Newsflow has been light, but with global bond yields hovering around multi-decade highs, global equity markets are weaker. Brent crude is steady near USD91 per barrel. Currency moves have been negligible overnight, with the NZD sustaining yesterday’s pullback to 0.5875.
With many investors still on holiday and enjoying a hot Northern Hemisphere summer, market volatility remains suppressed. Most media outlets are reporting that long-term global bond yields have extended their rise to fresh multi-decade highs. NZ is an exception, with its longest bond, the 2054, not yet breaching the yield high seen earlier this year.
Overnight, the US 30-year rate reached 5.34%, its highest level since 2007, before retracing to 5.28%. Yields are now slightly lower across the Treasury curve on the day. The 10-year rate reached a cycle high of just under 4.75% before retracing to 4.70%, down 3bps from the NZ close.
US equities are on track to fall for a third consecutive day, weighed by the backdrop of multi-decade highs in long-term rates. The S&P 500 is down 0.6% in late-afternoon trading, led lower by the IT sector. The Nasdaq is down more than 1%. The Euro Stoxx 600 fell 0.7%, marking its fifth consecutive daily decline.
The stalemate in the Middle East continues, with no resolution likely or expected any time soon. Trump appears to have accepted that there is no imminent deal, confirming what has been obvious for some time by saying, “there are no talks or conversations going on, or scheduled, with the Islamic Republic of Iran”. And despite Trump’s claim that the Strait of Hormuz is open and operating, few ships are making the journey, and those spotted by the IRGC are being fired at. Oil prices have remained well contained, with Brent crude steady near USD91 per barrel.
Second-tier US economic releases were mixed. Industrial production rose 0.2% m/m in July, with manufacturing output up by the same amount. Both series have been trending higher, consistent with a revival in the sector, supported by the AI boom. Housing starts plunged 12.4% in July, while building permits surged 5.0%. The latter is the less volatile series, but the trend in both has been flat to weaker over the past year, consistent with a soft housing market. Pending home sales fell 2.3% m/m in July to their second-lowest level since the series began in 2001, driven by rising mortgage rates.
UK labour market data were consistent with a softer market. Payrolled employees fell by 13k in July, following a similar decline in June, while job vacancies continued to trend lower. The unemployment rate was steady at 4.9%, while private sector wage inflation continued to ease, rising 2.8% y/y in the June quarter. The low-firing, low-hiring market is similar to that seen in the US.
Currency movements have been modest. The NZD has been one of the larger movers since this time yesterday, falling 0.4% after failing to sustain its break to a new 2½-month high. It is currently around 0.5875, little changed from the NZ close. NZD crosses are softer. NZD/AUD has sustained a move below 0.83, while NZD/JPY is back below 94.
In the domestic rates market, rates were slightly higher and curves slightly steeper, driven by global forces. The 2-year swap rate rose 1bp to 3.64%, while the 10-year rate rose 3bps to 4.45%. NZGBs showed similar moves.
The key releases in the day ahead are Australian wages data and UK CPI data. The consensus expects headline UK CPI inflation to lift to 2.9%, while core measures are expected to moderate.
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Jason Wong is the senior Markets Strategist at BNZ Markets.
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