Risk appetite improves. US equities lift to fresh record highs. Global rates modestly lower, credit spreads narrower. USD broadly weaker

Despite limited newsflow, risk appetite has improved overnight. The S&P 500 has risen to a fresh record high, global rates are slightly lower, credit spreads are narrower, and the USD is broadly weaker. NZD/USD has made a modest gain, while the NZD is higher on most crosses.

After long-term yields reached fresh multi-decade highs yesterday, selling pressure on US Treasuries has eased slightly. Rates are 2–4bps lower on the day. The 10-year rate is currently 5.27%, down 5bps from the NZ close.

French presidential candidate Le Pen set out a plan to reduce the fiscal deficit to 3.7% of GDP next year, well below the government’s 5% target, with further consolidation taking the deficit down to 2.2% by 2032. While many did not view the plan as credible, the market was encouraged by the rhetoric, supporting a further narrowing in French–German bond spreads. The 10-year spread fell 9bps to 127bps, well below Friday’s intraday peak of 159bps. The backdrop of stronger risk appetite also drove spreads to Germany lower across the rest of the euro area.

Lower rates have supported global equity markets. After the Nasdaq Composite rose to a fresh record high yesterday, today it was the S&P 500’s turn to reach that milestone. The index is currently up 0.7%, with gains broad-based and the bond-sensitive Utilities and Real Estate sectors leading the charge for a change. The Nasdaq’s record-breaking run has continued, with the index up 0.6%. The Euro Stoxx 600 closed 0.5% higher.

Brent crude fell towards USD97 per barrel but has since recovered to around USD100, leaving it relatively flat on the day overall. There have been reports that Iran has increased the pace of attacks on tankers in the Strait of Hormuz since late September. Confirming other estimates we have seen recently, Shell’s CEO said Middle East oil flows are near 80% of pre-conflict volumes.

In economic news, the US trade deficit widened to $105.6b in August, its largest level since March 2025, as import growth outpaced export growth. Alongside increased imports of crude oil and gold, the build-out of data centres has driven strong growth in semiconductor imports. The larger-than-expected deficit adds to the already negative contribution that net trade is set to make to Q3 GDP.

German factory orders slumped 10.6% m/m in August, well below the consensus forecast for a 1% decline. However, the fall was accentuated by a drop in “major orders”; excluding this component, orders declined by just 0.1%.

Higher risk appetite is also evident in currency markets. The USD, CHF, and JPY have been the weakest performers overnight. The DXY index is down 0.3%, retreating from an overbought level on the 14-day RSI. Likewise, NZD/USD has risen from an oversold level on the same technical indicator. The NZD is up 0.4% overnight, consolidating around 0.5625.

The NZD is higher on all the key crosses compared with this time yesterday. NZD/JPY has recovered to just below 89, while NZD/AUD is at 0.8055, with the NZD making smaller gains against the EUR and GBP.

A key takeaway from yesterday’s NZ QSBO was that the real indicators pointed to an ongoing economic recovery, which should reassure those concerned about NZ’s growth trajectory. Employment intentions strengthened significantly, and labour became more difficult to find. Inflation gauges remained elevated, although they eased slightly from the previous quarter.

There was a small repricing of short-dated OIS, with the market assigning a slightly higher probability to an RBNZ rate hike later this month. We believe the RBNZ should hike, particularly as its messaging in September has been partly responsible for the weaker NZD and the associated increase in inflationary pressure that will result. NZ swap rates ended the day 5–6bps higher, driven mainly by higher Australian rates. NZGBs showed a similar move, rising 5–7bps across the curve.

In the day ahead Japanese wage data and German industrial production are released, ahead of the minutes of the FOMC policy September meeting tomorrow morning.

Jason Wong is the senior Markets Strategist at BNZ Markets.