Risk sentiment is weaker, with hope fading for a US-Iran peace deal, higher US CPI inflation, bubbling political risk in the UK and a chunky fall in semiconductor stocks all weighing.\u00a0 US and European equity markets are lower, global rates are higher, oil prices are higher and the USD is broadly stronger.<\/p>\n
There have been no fresh developments in the Middle East conflict, with no sign of any progress on a peace deal and the Strait of Hormuz remaining effectively closed.\u00a0 Brent crude is up for a third consecutive day, trading above USD108 overnight.<\/p>\n
US CPI inflation picked up in April, with figures coming in at the higher end of expectations.\u00a0 Annual headline inflation rose to a three-year high of 3.8% y\/y, with higher gasoline prices contributing about 40% of the 0.6% m\/m increase and higher food prices also evident.\u00a0 The core measure which excludes food and energy rose 0.4% m\/m and 2.8% y\/y. Higher rents made a significant contribution, but this was technical in nature, capturing a \u201ccatch-up\u201d impact after the BLS had assumed zero increases during the federal government shutdown late last year.\u00a0 Still, even excluding this impact, core services inflation showed a notable 0.5% m\/m increase.<\/p>\n
Chicago Fed President Goolsbee, speaking after the release, said if high services inflation indicated that the underlying economy is overheating \u201cthen the Fed has got to be thinking about how do we break the chain of escalating inflation\u2026we\u2019ve got an inflation problem in this country and we\u2019ve got to get it back down\u201d.\u00a0 Clearly, we can add Goolsbee to the list of Fed Presidents who are sceptical of the Fed\u2019s implicit easing bias.<\/p>\n
The higher inflation print added to the prevailing upside pressure in US Treasury yields.\u00a0 The 2-year rate is up 4bps to 4.00% and the 10-year rate is up 5bps to 4.46%, both approaching the late-March highs.<\/p>\n
European rates are also higher across the board while UK Gilts continue to underperform, with the 10-year rate up 10bps to 5.10%.\u00a0 The 30-year rate traded as high as 5.81%, a level not seen since 1998, due to rising UK political risk.\u00a0 PM Starmer vowed to fight on as PM in the face of mounting pressure for him to resign.\u00a0 Prediction markets give an 83% chance that Starmer won\u2019t be PM before the end of the year.\u00a0 A leading contender to replace him, current Manchester Mayor Andy Burnham, needs a Labor MP to resign to force a by-election for him to be in a position to seek the PM position.\u00a0 All this will take time.<\/p>\n
Risk sentiment has driven a broadly stronger USD.\u00a0 While most FX movements have been modest, a rising political risk premium has seen GBP notably underperform, down 0.7% from this time yesterday to 1.3530.\u00a0 NZD\/GBP reached a two-month high just above 0.44 overnight.\u00a0 NZD\/USD shows only a small fall to 0.5950 and apart from the noted gain against GBP, other cross rate movements are small.<\/p>\n
There was some JPY volatility on a suspected \u201crate check\u201d just after the NZ close but the move wasn\u2019t sustained.\u00a0 US Treasury secretary Bessent met with Japan\u2019s PM and Finance Minister.\u00a0 FM Katayama said, \u201cwe agreed that we are co-ordinating extremely well on recent market moves, including exchange rates\u201d.\u00a0 Bessent told reporters he had not made a request to PM Takaichi on monetary policy.\u00a0 Last year, Bessent indicated a preference for higher rates rather than currency intervention.<\/p>\n
Australia\u2019s \u201canti-Boomer\u201d Budget didn\u2019t elicit any notable market response, with most of the key policy measures having been pre-released. This included the increase in capital gains tax, making it one of the highest in the world with a minimum rate of 30%, higher taxes for discretionary trusts and the clampdown on the use of negative gearing for property investment.\u00a0<\/p>\n
In the domestic rates market, global forces put upside pressure on yields across the curve, alongside lingering payside pressure in short-end swaps.\u00a0 The 2-year swap rate rose 6bps to 3.63%, a fresh closing high for the cycle, while the 10-year rate rose 4bps to 4.37%. NZGBs showed similar moves. The OIS market now sees the May meeting as an even bet for a 25bps rate hike, and with two rate hikes fully priced by September. \u00a0The Australian 10-year bond future is up over 5bps in yield terms since the NZ close.<\/p>\n
In the day ahead, Australian wages data and the RBNZ survey of expectations are released.\u00a0 The latter could show rising inflation expectations across all measures, the question being whether they lift enough to spook the RBNZ.\u00a0 Tonight sees the release of US PPI inflation data, expected to show a further lift, with an annual headline rate of 4.8% and core rate of 4.3%.<\/p>\n
Select chart tabs<\/p>\n
US$
\n AU$
\n TWI-5
\n \u00a5en
\n \u00a5uan
\n \u20acuro
\n GBP
\n Bitcoin<\/p>\n
Jason Wong is the senior Markets Strategist at BNZ Markets.<\/p>\n","protected":false},"excerpt":{"rendered":"Risk sentiment is weaker, with hope fading for a US-Iran peace deal, higher US CPI inflation, bubbling political…\n","protected":false},"author":2,"featured_media":424618,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-424617","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/424617","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=424617"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/424617\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/424618"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=424617"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=424617"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=424617"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}