The trigger for the latest surge in market confidence was Trump’s announcement of a 90-day pause on implementing additional tariffs. The pause applied to non-retaliating countries. While the 10 per cent baseline tariff remains in place, this temporary suspension excludes China. Beijing instead saw its tariff rate increase to 125 per cent.
The announcement sparked a sharp rally in risk-sensitive assets. The S&P 500 surged by around 7 per cent, marking one of its largest single-day gains in recent memory. The improved sentiment also bolstered risk-aligned currencies such as the New Zealand and Australian dollars. Traditional safe havens like the Japanese yen and Swiss franc weakened against the US dollar. The NZD/USD had dipped below 0.5500, before rebounding strongly to trade near 0.5650.
Bond markets were equally turbulent, especially in US Treasuries. The yield on 10-year US bonds briefly touched 4.51 per cent during Asian trade, up 20 basis points on the day. This selloff spread to global bond markets, with yield increases in the UK, Japan, New Zealand, and Australia.
The surge in yields raised concerns about potential structural issues in the financial system. Historically, such moves have prompted intervention from the US Federal Reserve to restore stability. Despite continued volatility, US 10-year yields eventually retreated from their intraday peaks. Short-term rates climbed, leading to a flatter yield curve.
Investor interest was high in the recent US$39 billion 10-year Treasury auction, which saw strong demand and a clearing level slightly below prevailing market rates. Indirect participation reached a record high, helping to restore some market confidence. A 30-year auction is scheduled next.
In commodities, Brent crude dipped below US$60 per barrel before recovering. Gold rallied sharply, marking its largest one-day gain since 2020.
Locally, the Reserve Bank of New Zealand cut the Official Cash Rate by 25 basis points to 3.75 per cent, in line with expectations. The RBNZ cited rising downside risks to inflation and growth from global trade tensions, suggesting room for further easing. NZ bond markets responded with large moves, particularly in long-term yields. The 10-year New Zealand Government Bond yield jumped 21 basis points to 4.76 per cent.
With no major domestic data due, market attention turns to US CPI data and Chinese inflation figures, both of which could offer clues about future central bank policy amid a highly uncertain global backdrop.
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