Early Morning Call: US dollar settles as RBNZ sends hawkish message

Equity markets overview

US equity markets accelerated their rebound yesterday.

The S&P 500 rose by 3.06% and posted its biggest two-day rise since April 2020. The Nasdaq ended the session 3.36% higher.

In the Asia-Pacific region, Hong Kong’s Hang Seng trades close to 6% higher after returning from a holiday.

RBNZ raises rates as expected

As expected, the Reserve Bank of New Zealand (RBNZ) lifted its official cash rate by 50-basis points (bps) to 3.5%, an eighth increase in 12 months that took the bank's rate to a seven-year high. "The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment".

RBNZ minutes showed there were talks around a 75 basis-point increase, but policymakers decided against this as rate hikes are slow to pass through to retail interest rates.

Macro overview

In Europe equity markets opened lower this morning after recording a strong session yesterday.

France’s CAC40 outperformed the region, ending the session up 4.24%. In Germany, seasonally adjusted trade surplus narrowed to €1.2 billion, and imports increased more than expected by 3.4%. Exports also rose at a softer rate of 1.6%. i

In the US, economists expect the ADP survey to announce 200,000 job creations in the private sector for the month of September. As for Friday’s Non-Farm Payrolls (NFP), 250,000 job creations are expected. Unemployment rate should remain at 3.7%, and average hourly earnings are anticipated to rise by 0.3% month-on-month (MoM) and 5.1% year-on-year (YoY).

The market also awaits the latest US trade balance data for the month of August. Economists expect the US deficit to shrink to $67.7bn in August.

At 3pm, ISM non-manufacturing PMI is forecast to fall to 56 in September from 56.9 the previous month.

Tesco, Twitter

Elsewhere on the equity market, Tesco PLC reported a 10% fall in adjusted operating profit, and maintained is profit guidance within the previously announced range, “albeit towards the lower end”.

Billionaire Elon Musk has undertaken what appears to be a complete about turn and has now agreed to buy Twitter for the agreed $44bn. Twitter shares jumped 22% when investors learned Musk agreed to pay $54.20 per share. The surprise reversal comes just weeks before the two sides were due in court.

Commodities

Oil prices are little changed this morning after a second day of strong gains.

WTI and Brent have been rallying as oil traders gear up for the upcoming OPEC+ meeting. Oil ministers of the organisation meet today in Vienna, where they'll be discussing the size of production cut.

Last month the organisation cut production by 100,000 barrels per day (bpd), signalling it would do what it takes to maintain oil price stability. In September, oil prices retreated for a fourth straight month.

Reuters sources say the market could expect production cuts in excess of one million barrels per day. And one OPEC source said yesterday the cut could amount to up to two million barrels per day. As a reference, world daily crude consumption is around 100 million barrels.

Yesterday evening, the latest API data showed a fall in crude oil stocks of 1.77 million barrels. Gasoline stocks fell by nearly 3.5 million barrels and distillates by four million barrels.

Gold now trades at a three-week high as the dollar continued to weaken yesterday.