Global rates fell overnight, despite little fresh news. The US 10-year rate is trading below 1.50% and is set at its lowest close since early March. Movements in stocks and currencies were limited ahead of the release of the US CPI and the ECB policy meeting tonight. The NZD fell back below 0.72.

There hasn’t been much news overnight, no economic data has been released in major economies, and the Fed is currently on a “blackout” ahead of its meeting next week.

The main driver among the overnight asset markets has been the bond market. US Treasury yields fell further, with the 10-year rate falling from 1.53% to 1.47%, before rising slightly to 1.49%. Except for a brief period after the US non-farm wage report in early May, the 10-year US rate is trading at its lowest level since early March. The cut in US rates spilled over to other markets, with the German 10-year rate falling 2bp to -0.24%, its lowest level in a month.

In the absence of any clear macro catalyst, the likely cause of the recent US rate cut is market positioning. The JP Morgan client survey showed that the positioning of the US Treasury was close to its “shortest” since early 2018 (when the Fed hiked interest rates) and that recent price action is consistent with the closure of some investors. Strong demand was observed overnight in the auction of US 10-year bonds, with an above-average supply-to-cover ratio. Inflationary concerns are also showing signs of easing, with the 10-year breakeven inflation rate falling to 2.34%, its lowest level in more than a month. The other key factor helping to contain bond yields is the Fed’s dovish rhetoric, as the central bank continues to downplay current inflationary pressures as transient.

On that note, the US CPI release tonight is expected to hit a whopping 4.7% year-on-year, with core inflation expected to rise to 3.5%, which would be its highest level since 1993. ” inflation, or something more permanent, will not be fixed tonight. The debate is likely to rage for several more months.

Movements in stocks and currencies were moderate relative to those in bonds. The S & P500 is stable over the day and is trading slightly below its all-time high as the NASDAQ gained 0.2%. The USD reversed an earlier drop and is again unchanged on the day, in terms of an index. The DXY and BBDXY indices remain close to multi-year lows. G10 currency movements are all within +/- 0.3% as of this hour yesterday.

In its overnight meeting, the Bank of Canada kept all of its policy parameters unchanged, as universally expected. The BoC has said it will keep its bond purchases at $ 3 billion / week, although the market expects a further cut to be announced at next month’s meeting. He reiterated the same focus on the cash rate, saying he would keep rates at 0.25% until the economic downturn is fully absorbed, which the Bank predicts takes place in the second. half of 2022. Market prices are slightly better than the odds that the La BoC will raise rates in 12 months. The CAD retreated after the statement was released, to remain unchanged today, although the move coincided with the broader USD reversal.

The NZD again underperformed overnight, for no apparent reason, and is trading around 0.7180 (-0.3% on the day). This despite the Bloomberg Commodity Index and the stock markets which rose slightly overnight. NZD / AUD slipped to around 0.9280, its lowest level in three weeks.

The GBP was the other underperforming currency overnight, falling 0.3% to 1.4110. Renewed tensions between the UK and the EU over Northern Ireland, along with the threat of EU sanctions, did not help sentiment. The market considered comments from outgoing Bank of England chief economist Haldane, who warned “this is the most dangerous moment for monetary policy since … 1992” and said waiting too long to raise interest rates risked overheating the economy and a more aggressive monetary policy response down the line.

In New Zealand yesterday, there was more evidence of the risk of overheating New Zealand’s economy from the draft ANZ Business Survey for June. The key indicator of own activity increased slightly to 29.1, its highest level since before the 2017 elections and compatible with GDP growth of around 3%. Employment intentions remained at levels compatible with, on the face of it, employment growth of around 5%. Labor market shortages mean job growth will almost certainly be lower than this, but it reinforces our view that the labor market will be much stronger than the RBNZ forecast. Finally, pricing intentions reached a new record (after 1992), with 62.8% of firms intending to increase their prices. Separately, SEEK job postings hit an all-time high in May, with the streak now surpassing pre-Covid levels by around 20%.

We revised our New Zealand GDP forecast for the first quarter upwards following the release of more partial indicators yesterday. Accuracy is difficult in today’s environment, but, given the partials, it seems quite likely that the result will be positive. Whether this matches our estimate of 0.8% is out of the question. Anything positive would be well above the RBNZ’s -0.6% assumption. Something along these lines would represent another upside surprise for the RBNZ, against the backdrop of positive forward indicators. We still expect the RBNZ to start increasing OCR next May.

The NZDM syndicated $ 2.25 billion of a new May 2032 government bond yesterday at a +13 basis point spread from the May 2031 bond, the tightest part of the price forecast . New Zealand government bond yields and swap rates were lower yesterday, reflecting global forces, by 5-6 basis points at the 10-year curve point. New Zealand rates are expected to open again lower this morning, reflecting the overnight moves in US Treasuries.

Besides the release of the US CPI tonight, the other focus is the ECB’s monetary policy meeting. The main interest of the ECB meeting is whether President Lagarde signals a slowdown in his pace of bond buying in the third quarter, having previously decided to “frontload” purchases in the second quarter.