BNZ Research

Our research team offers expert commentary on economics, foreign exchange, fixed interest and credit, to help inform your organisation’s risk analysis and decision making. 

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Currency Research

NZD Corporate FX Update

Jason Wong -

With increased conviction that the Fed tightening cycle is over, the NZD has likely moved into a higher trading range. We have a constructive outlook for 2024.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

A major turning point in the cycle?

Jason Wong -

Last week was monumental for financial markets, with large moves across equities, bonds and currency markets. Risk appetite bounced higher as the market embraced a view that the Fed hiking cycle is over. This had an outsized impact on the NZD, with a more than 3% gain for the week to 0.60, despite lower NZ-global rate spreads after softer than expected NZ labour market reports saw the market step towards a view that the NZ tightening cycle might also be over.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

NZD Corporate FX Update

Jason Wong -

The NZD has been in a consolidation phase near its lows for the year, stuck in a range of about 0.5860-0.6050 since early August. Over the short-term we continue to see two-sided risks. Israel’s “war” against Hamas is a new risk event to consider. The market has taken a sanguine view, on the assumption that Iran remains out of the conflict, minimising the disruption to oil markets and wider market turmoil. Being a risk-sensitive currency, a marked escalation would be NZD-negative.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

Economy Watch

Damp Squib From The Election

Craig Ebert -

One of the things we wondered about the recent decrease in job ads, was how much of it reflected uncertainty surrounding the 14 October election. The corollary being that advertising might rebound, once the result was known. Well, the broad outcome of the election was clear by November, yet job ads continued to abate in the month. Their seasonally adjusted fall, of 4.8%, was the seventh in eight months. This affirmed a decidedly negative trend.

More migration, higher rates!

Stephen Toplis -

The RBNZ appears to have been spooked by soaring net immigration. It seems the expectation of rising demand and house prices on CPI inflation has dominated the Monetary Policy Committee’s thinking, as opposed to focussing on the disinflation being created by a rapidly easing labour market.

Downside Risk To Q4 CPI Forecast

Doug Steel -

Today’s selected price indexes from Stats NZ – including some new indicators – point to downside risk to our Q4 CPI forecast which sits at 0.7% q/q and 4.9% y/y.
To start with, food prices fell 0.9% in October, which was a bit more than the small drop we had pencilled in for the month. Importantly, the undershoot to our priors was not in volatile fruit and vegetable prices (that didn’t fall as much as we thought they might), but rather spread across the other categories. This suggests October’s downside surprise might not unwind over coming months (relative to our forecasts for November and December). If so, this, alone, would lower Q4 CPI by 0.1ppt relative to our current view.

Lost momentum

Craig Ebert -

New Zealand’s services sector went back into contraction in October, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for October was 48.9 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 1.7 points from September, and well below the long-term average of 53.5 for the survey.

BusinessNZ chief executive Kirk Hope said that the return to expansion in September was short lived, with the key sub-index results for Activity/Sales (47.4) and New Orders/Business (51.9) showing a lower level of activity in October. Employment (49.3) returned to slight contraction, while Supplier Deliveries (49.8) remained in a tight band of activity that has been evident over the last three months.

“Despite the October result falling back into contraction, the proportion of negative comments stood at 58.2% for October, which was down from 61.8% in September and 63.9% in August. Overall, negative comments continued to be strongly dominated by the recent General Election, as well as a general slowdown in the economy”.

Looking at the broader perspective, BNZ Senior Economist Craig Ebert said that "combined, the PSI (48.9) and PMI (42.5) paint a picture of economic angst. This counsels caution around GDP for Q3, after it posted a surprising gain of 0.9% in Q2”.

Downward spiral

Doug Steel -

Activity in New Zealand’s manufacturing sector dropped further during October, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for October was 42.5 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 45.1 in September, and the lowest level of activity for a non-COVID affected month since May 2009. The October result represented the fifth consecutive drop in activity levels, and significantly below the long-term average activity rate of 52.8.

