BONDS: NZGBS: Closed With A Modest Bull-Flattener
NZGBs closed at session bests, with the 2/10 curve showing a bull-flattener. Yields closed 1-3bps lower after being 1-2bps higher earlier in the session.
- The NZ-US and NZ-AU 10-year yield differentials finished 2-3bps tighter, reversing Friday's widening.
- Swap rates closed little changed.
- RBNZ dated OIS pricing closed little changed across meetings. 21bps of easing is priced for August, with a cumulative 35bps by November 2025.
- This week, the local calendar will see ANZ business confidence for July released on Wednesday. It continues to point to a gradual recovery in the economy. Cost and price components remain elevated, and inflation expectations are at 2.7% off their low.
- ANZ July consumer confidence is out on Friday. It rose sharply in June to 98.8, the highest this year but still off December's 100.2. Rate cuts, which take time to feed through to mortgage payments, have helped with households' financial situation and improved the time to buy component.
- June building permits will also print on Friday. They rose 10.4% m/m in May and indicators suggest that the construction sector is recovering.
- On Thursday, the NZ Treasury plans to sell NZ$275mn of the 4.50% May-30 bond and NZ$175mn of the 4.25% May-34 bond.
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
