AUSSIE BONDS: Cheaper Ahead Of Today's US NFP

ACGBs (YM -3.0 & XM -2.0) are cheaper after US tsy yields rose but finished off their session highs. US yields were ~4bps higher across benchmarks. There was no impact from relatively dovish comments from Fed Waller. 

• The ISM Manufacturing headline PMI reading unexpectedly fell to 48.5 in May (49.5 survey, 48.7 prior), leaving it in contractionary territory for a 4th month. As the survey put it, "contraction in most of the indexes that measure demand and output has slowed, while inputs have started to weaken". Tariffs cast a heavy shadow over this stagflationary report.
• Cash ACGBs are 2-3bps cheaper with the AU-US 10-year yield differential at -15bps.
• The bills strip is modestly cheaper, -1 to -2.
• RBA-dated OIS pricing is flat to 3bps across meetings today. A 25bp rate cut in July is given a 73% probability, with a cumulative 76bps of easing priced by year-end (based on an effective cash rate of 3.84%).
• Today, the local calendar will see Q1 Company Operating Profits, Inventories, Current Account Balance alongside RBA Minutes of May Policy Meeting and a speech by the RBA's Sarah Hunter.
• This week, the AOFM plans to sell A$1200mn of the 3.75% 21 April 2037 bond today and A$800mn of the 1.50% 21 June 2031 bond on Friday.

With the increase in trade and geopolitical risks over the weekend, safe-haven flows returned to gold. Prices rose 2.8% to $3381.46 on Monday, close to the intraday high of $3382.92, and have started today up another 0.2% to $3388.8. The move was also supported by softer US manufacturing PMIs and the weaker US dollar (USD BBDXY -0.6%).

• Bullion broke above initial resistance at $3365.9, 23 May high, on Monday and continues to trade above the level opening up $3435.6. The bull trigger is at $3500.1. The move reinforces the uptrend with medium-term signals remaining bullish. Initial support is at $3213.7, 50-day EMA.
• Equities were mixed with Euro stoxx down 0.2%, FTSE flat and S&P up 0.4%. Commodities were stronger with WTI +3.7% to $63.04, copper +3.9% and silver +5.4% to $34.76 also helped by safe-haven demand.
• While negotiations between the US and Iran are ongoing, there are reports that Iran will reject America’s proposal. Meanwhile, President Trump has said that Iran won’t be allowed to enrich uranium.
• Talks between the Ukraine and Russia in Istanbul finished unsuccessfully with Russia continuing to refuse an “unconditional” ceasefire. Ukraine expects a response to its proposals by the end of the month.

In local morning trade after the long weekend, NZGBs are 3-4bps cheaper after US tsy yields rose but finished off their session highs. US yields were ~4bps higher across benchmarks. Key technical levels, 4.5% (10-year) and 4.0% (2-year), helped limit the selloff. A heavy corporate issuance calendar likely weighed in, as did the late jump in risk appetite. There was no impact from relatively dovish comments from Fed Waller. 

• The major US equity indexes were in the red through the morning amid renewed tariff angst due to the boost to steel and aluminium levies and concerns over escalation of China trade tensions. Weaker ISM and construction spending data added to the early losses. But the markets crept higher into the afternoon, supported by big tech, until all the major indices posted moderate gains.
• Despite soft-looking ISM Manufacturing and construction spending data this morning, the Atlanta Fed's GDPNow estimate for Q2 GDP growth picked up to 4.6% vs 3.8% Friday.
• NZ Terms of Trade rose 1.9% q/q (estimate +3.5%) in Q1 versus a revised +3.2% in Q4.
• Swap rates are 2bps higher.
• RBNZ dated OIS pricing is little changed across meetings. 28bps of easing is priced for July, with a cumulative 31bps by November 2025.