GOLD: Gold Rallies On Fed Independence Worries

TYU5 is trading 111-03+, down 0-02+ from its close. 

• The US 2-year yield opens around 3.857%.
• The US 10-year yield opens around 4.38%.
• ECB: MNI ECB WATCH: ECB To Hold After A Year, Looking For Hints. The European Central Bank is set to hold interest rates for the first time since July 2024 this Thursday, after cutting for seven consecutive meetings to 2%. Policymakers consider that the inflation path from the last round of projections in June is still valid, and with limited data since the last meeting, debate over an additional cut has been pushed back to September or even later in the year. 
• US FISCAL: CBO: Wider Deficit On Current Law, Narrower On Current Policy. Two weeks after its passage, the Congressional Budget Office (CBO) has estimated that the "One Big Beautiful Bill" will result in a net widening of the deficit over the 2025-34 period of just under $3.4T vs the January 2025 baseline.
• The 10-year yield has moved back towards its pivot within the wider range 4.10% - 4.65%, expect supply around 4.35% first up.
• Data/Events: Philly Fed Non-Man., Richmond Fed Manu. Index & Business Conditions

NZ posted a small merchandise trade surplus in June of $42mn, the fifth consecutive positive, after a downwardly-revised $1082mn. There was a rise in the 12-month YTD deficit to $4.37bn from $3.93bn but it is too early to say the trade improvement has stalled. Annual import growth rose sharply last month and was not as weak as exports in Q2.

NZ merchandise trade balance YTD $bn

• Statistics NZ reports that Q2 goods export values fell 3.7% q/q after rising 11% in Q1, while imports fell 0.3% q/q after -3.5%.
• Goods exports rose 10.2% y/y in June but were flat on the month seasonally adjusted. After peaking in March to beat US tariff deadlines, shipment levels to the US have been normalising. After rising 21.8% y/y in April, they fell 8.8% y/y in June.
• Exports to other major trading partners were generally robust rising 10.8% y/y to China, 15.5% y/y to Australia and 32.1% y/y to Europe. However, they fell 4.7% y/y to Japan.
• Higher dairy prices helped to support June exports.
• Imports rose 4.1% m/m in June bringing annual growth to 14.8% driven by a pickup in capital goods but also a 101% y/y increase in petroleum. Consumption goods rose 11.9% y/y, while plant & equipment +13.2% y/y and transport goods +18.6% y/y (there was a 436% increase in public transit vehicles). 

NZ goods exports by country y/y%

Source: MNI - Market News/LSEG

JGBS will open for the first time today since the weekend’s elections.

• In post-Tokyo trade on Friday, JGB futures closed weaker, -31 compared to settlement levels.
• Overnight, multiple factors helped US tsys extend their rally into a 4th day. However, a survey of various desks suggested a specific catalyst couldn't really be identified, with no tier 1 data or FOMC speakers (pre-meeting blackout period) on the docket.
• A decline in oil prices helped bring breakevens lower, with reports of a potential Russia-Ukraine meeting applying downside pressure.
• Some cited reports of potential trade tension between the US and EU ahead of the White House-imposed Aug 1 deadline for a deal. This appeared to boost EGBs in early trade, and later US tsys may have benefited from a flight to quality, though the broader move couldn't quite be squared with the pickup in equities and the Euro.
• The Japanese House of Councillors Election had a roughly as-expected outcome, helping global core FI in a relief rally (though we will know more when Japanese bond markets return from holiday).
• Today, the local calendar will be empty, ahead of tomorrow’s 40-year supply.