AUSSIE BONDS: Slightly Richer Ahead Of US CPI, Strong Supply Auction

NZGBs closed 3-6bps cheaper, with the 2/10 curve flatter. Today’s move reflected both offshore and domestic factors. 

• Cash US tsys are ~2bps cheaper in today's Asia-Pac session, reacting to the recent re-escalation in the US-Iran conflict.
• NZ's June performance of services index rose 2.6 points to 50.6, the highest since December but only just in growth territory. 
• "RBNZ Nowcast Estimate of 2q GDP Growth Surges to 0.9%. Gauge surges from flat a week earlier and showed a slight contraction in mid-June." – BBG
• Swap rates closed showing a bear-flattener, rates 5-8bps higher.
• RBNZ-dated OIS pricing is 9–19bps firmer across meetings than last week's pre-hike levels. Ahead of last Wednesday's 25bp rate increase to 2.50%, the market had priced around 21bps of tightening, with a further 49bps of tightening expected by February 2027. The February 2027 contract now implies 67bps of cumulative tightening.
• The Treasury announced the launch of a new 4.75% coupon 15 May 2038 nominal NZGB. The Treasury expects to issue at least NZ$5.0bn with the transaction capped at NZ$7.0bn. Initial price guidance is 6-10bps over the 15 April 2037 bond. The issue will be priced tomorrow.
• Tomorrow the local calendar will see NZIER Business Opinion Survey, Net Migration and RBNZ Chief Economist Conway Speech on Inflation.

• Gold has weakened further Monday after losses lost week and is down -1.5% at US$4,054 with the spike in oil prices the major  contributor to the falls.  
• Gold has been trending lower since its January peak, closing at $3,990 recently on a firmer USD and rate market expectations turning to hikes
• Gold is expected to stay highly volatile amid the release of June CPI and PPI data, the Philadelphia Fed Manufacturing Index, initial jobless claims, and the University of Michigan's inflation expectations survey. Hotter-than-expected CPI/PPI this week could reinforce that hawkish repricing and weigh further on gold.
• The escalation in Iran will likely see gold remain under pressure.  
• Momentum indicators remain mixed with the 14RSI at +46 (i.e. broadly neutral), the MACD line marginally above Signal (moderate bullishness) whilst gold maintains its position below all major moving averages. The 20, 50, 100 and 200-day EMA are all trending relatively flat suggesting that there is no clear trend for now.
• Look for gold to continue to trend lower this week, likely testing $4,000. Recent tests below have seen buyers emerge near to $3,950.

Oil prices are currently higher than the spike at Monday’s open as the US and Iran continue to attack each other. WTI is up 4.3% to $74.50/bbl off the intraday high of $74.66, while Brent is 4.1% higher at $79.16/bbl after a high of $79.55. Neither benchmark has broken above Wednesday’s highs at $76.08 and $80.59 respectively, signalling some optimism persists that there will be a return to negotiations. Crude’s response to the resumption of hostilities has been cautious.

• The US said that it struck Iran’s air defence systems today, while Iran has targeted US’ drone centre in Bahrain and Jordan’s Prince Hassan air base which the US uses. Kuwait reported that it had engaged in “hostile aerial targets” heading for US military positions and that an offshore rig had been struck. Jordan said it had shot down four missiles from Iran.
• Iran wants to control shipping through the Strait of Hormuz and have vessels use its route and then likely pay fees, while the US wants free passage and considers the waterway international waters. While Iran said the Strait is closed again, the US maintains the Omani route is still open but with Iranian strikes, that remains a considerable risk.
• Axios reported that 20 vessels traversed the Strait in the last 24 hours with US assistance, according to a US official. However, shipping through the Strait has ground to a halt today, according to Bloomberg.
• Later the Fed’s Bowman & Waller, ECB’s Schnabel and BoE’s Pill speak while ECB President Lagarde meets with Fed Chair Warsh in Washington. The US June federal budget data are released.