Short-end Treasury yields moved sharply higher after Federal Reserve Chair Warsh used the Kansas City Fed\u2019s Jackson Hole symposium to push back against the view that policy is already sufficiently restrictive. The move contributed to a broad-based rally in the US dollar. Equities saw choppy price action, with the S&P 500 initially rising after Warsh\u2019s speech before retracing to end the session around 0.4% lower. Gold fell sharply, down around 4%, following steady gains through August, while Brent crude was little changed near US$89 per barrel.<\/p>\n
Warsh emphasised that inflation remains too high, with both PCE and CPI measures still above the Fed\u2019s 2% target. While headline inflation has fallen from the peak, he argued recent progress has been modest and that better data are not yet sufficient to confirm an improvement in underlying trends. He reiterated the Fed\u2019s commitment to its 2% PCE inflation target, describing it as \u201ca firm, fixed target\u201d. Warsh also noted that financial conditions are not currently restrictive and that short-term interest rates remain the Fed\u2019s predominant policy tool.<\/p>\n
Market pricing for a September hike increased to around 60%, from 35% the previous day. Warsh\u2019s comments suggest that a soft payrolls report at the end of this week may not be enough, on its own, to shift the Fed\u2019s reaction function, particularly given his observation that slower labour supply growth means \u201cmonthly job gains are naturally going to run low.\u201d He also said the labour market is consistent with full employment. That leaves the August CPI release as the key data point ahead of the FOMC.<\/p>\n
US Treasury yields moved higher, led by the front end, resulting in a flatter curve. The 2-year yield rose 11bp to 4.35%, back near its July peak, while the 10-year yield increased 5bp to 4.73%, towards the upper end of its August trading range. The move was primarily driven by higher real yields. The 30-year yield initially declined, suggesting markets interpreted Warsh\u2019s comments as supportive of Fed credibility and consistent with a central bank determined to keep inflation in check.<\/p>\n
The US dollar strengthened sharply, with the dollar index rising to its highest level in a week and fully retracing the move that followed the Treasury Department\u2019s announcement of increased long-end buybacks. The gains were broad-based across G10 currencies. The yen weakened through 160, extending a slide that has now erased more than half of its intervention-driven gains. NZD\/USD fell towards 0.5910, while the NZD was generally softer on the main crosses.<\/p>\n
Government data revealed Japan spent a record US$99b over the past month supporting the yen through joint intervention with the US. The retracement in the yen since the intervention highlights the difficulty of leaning against economic fundamentals. Including earlier operations in April and May, Japan\u2019s intervention spending this year has reached around US$170b, reflecting official concern after the yen fell to a 40-year low.<\/p>\n
It was a quiet end to the week for NZ fixed income on Friday. Swap rates closed 1\u20132bp higher across the curve, with few catalysts. The 2-year rate rose 2bp to 3.70%, the top of its recent trading range, as the market looks ahead to Wednesday\u2019s RBNZ MPS. Consumer confidence held July\u2019s improvement, while filled jobs rose 0.3% in the month, but neither release had much market impact. Despite the moves in Treasuries, Australian 10-year bond futures are little changed from the local close.<\/p>\n
ANZ business confidence is released today, with firms\u2019 own activity having risen in July to its highest level since February. China\u2019s official PMIs are also due, with consensus looking for a marginal improvement after both the manufacturing and services gauges printed below 50 last month. Germany\u2019s preliminary CPI will help firm expectations for tomorrow evening\u2019s eurozone inflation release.<\/p>\n
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Stuart Ritson is a senior Strategist at BNZ Markets.<\/p>\n","protected":false},"excerpt":{"rendered":"Short-end Treasury yields moved sharply higher after Federal Reserve Chair Warsh used the Kansas City Fed\u2019s Jackson Hole…\n","protected":false},"author":2,"featured_media":609608,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[72,113,61,60],"class_list":["post-609607","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-ie","tag-ireland"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/609607","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=609607"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/609607\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/609608"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=609607"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=609607"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=609607"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}