US equities gained, led by tech, with markets looking ahead to the FOMC and key tech earnings. Oil prices remained elevated while US Treasuries were subdued. French bonds rallied after Moody’s affirmed France’s credit rating

Investor risk sentiment has recovered, with US equities making solid gains, led by the tech sector. Markets are looking ahead to the FOMC and key earnings reports from Alphabet, Microsoft and Amazon this week, with a focus on AI spending and profitability. Anthropic, one of the biggest names in artificial intelligence and the maker of Claude, is moving ahead with its blockbuster initial public offering, potentially ahead of US Thanksgiving. The US dollar is broadly firmer, while Treasuries have seen limited movement. Oil prices remain well supported.

Brent crude traded back above US$117 per barrel overnight matching the six-month highs at the end of last week reflecting continued tensions between the US and Iran. Reports suggest the US is considering renewed strikes, with Trump signalling that both a negotiated agreement and further military action remain options. Iranian officials have warned against an attack, while reports indicate Tehran is preparing retaliatory strikes against targets including Israel and the UAE.

Gold edged back above US$4,000 per ounce after falling sharply last week despite weaker equity markets. This area provided support on several occasions around the middle of the year. Bloomberg reports a potential market overhang from previous ETF holdings that have steadily expanded since mid-July to hit a multi-year high despite the steady retreat in underlying gold prices.

Market pricing for this week’s Fed meeting was little changed, indicating a negligible 10% chance of a 25bp hike. In the absence of significant economic data, Treasuries were relatively subdued and showed little response to the rise in oil prices. The 10-year yield was little changed at 4.98% as the market consolidated its recent rally. The front end underperformed at the margin, flattening the 2s10s curve towards +28bp.

Germany’s business outlook unexpectedly improved for a sixth consecutive month, adding to signs the economy is emerging from a prolonged downturn. The Ifo expectations index rose to 91.6 in October from 90.4 in September. The improvement follows last week’s mixed PMI readings, with manufacturing activity stronger than expected but services weaker, leaving the overall result below expectations. German bonds closed higher in yield with a curve flattening bias.

The spread between French 10-year bonds and German Bunds narrowed sharply after France avoided a downgrade by Moody’s. Moody’s affirmed France’s Aa3 rating with a negative outlook, assuming that a deficit-reducing 2027 budget will ultimately be adopted despite the challenging political and social backdrop. French 10-year yields fell 11bp to 4.90%, narrowing the spread to Bunds to 156bp, after recently reaching its widest level since the euro area sovereign debt crisis.

The US dollar gained overnight, with the defensive yen and Swiss franc underperforming amid the improved risk tone. Meanwhile, the energy-linked CAD and Norwegian krone were little changed against the dollar and outperformed most G10 currencies as oil prices moved back towards their recent peak. The NZD pulled back from above 0.5700, although the move was modest.

Ahead of the long weekend, Fridays local fixed income session had a decent rally led by the longer end of the curve as global yields fell due to rising investor risk aversion. 2-year rates fell 2bp to 4.05% having earlier bounced off the bottom end of the trading range near 4.0%. 10-year rates also retraced from the session lows but still closed 6bp lower at 4.62%. The 2s10s curve flattened to a fresh cycle low of +55bp intra-session before a modest rebound.

Australian 10-year bond futures are little changed from the NZ close on Friday, suggesting limited directional bias for NZ rates at the open.

There is no domestic data of note today, while international releases are largely second tier. The key NZ event this week is tomorrow’s RBNZ Policy Review, with a 25bp hike widely expected. The Fed, ECB, Bank of Japan and Bank of Canada are all expected to leave rates unchanged, putting the focus on their accompanying commentary. Other highlights include Q3 GDP for the US and euro area, alongside closely watched inflation data in the US and Australia.

Stuart Ritson is a senior Strategist at BNZ Markets.