Market Update 25/09/2024

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Global equities rose overnight, buoyed by the announcement of China’s economic stimulus package. US stocks managed modest gains after an early decline driven by weak consumer confidence data, while bond yields dropped, particularly at the shorter end. As of this, the S&P 500 had risen 0.2%. In Europe, the Euro Stoxx 50 closed up 1.1%, and the FTSE 100 gained 0.3%. Meanwhile, the yield on the US 10-year Treasury slipped 1.5 bps to 3.73%.

Overnight, US consumer confidence saw an unexpected decline in September, marking the largest drop in three years due to concerns over the labor market and the broader economic outlook. The Conference Board’s sentiment index fell by 6.9 points to 98.7, the biggest decrease since August 2021. The measure of expectations for the next six months dropped to 81.7, while the assessment of current conditions fell to 124.3.

The US Richmond Fed manufacturing index fell for the fourth consecutive month, coming in at -21 compared to -19 last month and below the expected -12, marking its lowest point since May 2020. The employment component was notably weak, showing the sharpest decline since 2009.

Fed Governor Bowman stated that interest rates should be reduced at a “measured” pace, citing ongoing inflation risks and a labour market that has yet to show significant weakness. She emphasized concerns over price stability, particularly with the labour market near full employment, which sets her stance apart from other Fed officials. Bowman opposed last week’s 0.50% rate cut, favouring a smaller 0.25% reduction, making her the first Fed Governor to dissent since 2005.

The DXY index has fallen 0.4% to 100.5, with the USD generally weaker across the board.

NZDUSD has surged to its highest level this year, climbing above 0.6330. After being elusive since December 2023, the NZD has reclaimed the 0.6300 mark following a breakthrough of 0.6280 just after midnight. Weak US data overnight has increased market confidence that the Fed will cut interest rates, with about 0.80% in cuts priced by year-end. The RBNZ is also expected to follow suit, with around 0.87% priced over the next two meetings. Key levels to watch are 0.6370, the December 2023 high, and 0.6415 from July. Support now sits at 0.6280 as we see if this positive momentum continues ahead of US non-farm payroll data next week.

NZDAUD is up again to 0.9200, reversing the recent downtrend following the RBA’s announcement yesterday. The RBA kept its cash rate steady at 4.35% and made no major changes to its guidance, reiterating that it would remain vigilant to inflation risks without ruling out any future actions. However, markets reacted to a comment from Governor Bullock during the press conference, noting that the Board didn’t specifically discuss a rate hike, which led to a drop in Australian rates and a weaker AUD. The market now anticipates the first rate cut in February 2025, with the cash rate potentially bottoming out at 3.60% by year end. There’s a growing belief that any rate cut cycle may start later than initially expected.

NZDJPY reached 90.75 and is now moving back towards its early September levels, where 91.65 previously acted as a ceiling, limiting gains toward 92.00.

NZDGBP has risen to 0.4725, and NZDEUR is up to 0.5670. ECB member Madis Muller hasn’t completely ruled out an interest rate cut next month but believes there may not be enough data to make a firm decision on the region’s sluggish economy. He mentioned that a clearer decision could be made in December when more comprehensive data is available.

Looking ahead, Australia’s monthly CPI data is expected to show a decrease in headline inflation, dropping from 3.5% to 2.7% year-on-year in August, largely due to electricity subsidies and lower fuel prices. Globally, there’s not much significant data scheduled for release tonight.

 Here are the latest mid-market rates:

 
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