Steady as she goes

In focus today

Market focus will continue to be on the Russia-Ukraine conflict and the ongoing efforts to achieve a ceasefire. 

Today is quiet in terms of data releases. However, in New Zealand, both markets and analysts anticipate the Reserve Bank (RBNZ) will continue its easing cycle with a 25bp rate cut early tomorrow morning, lowering the Official Cash Rate to 3.00%.

Economic and market news

What happened yesterday

In the US, President Trump met with Ukrainian President Zelenskiy in the White House discussing the war in Ukraine. Trump made multiple mentions of security guarantees and a possible trilateral meeting with Russian President Putin. However, following the meeting the Kremlin has yet to accept the proposal of a trilateral meeting. Nato secretary Mark Rutte told media that the details of the security guarantees would be worked on over the coming days. The friendly tone of the meeting was in stark contrast to the last meeting in February that ended with Zelenskiy leaving the White House following the collapse of diplomatic talks.

In Japan, pressure on the long end of the yield curve continues as a new 20Y auction saw weak demand. The lack of demand for ultra-long bonds has become a market theme across regions, as the prospect of a significant increase in supply is leading to cautiousness among investors. Yesterday, we published an updated set of rates forecasts in our monthly 'Yield Outlook' publication. Overall, we stick with our previous view that especially long-end US rates are bound to move higher as the fiscal outlook bodes higher term premia going forward. See Yield Outlook - Optimism about Europe is broadening, 18 August.

In the UK, focus among investors is on the fiscal outlook as the government prepares a new budget. Yesterday, reports surfaced that UK Chancellor Reeves is considering replacing stamp duty with a new national property tax on homes above GBP 500k in an effort to increase government revenue, putting focus on the unsustainable public finances and the lack of political willingness to consolidate them. 

Equities: Equity markets were essentially flat yesterday for the third consecutive session, underlining the current environment of very limited moves and remarkably low volatility across asset classes. This stands in sharp contrast to the prevailing backdrop of elevated political uncertainty, including ongoing discussions around potential ceasefire and peace negotiations in the Russia-Ukraine conflict. The lack of impact on financial markets is notable. With few macro data releases to guide sentiment, muted price action was hardly surprising.

From a European perspective, the healthcare sector once again stood out with strong outperformance yesterday, driven by company-specific news flow. This contrasts with the US, where healthcare failed to replicate the sector strength seen last week, when performance had been more top-down driven. In the US yesterday, Dow -0.1%, S&P 500 -0.01%, Nasdaq +0.03%, Russell 2000 +0.4%. This morning, Asian markets are mixed. US futures are marginally lower, while European futures point slightly higher.

FI and FX: A quiet start to the week with no major news resulted in a calm market session yesterday. Risk sentiment was slightly negative across equity markets, while EUR credit spreads saw renewed tightening. EUR rates fell marginally, reversing only a small part of last week's increase, while US rates ended slightly higher. GILTS faced pressure due to renewed focus on strained UK public finances and limited political appetite for consolidation. Despite this, EUR/GBP remained steady at 0.8635. EUR/USD drifted lower throughout the session, ending 0.4% down at 1.165. Asian equities are mixed this morning, with US equity futures pointing slightly lower. Brent is trading 1% higher at USD 66.25/bbl.