PMIs pointed to resilient activity, with stronger US services and an improved Eurozone manufacturing signal supporting risk sentiment. Precious metals extended recent gains, while Brent crude reached a one-month high

US equities ended last week on a positive note, with the S&P 500 supported by upbeat business surveys pointing to resilient economic activity. Treasury market volatility moderated, though yields still moved higher across the curve, while the US dollar remained near recent lows. Precious metals extended their recent gains, as Treasury buyback plans renewed concerns about fiscal debasement and sustained demand for alternatives to the greenback.

Crude oil extended recent gains, with prices embedding a higher geopolitical premium as stalled US-Iran negotiations and ongoing economic threats kept the market well supported. Front-month Brent futures pushed towards US$95 per barrel, up nearly 6% over the week. Markets remain focused on US efforts to increase pressure on Iran’s economy, including the prospect of measures affecting Tehran and countries that continue to trade with it.

US business activity strengthened in August, led by solid services momentum. The composite PMI rose to 56.0, the highest since April 2022, with Services increasing to 56.8 even as Manufacturing eased to 53.2. The data reinforced the picture of resilient activity and helped support risk sentiment into the end of the week. In the Eurozone, the composite PMI rose to 52.1, above expectations, with manufacturing driving the upside surprise.

Treasury yields extended higher after the PMI data. Unlike in recent sessions the move was led by the front end of the curve. 10-year yields closed last week at 4.73% and towards the top of the 4.60% - 4.75% trading range that has contained price action through August. European bond markets showed limited reaction to the PMI data.

Japanese inflation firmed in July as the Bank of Japan weighs the case for another rate rise. Core inflation, which excludes fresh food and energy, rose to 1.9% y/y, strengthening for the first time in nine months. Market pricing continues to imply around an 80% chance of a September hike, with currency weakness and recent government intervention keeping pressure on the BoJ to consider further policy normalisation.

Currency markets were subdued as the US dollar consolidated near multi-month lows. Net moves across G10 currencies were small, though the AUD and NZD modestly outperformed. NZD/USD traded above 0.5980, its highest level since early June. The NZD was marginally firmer on most key crosses, although NZD/AUD slipped below 0.8340. The Canadian dollar will be in focus after trade talks with the US broke down after the market close, prompting Prime Minister Carney to announce counter-tariffs on US products.

NZ fixed income ended Friday’s local session higher and steeper, largely reflecting offshore moves. Two-year swaps closed 4bp above Thursday’s level at 3.67%, around the top of the week’s range. The 2y/10y curve steepened to +78bp, with 10-year rates up 7bp to 4.45%. Ten-year Australian bond futures were little changed on Friday night relative to the local close, suggesting limited directional bias for NZ rates on the open.

It is a quiet start to the week for economic data, with NZ quarterly retail sales the only local release. Sales volumes have been resilient but are expected to slow in Q2, partly reflecting higher fuel costs. Filled jobs are the only other domestic release of note this week, while offshore attention will be on Australian monthly CPI and the RBA minutes, US PCE and GDP revisions, and remarks from Fed Chair Warsh at Jackson Hole.

Stuart Ritson is a senior Strategist at BNZ Markets.