US equities moved higher overnight, helped in part by some conciliatory comments from President Trump; USD weakened across the board; NZD has pushed on to 0.6825; US 10 year Treasury yield is down 1bp

US equities moved higher overnight, helped in part by some conciliatory comments from President Trump; USD weakened across the board; NZD has pushed on to 0.6825; US 10 year Treasury yield is down 1bp

By Nick Smyth

US equities moved higher overnight, helped in part by some conciliatory comments from President Trump at a press conference with EU President Juncker.  The USD weakened across the board, but remains within recent trading ranges.  Against a backdrop of positive risk sentiment, the NZD has made further modest gains. 

Ahead of their much-anticipated meeting on trade, EU President Juncker and US President Trump gave a joint press conference a short time ago, with Trump saying “we expect something very positive” to come from the trade talks.  Trump added that he wanted a “level playing field for our farmers, for our manufacturers, for everybody.”  While the press conference was full of pleasantries, the verdict is still out on whether the EU can avert Trump’s planned auto tariffs. 

The Washington Post had earlier reported that the US Commerce Department was considering a range of options to address Trump’s concern about car imports, but Trump’s advisors believed his preference was to use tariffs.  Meanwhile, EU Trade Commissioner  Malmstrom warned that the EU was preparing a list of US goods worth $20 billion for retaliatory tariffs, if Trump goes down the route of imposing auto tariffs. 

The initial market reaction to the Juncker-Trump press conference was reasonably positive, despite the lack of new information, with US equities extending gains made earlier in the session.  The S&P500 is up 0.4%, with the NASDAQ up 0.6% to a new record high.  The S&P500 is now less than 1.5% from its own record level, reached in late January, despite growing concern around trade tensions.   The rise in equities came despite sharp falls in US car manufacturers GM and Fiat Chrysler after both companies downgraded their earnings estimates for the remainder of the year.  GM cited higher raw material costs, and in particular the higher cost of steel and aluminium as a result of tariffs, for its profit downgrade.  Facebook reports earnings after the market close today, with Amazon reporting tomorrow. 

Most currencies generally remain range-bound.  The USD is weaker across the board the past 24 hours, with the Bloomberg DXY falling 0.4%.  The initial positive equity market reaction to the Trump-Juncker press conference was mirrored in FX markets, with the USD dropping in response to the headlines.   Economic data continues to be largely overshadowed, with no market reaction to weaker than expected US home sales data or the German IFO. 

The NZD has pushed on to 0.6825, supported by the broad-based USD weakness, positive tone to risk markets and some stability in the CNY.  The NZD is now approaching the top of its recent 0.6690 – 0.6860 trading range that has been in place for the last month.   NZ merchandise trade data released yesterday showed a surprise trade deficit in June but to little market reaction.  The domestic market is focused on the labour market report released next week. 

The AUD initially softened yesterday after headline CPI inflation came in marginally lower than expectations.  Both the RBA’s core measures of inflation met expectations (1.9% y/y%) and with inflation some way below the 2.5% mid-point and Australian unemployment still above 5%, the expectation is that the RBA will be on hold for an extended period.  The AUD has since regained its post-CPI losses overnight.  Media continue to report on more targeted easing measures in China; overnight the PBOC was reported to have eased counter-cyclical capital requirements for banks in an attempt to boost lending. 

Bond yields have been reasonably stable for the second day running.   The 10 year Treasury yield is down 1bp, and the US 2s10s yield curve has flattened back to 28bps.  There were limited moves in Japanese government bonds ahead of the BoJ’s monetary policy meeting next week.  Local swap rates fell around 1bp yesterday. 

In the day ahead, the ECB is meeting but the market focus will likely be on headlines from the Trump-Juncker trade discussions. 


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