Bond markets settle down as Fed’s Waller says hike not a done deal

Government bond yields eased off their recent highs as investors pared back their expectations for a rate hike by the Federal Reserve next week after governor Christopher Waller said he’d be willing to support a pause if inflation data warranted it.

The yen continued to rally amid reports the Bank of Japan was leaning towards a rate hike late this month and as traders remain alert to a possible intervention by authorities.

Meanwhile, stocks on Wall Street rallied in that environment, with software companies buoyed by Snowflake’s strong earnings growth, while Nvidia gained after confirming its US$13 billion acquisition of artificial intelligence startup Hugging Face.

That’s set to flow through to the antipodes, with futures pointing to a positive start to the trading day for the ASX and New Zealand’s S&P/NZX 50 index on track to gain this week.

On data watch

The yield on 10-year US treasuries dipped 1 basis point to 4.77% as traders pulled back their bets on the Fed hiking the federal funds rate next week after governor Waller said he would back an increase if upcoming inflation data ran hot but would support holding if the pace of rising prices was easing back to the 2% target.

US jobs data are also in view, with economists predicting the world’s biggest economy added 55,000 jobs last month, with the unemployment rate holding at 4.1%.

“The market does not simply need another strong or weak jobs number; investors will be looking at whether employment is slowing enough to justify the Fed holding rates without suggesting the economy is losing momentum,” Moomoo market strategy consultant Greg Boland said in a note. “That could move both Treasury yields and technology valuations quickly.”

Meanwhile, the yen continued to strengthen after Bloomberg reported the Bank of Japan would likely raise its benchmark interest rate a quarter-point later this month and leave the door open for further increases. At the same time, traders were eyeing potential intervention after US Treasury secretary Scott Bessent this week flagged more activity was likely. The kiwi fell to 91.53 yen at 7am in Auckland from 92.47 yen yesterday.

Stocks on Wall Street extended their gains as bond markets settled down, with the tech-heavy Nasdaq Composite climbing 1.5%, with Snowflake surging 18% after the software company’s quarterly revenue beat expectations.

The S&P 500 was up 1.1% and the Dow Jones Industrial Average climbed 1.2%, with Goldman Sachs, Salesforce and Microsoft leading the blue-chip index higher.

A done deal

Nvidia gained after confirming it would buy AI startup Hugging Face, while Bloomberg reported data centre startup Crusoe signed computing supply contracts worth US$13 billion with Jane Street Group.

OpenAI said it would release its new GPT-6 Astra model with guardrails to stop users from accessing the most advanced cybersecurity capabilities. Separately, OpenAI, Anthropic and SpaceXAI were hit by outages on Thursday in the US.

SpaceX surged 7.6%, climbing back above US$150 for the first time since July, while local favourite Rocket Lab increased 0.5% to US$63.42.

Bitcoin jumped 5.1% to US$81,265 at 7am in the more upbeat mood in markets, stoking gains for crypto-linked companies such as Robinhood and Coinbase, which were at the top of the S&P 500 leaderboard.

Stock markets across the Atlantic were also stronger, with the UK’s FTSE 100 up 0.7%, Germany’s DAX advancing 0.6% and France’s CAC 40 nudging up 0.1%.

The upbeat mood was set to flow through to Australasian markets, with futures pointing to a 0.3% gain for the S&P/ASX 200 index when trading opens across the Tasman, while the kiwi dollar increased to 58.85 US cents at 7am from 58.63 cents yesterday. The NZX 50 was up 0.6% so far this week.

The Australian’s DataRoom column reported ExxonMobil Holdings’ sale of its New Zealand assets would gain pace next week in what was expected to see a breakup of the petrol station chain and terminal assets, the latter of which have been rumoured as a target of NZX-listed Channel Infrastructure.

Moomoo’s Boland said New Zealand’s NZX 50 would likely follow Wall Street’s lead today, with the US jobs figures and oil prices in view ahead of the long weekend in the US. Brent crude oil futures dipped 0.1% to US$95.51 a barrel at 7am.

Local data today include Statistics New Zealand’s June quarter figures for the value of building work put in place.

Reporting by Paul McBeth. Image from Aditya Vyas on Unsplash.