Oil prices down for a fourth consecutive day, Brent crude currently US$100/bbl. These falls rive down global rates and drive up global equity markets, with strong gains for US equities

Risk sentiment has started the week on a positive note, with lower oil prices supporting global bond and equity markets. Currency movements have been modest, with the NZD little changed around 0.5720.

Oil prices are lower for a fourth consecutive trading day, with Brent crude falling to as low as USD99 before edging back up to USD100. There have been positive reports on oil and gas supply through the Strait of Hormuz. US Central Command said shipments over the past two weeks reached their highest level in six months. Satellite data showing observed Saudi oil loadings support this view of increased supply. Diplomatic efforts to halt the conflict also appear to have stepped up a gear, and President Trump said he would probably be open to meeting Iranian President Pezeshkian on the sidelines of the UN General Assembly in New York this week.

Adding to the positive mood, ahead of the meeting between Presidents Xi and Trump later this week, both sides gave upbeat accounts following talks between US Treasury Secretary Bessent and China’s top trade negotiator, covering topics including AI, trade and investment. Bessent said the two sides agreed to establish a US-China AI dialogue aimed at developing a common understanding of the technology’s benefits and risks. On trade, the NYT reported that China has pushed for a longer extension of the current trade truce, which expires in November, while the US has proposed extending it for just six months to keep negotiations on a tight leash.

Lower oil prices have supported a lower global rates backdrop, with European 10-year rates down 6–9bps on the day and similar moves at the short end. The US 2-year rate is flat at 4.75%, while the 10-year rate is down 3bps from last week’s close at 4.96%, having traded in a tight 4.94–4.97% range overnight.

Lower oil prices and positive US-China talks have boosted global equity markets. The Euro Stoxx 600 index closed up 1%. The S&P 500 is currently up 1.5%, while the Nasdaq is up more than 2%. On social media, Trump said warnings that AI and robots are going to kill us are a hoax, adding: “I’m not going to stifle growth, of something that will be bigger than the industrial revolution, or the internet, itself. We will be careful…”.

Currency markets have shown only modest movements. The yen has been the weakest of the majors since last week’s close, giving up much of Friday night’s gains after reported “rate checks” aimed at quelling speculative activity. USD/JPY is up 0.4% to around 157.50, while NZD/JPY has recovered to a 90 handle. NZD/USD has been flat around 0.5720, trading in a tight range overnight. The AUD is steady around 0.7120, leaving NZD/AUD little changed around 0.8025.

German assets and the euro have shown no ill effect after another poor showing by the ruling CDU party in German state elections. Embarrassingly, in Mecklenburg-Vorpommern, the party secured just 4.9% of the vote, its worst state election result in Germany’s post-war history and below the threshold required to win any seats. Chancellor Merz vowed to remain as leader, admitting the result was a disaster, but speculation will only continue over how long he can stay in the role.

Chicago Fed President Goolsbee warned that the central bank cannot ignore repeated supply shocks. He said, “supply shocks have come more frequently, hit harder and lasted longer…and once supply shocks to inflation become persistent, some of the logic behind looking through no longer holds”. He noted the “painful trade-off between employment and inflation that stagflationary shocks always impose on a central bank”. We mention this as a warning for members of the RBNZ’s MPS to take note, as they seemed more concerned with growth than inflation at the last meeting. Stimulating the economy with easy policy when inflation risk is elevated will not necessarily end well.

Trading activity in the domestic rates market was quiet yesterday. NZGB and swap rates were marked up 1bp across the curve, apart from a 2bps lift in 2-year rates.

In the day ahead, RBA Governor Bullock will speak, a week before the next policy decision, where a rate hike is well priced. Tonight, NY Fed President Williams is also scheduled to speak.

Jason Wong is the senior Markets Strategist at BNZ Markets.