BusinessNZ’s Director, Advocacy Catherine Beard said that the October result represented a further downward spiral of activity for the sector, which was seen across all the sub index measures.
“The key sub index measures of Production (41.5) and New Orders (44.1) fell back from September, with the former at its lowest level for a non-COVID month since May 2009. Employment (43.3) decreased a further 1.8 points from September, while Deliveries (42.9) dropped 1.4 points".

The proportion of negative comments stood at 65.1%, which was down from 68.8% in September and 66.7% in August. Numerous manufacturers noted both softening orders, as well as patchy/slowing sales for October.

BNZ Senior Economist, Doug Steel stated that "today’s PMI is not a good look for GDP and employment growth. Our GDP forecasts already include a decline in the manufacturing sector in the second half of 2023. There’s a chance that decline is bigger than we think, if the PMI does not bounce in the final months of the year".

More Down

Craig Ebert -

October’s job advertising fell a more definitive 5.6% in October, fortifying the downward trajectory in the trend. Negativity also remained a feature of the annual comparisons, with October’s job ads down 29.4% on this basis. They were also starting to slip beneath pre-COVID yardsticks – and clearly so in per capita terms, considering the population has grown 4.1% since 2019.

Labour Market Tightness Abating

Doug Steel -

It felt like today’s labour market data were always going to struggle to deny the clear messages, from a host of other indicators, suggesting that prior tightness in the market is abating, and rather rapidly.
In the event, the plethora of today’s data simply confirmed and reinforced that message. It was writ large across the headline indicators from higher unemployment, slowing wage inflation, and falling employment.

Businesses Reflect Positively on Election

Craig Ebert -

This afternoon’s ANZ business outlook survey showed a big jump in net confidence to +23.4% in October, from +1.5% in September. Own-activity expectations strengthened to +23.1%, from +10.9%. These are now back up to about average, having struggled in negative territory over the first half of the year.

CPI confirms RBNZ on hold

Stephen Toplis -

Today’s CPI outturn should extinguish any talk the RBNZ might contemplate raising its cash rate when it delivers its November 29 Monetary Policy Statement. The third quarter headline inflation reading of 1.8% was well below the RBNZ’s pick of 2.1%. This at a time when the labour market is easing aggressively, and economic activity is under extreme pressure.

Some spring in step

Craig Ebert -

New Zealand’s services sector experienced a return to expansion in September, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for September was 50.7 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 3.0 points from August, although still below the long-term average of 53.5 for the survey.

BusinessNZ chief executive Kirk Hope said that the September result broke the trend of three consecutive months in contraction for the sector. New Orders/Business (53.9) led the charge, while Activity/Sales (50.9) picked up 6 points. In contrast, Employment (50.6) showed weaker expansion for the month, while Stocks/Inventories (47.9) fell back into contraction after two months in expansion.

“The proportion of negative comments stood at 61.8% for September, down slightly from 63.9% in August. Overall, negative comments continued to be strongly dominated by uncertainty regarding the upcoming General Election, as well as the cost of living”.

BNZ Senior Economist Craig Ebert said that "the seasonally adjusted reading of 50.7 was clearly better than August’s 19-month low of 47.7. However, it was also clearly south of its long-term average of 53.5. Stabilised but hardly buoyant”.

Entrenched contraction

Doug Steel -

New Zealand’s manufacturing sector slipped further into contraction during September, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for September was 45.3 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 46.1 in August, and the lowest level of activity for a non-COVID affected month since May 2009. The September result is also significantly below the long-term average activity rate of 52.9.

BusinessNZ’s Director, Advocacy Catherine Beard said that the September result continued an entrenched downward trend in activity over the last four months.

“The manufacturing sector has now been in contraction for seven consecutive months, with little sign it is showing any improvement. The key sub index measures of Production (44.6) and New Orders (44.9) show weak activity, while Employment (45.2) and Deliveries (44.3) both fell from August."

