German stocks rallied and the yield on government bunds climbed the most since 1997 after the presumptive government signalled plans to overhaul borrowing rules to ramp up spending on defence and infrastructure.
The greenback was broadly weaker as investors followed the waxing and waning on US President Donald Trump’s trade war, with temporary industry carve-outs on the 25% tariffs for Canada and Mexico coming for automakers.
The kiwi climbed to 57.15 US cents at 7am in Auckland from 56.48 cents yesterday, and dropped to 52.98 euro cents from 53.19 cents.
Germany’s DAX 30 climbed 3.4%, leading gains across European markets, after the parties hoping to form the next government agreed to create a 500 billion euro infrastructure fund and to exclude defence from tight fiscal rules. The yield on 10-year bunds surged 29 basis points to 2.79%, the biggest one-day move in almost 30 years.
“Germany’s Chancellor-in-waiting Friedrich Merz has announced it will exempt defence spending from limits on fiscal spending and to do ‘whatever it takes’ to defend the country,” Bank of New Zealand senior interest rate strategist Stuart Ritson said in a note. “This contributed to a significant increase in European yields, a stronger euro and large gains for European equity indices.”
Across the Atlantic, stocks on Wall Street advanced, with the Nasdaq Composite up 0.9% and the Dow Jones Industrial Average climbing 0.8% as automakers gained with Ford Motor Co, General Motors Co and Stellantis getting a one-month reprieve on the 25% tariffs imposed on neighbours Mexico and Canada.
No deal
Still, those gains were tempered after Trump appeared to shut the door on tariff relief for Canada after a call with prime minister Justin Trudeau, saying in a post on the Truth Social platform that he hadn’t seen enough action on curbing the flow of fentanyl across the border.
Trump acknowledged the economic impact of tariffs in his speech to Congress on Tuesday, saying there will be a little disturbance but “we’re okay with that”.
Wall Street’s fear gauge – the Chicago Board Options Exchange’s volatility index – eased 1.5% to 23.15
US services sector activity unexpectedly picked up in February, while private employment figures showed private payrolls increased at their slowest pace in seven months ahead of the non-farm payrolls report on Friday.
Brent crude oil futures dropped 2.9% to US$69 a barrel with figures showing US oil inventories rose by more than expected, while gold futures increased 0.7% to US$2,968 an ounce, with a weaker greenback and the elevated uncertainty boosting the allure of the precious metal.
The choppy outlook is expected to weigh on the antipodes today, with Australian futures pointing to a 0.2% decline for the S&P/ASX 200 index. In New Zealand, eight companies on the benchmark index are shedding rights to dividends today.
Local investors largely looked through the shock exit of Reserve Bank governor Adrian Orr on the eve of today’s major economic conference in Wellington, where former Federal Reserve chair Ben Bernanke is the keynote speaker.
On the data radar today, Statistics New Zealand will release December quarter figures for building work put in place.
Reporting by Paul McBeth. Image from Marius Serban on Unsplash.