Market Update 02/10/2024

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Rising tensions in the Middle East triggered a sell-off in riskier assets overnight. Stock markets fell, bonds gained, the USD strengthened, and oil prices spiked. The S&P 500 dropped by 0.8%, while the Euro Stoxx 50 closed 0.9% lower, and the FTSE 100 edged up 0.5%. Meanwhile, the US 10-year Treasury yield declined by 3.2 bps to 3.75%.
 
Economic data painted a mixed picture. The US ISM manufacturing index held steady at 47.2 in September, indicating the US manufacturing sector remained in contraction for the sixth consecutive month and for 22 of the past 23 months. New orders increased from 44.6 to 46.1, while employment dropped from 46.0 to 43.9. The prices paid index fell by 5.7 points to 48.3, showing that raw material prices declined in September after eight consecutive months of increases. While job openings in August increased to a three-month high, contradicting other reports that suggested a slowdown in demand for workers.
 
NZDUSD has dropped 1.5% since yesterday, including a 0.6% decline overnight to 0.6265. The weakening of the NZD is attributed to soft QSBO data and increasing market speculation for a potential 50bps cut by the RBNZ next week. Additionally, the USD strengthened amid a flight to safe-haven assets due to rising tensions in the Middle East. NZDUSD has support at 0.6265, with stronger support around 0.6220. On the upside, resistance is likely capped at 0.6350, especially ahead of the NFP data release.
 
NZDAUD is under pressure, initially due to previous factors and further impacted by stronger-than-expected Australian retail sales, which rose 0.7% m/m, the biggest increase since January. The surge was driven by tax cuts and cost of living rebates. A drop below the 0.9120 level could spark bearish sentiment, with a potential move towards the August lows of 0.9050.
 
NZDJPY has seen the largest movement, dropping towards 90.00, while USDJPY fell 0.3% overnight to 143.54. New Japan PM Ishiba stated he wouldn’t weigh in on interest rates but expressed his hope that the BoJ maintains its current approach to overcoming deflation. His new Minister for Economic Revitalisation echoed a cautious tone, saying the BoJ should proceed carefully and avoid measures that could harm the economy, with defeating deflation being the top priority. While these remarks seem dovish, they align with market expectations of a gradual tightening or reduction of monetary stimulus by the BoJ over the coming year.
 
There’s no data release from New Zealand or Australia today. Fed officials Barkin, Bostic, and Collins are set to speak at 11:15am. The market’s focus is primarily on several upcoming US employment reports, culminating in the crucial Non-farm Payrolls (NFP) data on Saturday morning. If the NFP figures fall short of the expected 150,000 increase, markets may price in over a 50% chance of a 50bps rate cut in November.

 Here are the latest mid-market rates:

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