US equities consolidate near record highs. Oil prices were stable on signs of deal to reopen Hormuz. Gold prices surge more than 4%

US equity markets took a breather after solid gains in recent sessions. The S&P was little changed, albeit after an initial advance pushed the index to a fresh intraday high. Global rates markets were broadly stable, with Treasuries looking past data showing steady expansion in the services sector. The US dollar eased, though moves were contained. Gold prices rose more than 4% to US$4,250 per troy ounce, marking a notable breakout after being confined to a narrow range through July.

Brent crude prices have been broadly stable near US$79 per barrel amid growing indications that the Strait of Hormuz could soon reopen. Iran said it had reached agreement with Oman on a proposed shipping route, with a joint statement reportedly in the final drafting stage. President Trump has said a deal to reopen the strait is imminent, though he has provided few further details.

The US services ISM pointed to steady expansion. New orders accelerated and business activity rose to a five-month high, suggesting underlying demand remains resilient. The prices-paid subindex jumped to 70.3 in July, with higher oil and gasoline prices adding to cost pressures after the collapse of the interim US-Iran deal. Meanwhile, the employment component slipped below 50, reaching its weakest level since March. Separately, ADP private payrolls increased by 44k, below the 65k consensus estimate, as the market looks ahead to the official labour market report at the end of the week.

There was limited reaction to the data in US rates markets, with Treasury yields little changed across the curve. The Treasury Department set its quarterly refunding in line with expectations, leaving debt sales unchanged from May at US$125b. It also retained guidance that auction sizes are expected to be maintained for at least the next several quarters. Auction sizes will likely have to increase sometime next year to prevent an over-reliance on short-term bills to meet borrowing needs. The 10-year yield was steady near 4.61%.

Currency moves were modest relative to the local close. The US dollar was marginally softer against most G10 currencies, while USD/JPY was stable after the intervention-driven volatility of recent sessions. The NZD recovered toward 0.5890 against the dollar after dipping after yesterday’s labour market report, and was broadly stable on the crosses, apart from a small gain against the yen.

NZ labour market data were mixed. The unemployment rate rose to a new 10-year high of 5.6%, above both the 5.4% consensus forecast and the RBNZ’s projection. Employment growth was stronger than expected, with the rise in unemployment reflecting higher labour force participation. Wage growth, as measured by the labour cost index, increased at a 2% annual pace, consistent with the RBNZ’s inflation target.

The NZ fixed income market opened with lower yields, following offshore moves. The rally extended after the labour market release, as markets focused on the additional spare capacity signalled by the further lift in the unemployment rate. Two-year swap rates fell 8bp to 3.62% and are now almost 20bp below the cycle peak reached 10 days ago. The 10-year swap rate closed 7bp lower at 4.36%. NZGBs broadly matched the move in swaps, with 10-year bonds ending the local session at 4.66%. Focus now turns to the weekly tender, with NZDM offering May-31 ($225m), May-36 ($175m), and May-54 ($50m).

No domestic data are due today, while the international calendar is largely limited to second-tier releases. US initial jobless claims remain low, although there is a risk of a small increase this week associated with the conclusion of the FIFA World Cup.

Stuart Ritson is a senior Strategist at BNZ Markets.