US equites are marginally lower in afternoon trading but have largely maintained the gain from the previous session on optimism the longest US government shutdown is coming to an end. Stocks in Europe extended higher. The Euro Stoxx index advanced more than 1%. Global bond yields are broadly lower, and gilts outperformed after softer than expected labour market data. The US dollar is broadly weaker against G10 currencies. Oil prices are higher with Brent crude trading above US$65 per barrel.
The US Senate has passed a temporary funding measure to end the government shutdown. The bill now moves to the Republican-controlled House for a final vote which is expected in coming days. It is likely that it will pass, and President Trump has endorsed the measure. Updated release schedules for economic data are not expected until days after the government reopens. Many of the officials that are responsible for compiling the data are currently furloughed.
The US cash bond market was closed worldwide for the Veterans Day public holiday. Ten-year treasury futures rallied and implied a fall of ~4bp compared with the 4.12% previous close for 10-year yields. The market gained support from ADP data which suggested the US labour market slowed in the second half of last month. ADP reported US private payrolls fell an average 11k in the four weeks to 25 October. Separately, the NFIB Small Business Optimism data showed plans to hire fell in October.
UK unemployment rose by more than expected and broader indictors are consistent with a loosening labour market. The unemployment rate increased to 5.0% in the three months to September, which is up from 4.8% the previous month, and the highest level since early 2021. Private sector pay growth slowed to 4.2% from 4.4%, matching the consensus estimate.
The market firmed expectations for a rate cut by the Bank of England at its next meeting in December. The central bank left rates on hold last week and the decision reflected a close 5-4 split within the Committee. Policy makers will have two further inflation reports ahead of the next meeting. There is 22bp of easing priced for December, up from 18bp ahead of the labour market data. The release contributed to a decent rally in gilts. 10-year yields closed 8bp lower at 4.38% and lower rates weighed on the pound.
The US dollar is broadly weaker against G10 currencies and declined in line with the rally in US treasury futures after the soft ADP payrolls report. The Scandinavian currencies were amongst the best performers, and the Swiss franc also gained support on prospects of a US trade deal. Bloomberg reported yesterday that Switzerland is close to securing a 15% tariff on its exports to the US, down from the 39% level announced in August. The pound was little changed, despite the weaker US dollar backdrop, after the UK labour market data.
NZD/USD is modestly higher relative to the local close yesterday. The NZD is firmer against the pound and has recovered from twelve-year lows against the AUD.
2-year ahead inflation expectations within the RBNZ Survey of Expectations were unchanged at 2.28% for Q4. Longer term inflation expectations were also little changed from Q3, and in aggregate, current levels will be of little concern to the central bank as it looks ahead to the November Monetary Policy Statement.
NZ interest rates were largely stable in the local session yesterday. An initial offshore-driven dip in swap rates reversed and yields were ended close to flat across the curve. It was a similar backdrop for government bonds with yields flat to 1bp higher. Australian 10-year bond futures are ~5bp lower in yield terms since the NZ close yesterday which suggests a lower bias for NZ yields on the open.
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Stuart Ritson is a senior Markets Strategist at BNZ Markets.
