Here's our summary of key economic events overnight that affect New Zealand, with news the bond market is speaking, passing judgement on the Trump Budget - it doesn't like it.
The benchmark US Treasury 10yr, 20yr and 30yr bond yields have all jumped +12 bps so far today. That means their holders are taking sharp capital losses as the price of 'safety', and new buyers want sharply higher risk premiums. These rates are closing in on pre-GFC levels now.
After a couple of weeks of rises, US mortgage applications fell last week and that too was because of rising mortgage interest rates. Their benchmark 30 year rate is very much tied to the equivalent UST rates, so next week it is very likely mortgage interest rates will jump sharply too, with a consequential fall in new mortgage applications.
And those rate rises are flowing through to the primary market as well. The overnight US Treasury 20 year bond auction was still well-supported but at a price, with the median yield jumping to 4.97%, up +22 bps from 4.75% at the prior equivalent event a month ago. It has been a long time since we have seen as sharp a price signal in the primary market.
It is actually starker than that. At that prior event, the high bid was 4.81% and 6.5% of the auction was allocated at that level. At this latest auction, the high bid was 5.05% and 41% was allocated at that level.
Stagflation, recession fears, and a clearly irresponsible Federal Budget proposal (just designed for one family's interest) is gnawing away at sentiment and now consumer demand. Overnight, current US crude oil stocks jumped on unexpectedly low demand. These inventories rose by +1.328 million barrels in the week that ended May 16, defying market expectations of a -1.85 million barrel decrease. That is a large, unexpected turn.
It is too much for the equities market, which fell sharply on all this bond and demand news.
In Canada, and in a surprise, new home prices fell, and rather sharply to be back to early 2024 levels. In fact the dip was the sharpest since the pandemic.
Across the Pacific, Japan is facing bond stress as well. Yields on long-term Japanese sovereign bonds are soaring as demand for such debt falters, with many market experts saying the situation is unlikely to change anytime soon. Behind the shrinking demand are mounting investor worries over the health of Asia's No. 2 economy and fallout from US trade tariffs. Yields on 20-year JGBs rose yesterday (Wednesday) to 2.575%, their highest since 2000.
Meanwhile, Taiwanese export orders surged almost +20% in April from a year ago to US$56.4 bln and easily exceeding market expectations of a +10% increase. This is their best month ever, outside the distorted period of the pandemic and its aftermath when volatility reigned.
The Indonesian central bank cut its policy rate by -25 bps to 5.50%, as expected and taking it back to a level first hit in December 2022. Even though inflation is rising there it is only at just under 2% and well within its target range.
In Australia, the six-month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, slowed to 0.2% in April from 0.5% in March, a stalling that wasn't expected.
In a new update, the ABS said Aussie employers paid a record AU$104.8 bln in salaries and wages in March. Annual growth ranged from +3.7% in the mining industry to +11.9% in Electricity, gas, water and waste services. In dollar terms, the rises were greatest in the healthcare and social assistance services industry (+$1.1 billion or +7.8%), public administration and safety (+$0.6 billion or +8.1%), and construction ($0.6 billion or +7.1%).
The UST 10yr yield is now at 4.60%, up a very sharp +12 bp from this time yesterday. The key 2-10 yield curve is now steeper at +57 bps. Their 1-5 curve is now not inverted, now +1 bp. And their 3 mth-10yr curve steepened strongly, at +30 bps. The Australian 10 year bond yield starts today at 4.52% and up +8 bps from yesterday. The China 10 year bond rate is unchanged at 1.67%. The NZ Government 10 year bond rate is higher at 4.68% and up +4 bps.
Wall Street is sharply lower, with the S&P500 down -1.5% in Wednesday trade. Overnight European markets were between +0.4% in Frankfurt and -0.4% in Paris. Yesterday Tokyo ended its Wednesday session down -0.8%, Hong Kong was up +0.6%, and Shanghai was up +0.2%. Singapore ended unchanged. The ASX200 rose +0.5% and the NZX50 matched that.
The price of gold will start today at US$3,313/oz, and up +US$28 from yesterday. (Remember the record high is US$3520/oz set on April 22, 2025.)
Oil prices are a tad softer today at just over US$61.50/bbl in the US and the international Brent price is -50 USc lower at US$65/bbl.
The Aussie dollar is now at 64.5 USc, up another +20 bps from yesterday at this time. Against the Yen we are up +70 bps at ¥92.6 . Against the euro we are unchanged at 56.9 euro cents.
The bitcoin price starts today at US$106,238 and essentially unchanged from yesterday. At one point it briefly hit US$109,500, but fell back just as quickly. Volatility over the past 24 hours has been moderate at just on +/-2.0%.
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