This rebound follows stronger-than-expected economic data and a partial retreat in US-China trade tensions. In the United States, manufacturing and services data for May have both surpassed expectations.
The composite purchasing managers’ index (PMI) rose to 52.1 from 50.6 in April, pointing to a continued expansion in economic activity. These figures reflect resilience, even as market participants digest President Trump’s newly passed tax bill. The legislation sparked a brief surge in treasury yields, particularly on 30-year bonds, which touched 5.15 per cent.
Federal Reserve Governor Christopher Waller noted that tariff-driven inflation pressures are likely temporary. He signalled that the central bank could consider interest rate cuts in the latter half of the year, provided tariff levels stabilise. Nevertheless, a resurgence in import levies would present a greater challenge for monetary policy.
Meanwhile, European equity markets moved lower, with the Euro Stoxx index slipping by 0.5 per cent. Eurozone economic activity continues to show signs of weakness. The composite PMI dipped below the key 50 level, falling to 49.5. With subdued momentum, market pricing now reflects a 95 per cent likelihood of a 25 basis point rate cut from the European Central Bank in June, with further easing anticipated by year-end.
Currency markets saw the US dollar strengthen broadly against G10 counterparts. Softer euro area data weighed on the euro, while the yen also declined despite reassurances from US and Japanese officials. The New Zealand dollar followed the general trend, drifting back toward 0.5900 against the US dollar.
In New Zealand, attention turned to the Budget Economic and Fiscal Update. The government revised its borrowing programme modestly, increasing the total by NZ$4 billion to 2025/26. NZ Debt Management plans to introduce a new 2050 inflation-indexed bond as part of its four scheduled syndications. Market reaction was positive, with 10-year government bond yields easing to 4.66 per cent after peaking at 4.77 per cent prior to the Budget announcement.
The upcoming government bond tender will offer NZ$450 million across three maturities, with the relatively light issuance expected to be absorbed with ease. Australian bond market movements suggest a softer open for New Zealand yields.
Locally, analysts expect minimal change in quarterly and annual terms. This reinforces the weak consumer spending outlook and underpins a subdued GDP forecast of 0.3 per cent for the March quarter.
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