US equities were soft into the weekly close, as another selloff in chipmakers weighed on the broader market. The Philadelphia Semiconductor Index fell more than 3%, with Nvidia hit by concerns about its outlook following Jensen Huang's departure, and the S&P 500 lost close to 0.5%. US producer prices were in line with expectations, and front-end Treasury yields are modestly lower. Net moves across major currencies were small, but the US dollar extended recent gains and the NZD fell to a fresh low for the year. Brent crude was little changed, with few notable developments in the Middle East conflict.
Oil markets have moved into surplus for the first time since the US-Iran war began. International Energy Agency data show production exceeded consumption by almost 2 million barrels a day in October, reversing a deficit that peaked at 6.3 million barrels a day early in the conflict. The swing reflected a surge in Gulf shipments, despite more Iranian attacks on shipping, along with higher output elsewhere and weaker demand. However, the flow-through to refined products has been more limited, with refining capacity constraints meaning the extra crude has done little to ease shortages of finished fuels.
US core producer prices rose 0.3% in October, lifting the annual rate to 5.0%, in line with consensus. Freight costs remained elevated and core goods prices firmed, led by commodity-intensive rather than consumer goods. Core services saw less pass-through to output prices. The PPI components that feed into the PCE deflator, the Fed's preferred inflation gauge, were softer than economists expected. This was mainly due to a large drop in airfares, with weakness elsewhere adding to it. Economists have since revised down their estimates for the October core PCE deflator to around 0.3% m/m. That would still imply annual core PCE inflation rose to 3.3% in October, from 3.1% in September.
US rates markets stabilised into the weekly close after the sharp selloff in preceding sessions. 2-year yields edged lower ahead of the PPI release and, after some volatility following the data, ended the session at 4.84%. Pricing for the December FOMC was little changed, with the market still attaching a small probability to a 50bp hike and the PPI data giving little reason to add to it. The 10-year yield briefly rose to 5.17% before settling near 5.13%, little changed from our NZ close.
The US dollar remained well supported with the DXY edging up to a fresh 18-month high. USD/JPY was little changed near 160, although Japan's top currency official, Atsushi Mimura, said he had a strong impression the recent move had been "too fast" and reminded investors of the intervention a few months ago, when USD/JPY hit a 40-year high of 164. The NZD and AUD underperformed within the G10 as soft risk sentiment weighed, with the NZD falling to a fresh 2026 low near 0.5525.
The latest CFTC report showed speculative accounts adding modestly to short positions in both the NZD and AUD, consistent with recent price action. The net NZD short is the largest since June, while the AUD short is a record in notional terms, though adjusted for open interest it is the largest only since the end of last year.
NZ rates rose across the curve on Friday, largely tracking the earlier selloff in US fixed income, with few domestic catalysts. NZ continued to outperform, with spreads to the US narrowing further. The swap curve shifted broadly parallel, about 9bp higher, with 2-year and 10-year rates closing at 3.83% and 4.39% respectively. NZGBs matched the move in swaps. The 10-year closed at 4.68%, a –40bp spread to US Treasuries and near the tightest level since 2019.
NZ's services PMI is released today. Its manufacturing counterpart, the PMI, dipped to 54.9 but remains well above its long-term average, pointing to positive momentum in the sector. Offshore, Japan releases Q3 GDP and China's monthly activity data will be closely watched. Fixed-asset investment likely fell at a faster pace, and retail sales may have weakened again after September's pickup, keeping pressure on policymakers to support growth. Industrial production should stay resilient, supported by AI-related export demand. Canadian CPI is the only data of note from North America.
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Stuart Ritson is a senior Strategist at BNZ Markets.
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