Market movements have been modest, with flat US equities, a small fall in US Treasury yields and small broadly-based gains for major currencies against the USD.
After the latest talks in Saudi Arabia between the US and Russia regarding the war in Ukraine, the US said Russia and Ukraine have agreed to a ceasefire in the Black Sea and to work out mechanisms for implementing their ban on strikes against energy infrastructure. The Kremlin confirmed the Black Sea ceasefire and said it was dependent on sanctions relief for banks and companies involved in agriculture exports. The agreement resulted in oil prices falling after some gains were made overnight, with the net result being Brent crude showing a modest fall for the day to just below USD73 a barrel.
In other commodity news, US copper futures rose to a record high, driven by increased demand as traders stockpile ahead of potential tariffs. That puts the gain this year approaching 30% but it isn’t expected to last, given underlying demand is soft and there is a growing premium – in the order of 15% – for US prices compared to London prices.
As we await Liberation Day next week for President Trump’s new tariff policy, the FT’s contribution to the fog was that Trump is considering a two-step approach to his new tariff regime, deploying rarely used powers to impose emergency duties while probes into trading partners are completed. According to sources, “the proposals the administration’s officials are debating would seek to ground the president’s “reciprocal” tariff regime in a more robust legal framework while enabling Trump to raise money for planned tax cuts”. As well as the previously used International Emergency Economic Powers Act, Trump could invoke a little-known Tariff Act of 1930 law to potentially apply tariffs of up to 50%. The article added, that “the administration has not settled on its approach, with the purpose of the tariffs now in flux.”
The Conference Board measure of US consumer conference plunged 7.2pts to a four-year low of 92.9, a slightly larger decline than expected, driven by the expectations component, which plunged 9.6 pts to 65.2, a 12-year low and consistent with a level normally associated with heightened recession risk. Inflation expectations rose to a two-year high. The survey largely echoed that of the University of Michigan, with the “stagflationary” pulse linked to the uncertainty around tariffs.
Germany’s IFO business survey showed rising business confidence – to a nine-month high – with advances in both current conditions and expectations, consistent with a recovery in the economy. The recent government initiative to embark on a massive fiscal easing, with increased spending on defence and infrastructure, should lock in a sustained path of much higher growth ahead.
Australia’s pre-election Budget, released last night, mostly contained policies already previously signalled but one surprise being a lowering of the bottom tax bracket from 16% to 14% over two years from July 2026. Underlying cash deficits are projected to remain steady between 1-1½% over the next several years. There was little change to the path of Australian government bond issuance since the December fiscal update.
None of the above have cause much market reaction, with the S&P500 flat in early afternoon trading, consolidating after yesterday’s strong 1.8% gain. Treasury yields have reversed some of yesterday’s increase, with rates down 3bps across most of the curve. The 10-year rate is currently 4.30% after an overnight high of 4.36%, which was a fresh high for the month.
A softer USD backdrop sees the NZD make a small gain to 0.5740. The AUD is back above 0.63 and NZD/AUD is at 0.91 after probing sub-91 levels overnight. USD/JPY has fallen back below 150 and NZD/JPY is at 85.9. NZD/EUR is trading slightly above 0.53 and NZD/GBP has been range-trading around 0.4430.
In the domestic rates market yesterday, despite the backdrop of higher US Treasury yields, an attempt for NZ rates to climb higher failed and, after opening higher in yield, rates tracked back down to finish the day little changed across both NZGBs and swaps.
On the economic calendar ahead, Australia’s monthly CPI indicator is released while tonight sees UK CPI and US durable goods orders data.
