Continued volatility in technology stocks contributed to a softer tone across global equities. Attacks on shipping in the Persian Gulf underpinned a rise in oil prices. Global bond yields moved higher

There was a softer tone across global equity markets, led by weakness in the technology sector. The move began in Asia yesterday after Samsung reported record earnings but failed to meet elevated investor expectations. Its shares fell in South Korea, dragging the Kospi down nearly 5% and weighing on chip stocks globally. The Nasdaq fell more than 1.5% in US trading before subsequently recovering. With limited economic data to guide markets, global bond yields moved higher while currency markets were subdued. Oil prices rose following attacks on ships in the Persian Gulf.

Iran reportedly fired missiles at commercial ships transiting the Strait of Hormuz, testing a late-June agreement with the US to halt attacks. The vessels sustained significant damage, according to a US official. The incident highlights the fragility of the de-escalation phase, with key issues still unresolved as the US and Iran work toward a broader agreement, including frozen Iranian assets and Tehran’s nuclear ambitions. Brent crude rose 3% to US$74 per barrel.

Higher oil prices and a large US$25 billion debt issue from Amazon pushed US Treasury yields higher. The Treasury curve is 4-5bp higher since the NZ close, with 10-year yields up 5bp to 4.52%. The move was not enough to generate strong demand at the US$58 billion 3-year auction, which cleared about 0.5bp above prevailing market levels. Comparable-maturity Amazon debt offered a pickup of around 65bp over Treasuries. European bonds were also under pressure from higher oil prices, with 10-year bund yields up 5bp to 2.99%.

G10 currency moves were small. The US dollar was marginally firmer, attributed to safe-haven demand as geopolitical tensions rose after the attacks on shipping. CFTC data released after we published yesterday showed speculative accounts had continued to add to US dollar long positions in futures markets, a proxy for the broader FX market. The aggregate USD long increased to US$40 billion, the largest in 10 years.

The NZD slipped below 0.5700 yesterday afternoon and oscillated in a narrow range around 0.5690 overnight. The yen maintained its gains after Growth Strategy Minister Minoru Kiuchi said reports suggesting the government encouraged low rates as part of its fiscal expansion policy were incorrect. USD/JPY was stable near 162. Moves in the main NZD crosses were modest.

NZ fixed income had another quiet local session yesterday as market participants looked ahead to today’s RBNZ Monetary Policy Review. At the close, markets were pricing about a 70% chance of a hike, little changed on the day. Swap rates were flat to 2bp lower, while 10-year government bond yields closed 1bp higher at 4.43%.

The RBNZ is widely expected to begin its tightening cycle today with a 25bp OCR increase to 2.50%, although a small minority of economists expect no change. Assuming the Bank delivers, the accompanying messaging will be important for rates markets and the currency. We expect the RBNZ to retain a tightening bias while acknowledging the need to move policy closer to neutral from its currently accommodative setting.

Minutes of the June FOMC meeting, new Fed Chair Kevin Warsh’s first, are released early tomorrow and should show broader support for a potential rate hike. They may provide more detail on the Committee’s hawkish shift after nine participants projected tighter policy by year-end. The key question is whether that support is concentrated among regional Fed presidents or extends to the Board. Warsh’s communications overhaul also raises the risk that the minutes are shorter and less detailed than usual.

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