Market Update 30/08/2024

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Stock markets surged as a modest upward revision to US GDP data reinforced confidence in a soft-landing scenario. The S&P 500 edged down 0.1%, pressured by NVIDIA, while the Euro Stoxx index climbed 1.1% and the FTSE 100 gained 0.4%. The yield on the US 10-year Treasury increased by 3.4 bps to 3.87%. 
 
The preliminary US GDP data revealed that the economy expanded at a slightly faster rate in the second quarter (3% from April to June) compared to the earlier estimate of 2.8%. This was largely due to an upward revision in consumer spending (2.9% versus the previous estimate of 2.3%), which outweighed weaker performance in other areas. Additionally, a separate report on Thursday indicated that initial unemployment benefit claims remained steady at 231k.
 
Overall, it is reassuring the market that the US economy isn’t on the brink of a downturn and offering hope that the Fed can still manage a soft landing, and the USD is broadly stronger overnight.
 
NZDUSD faced resistance just below 0.6300 yesterday, reaching levels not seen since early January, driven by a strong business confidence report released in the afternoon, which surged 23 points to +50 in August, marking the highest in a decade. The 0.6230 level remains crucial; holding above this could pave the way for further gains, with 0.6300 being a solid target. If it fails to hold, downside targets include 0.6200 and the Fibonacci level of 0.6140. Central bank moves remain a key factor, with the market pricing in 3 rate cuts for New Zealand in the remaining meetings of 2024. However, given the recent positive data, such as strong business confidence and favourable dairy payout forecasts, is a 50 bps cut by Orr really necessary? If this expectation is adjusted, the NZD could find support.
 
NZDAUD climbed to a peak of 0.9260, but those gains have since been completely reversed, bringing the pair down to just above 0.9200. Meanwhile, AUDUSD also hit its highest level since early January, exceeding 0.6800.
 
NZDGBP initially rose to 0.4765 but then slipped back to 0.4750. At the same time, the GBPUSD also weakened, falling to 1.3166 after an earlier rise. Both currencies gave up some of their earlier gains.
 
NZDEUR has surged more than 5% in August, reaching just above 0.5660 on Thursday. The pair has broken through both the 100-day and 200-day moving averages this week. German CPI inflation came in 0.2% lower than expected, dropping from 2.6% to 2.0% y/y in August, marking the weakest annual rate in over three years. Slower inflation and reduced wage inflation have set the stage for a second ECB rate cut in September, which is already fully anticipated. Tonight’s Euro area CPI data is expected to show a decline to 2.2%, with the core rate falling to 2.8%.
 
As the week wraps up, the economic calendar is quite busy. Locally, we’ll have NZ building consents at 10:45 am, Tokyo CPI at 11:30 am, and Australian retail sales at 1:30 pm. Later tonight, we’ll get euro area CPI, Canadian GDP, and the US PCE deflators for July. China PMI data will be released over the weekend.
 
Here are the latest mid-market rates: