly reached 4.20% before falling back to around 4.15%, with limited reaction to the economic data. The 10-year yield is steady near 4.46%.

Euro-area inflation eased more than expected as lower oil prices fed through to headline CPI. Annual inflation slowed to 2.8% in June from 3.2% in May, below the 3.0% consensus forecast. Core inflation also surprised to the downside, weakening the case for further ECB tightening. Markets now price around 20bp of additional hikes by year-end, down about 5bp on the day.

Currency moves were modest, although the euro slipped against the US dollar after the CPI data and was the weakest G10 currency in offshore trading. A Japanese official said intervention had been effective and noted close communication with the US on foreign exchange, with the yen still near a four-decade low. The NZD had a quiet session, holding near 0.5675 against the USD, while moves on the key crosses were small.

The Bank of Japan’s second-quarter Tankan was unexpectedly strong despite higher energy costs. Strong AI-related demand likely boosted confidence among large manufacturers, particularly in the technology sectors, while the weaker yen should support exporter earnings. The report’s strength should give the BOJ greater confidence to keep withdrawing stimulus. The market continues to largely discount a 25bp hike by year end.

After the curve flattening into month-end, the move fully reversed in the local fixed income session yesterday. Swap yields were 2-6bp higher across the curve with a steepening bias. 2-year rates have continued to edge higher in recent sessions at closed at 3.36 %, 3bp higher. Meanwhile, 10-year rates saw a larger 6bp increase to 4.06%.

The weekly government bond auction will offer the May-2030 ($250m), May-2036 ($150m) and May-2054 ($50m) lines. The steepening in the NZGB 10y/30y curve appears to have supported demand for the ultra-long sector, as reflected in the first consecutive tendering of the two longest lines since mid-May.

Building consents for May are released today, although recent strength has yet to translate into a commensurate lift in activity. The government’s financial statements for the eleven months to May are also due. Offshore, the focus will be tonight’s US labour market report, where consensus expects payrolls to rise by a solid 115k and the unemployment rate to hold at 4.3%.

Stuart Ritson is the senior Interest Rates Strategist at BNZ Markets.