The proportion of negative comments stood at 68.8%, which was up slightly from 66.7% in August, but down from 72% in July. Manufacturers continued to note declining sales, General Election uncertainty and ongoing rising costs as the key negative influences on activity for September.

BNZ Senior Economist, Doug Steel stated that "the trend remains firmly downward. It is a poor signal for the likes of manufacturing GDP growth. It is always difficult to know the precise drivers of any particular PMI result but judging by respondent comments falling sales, rising costs, and election uncertainty are currently all part of the mix".

Recovery Inkling Takes A Knock

Craig Ebert -

September’s 2.3% decline in job advertising validated the caution we expressed about the bounce that occurred for August. September’s result knocked the idea that some sort of rebound was underway. That said, the small degree of its fall also suggests the downtrend, which has been aggressive since the extreme highs of 2022, might have largely played itself out. For now, at least, a holding pattern seems more the impression from job ads. And at levels, overall, that are roughly equivalent with what transpired in 2019 (pre-COVID).

No rate hike this year

Stephen Toplis -

here was nothing in today’s Monetary Policy Review to suggest the Reserve Bank has meaningfully changed its view since the August Monetary Policy Statement. At the margin there is some suggestion the cash rate may need to stay elevated at 5.5% for longer than previously thought but there is no suggestion that the Bank is contemplating any move in the cash rate this side of Christmas.

Unemployment surge cemented in

Stephen Toplis -

The clear message in today’s NZIER Quarterly Survey of Business Opinion (QSBO) is that the labour market continues to soften and aggressively so. We have long said the secret to stabilising prices in the medium term is to alleviate the excess demand that had developed in the labour market during the COVID era. We maintain that view.

All under control? Maybe.

Stephen Toplis -

There were disconcerting signs in today’s ANZ Business Survey that inflation is not falling as fast as the RBNZ might like. Disconcerting this may be but not altogether surprising given the ongoing increases in input costs that the business sector is facing. Top of the list, in this regard, are surging oil prices.

Recession rounded away

Stephen Toplis -

It was all so predictable. Q2 GDP printed very solid. Indeed, more solid than expected resulting in plenty of back patting that the recession is now over. To cap things off, enthusiasm for New Zealand’s achievements grew with the news that, apparently, there was no contraction in Q1 anyway so there was no recession in the first place.

All this goes to show how fickle we can be. The only reason there wasn’t a recession was that Statistics New Zealand rounds its numbers to one decimal point. Had it published to two decimal places -0.01% then all those headlines would have to be rewritten. And, by the way, the expenditure measure of GDP still reported a clear cut second quarter of decline in Q1.

External Deficit Coming Back from The Brink

Craig Ebert -

New Zealand’s current account deficit has more clearly come down from its record heights of calendar 2022. But then it needed to, and needs to slim by a lot more yet, before it’s perceived as being out of the danger zone.

From the figures released by Stats NZ this morning, the external deficit trimmed to 7.5% of GDP in the year to June 2023. This was a decent amount under market (and RBNZ) expectations of an 8.0% result. We anticipated 7.9%.

Uncertain times

Doug Steel -

New Zealand’s services sector experienced its third consecutive drop in activity levels, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for August was 47.1 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 0.9 points from July, and almost at the level seen back in January 2022. It was also well below the long-term average of 53.5 for the survey. BusinessNZ chief executive Kirk Hope said that the August result showed little in the way of a road to recovery. While Employment (50.9) went back into slight expansion, Activity/Sales (43.4) remained in strong contraction and New Orders/Business (47.3) was in contraction for a second consecutive month. In addition, Supplier Deliveries

Struggle Street

Craig Ebert -

New Zealand’s manufacturing sector continued to lose momentum in August, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for August was 46.1 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 46.6 in July, and the lowest level of activity for a non-COVID affected month since June 2009. The August result is also well below the long-term average activity rate of 52.9.

Financial Markets Wrap

Financial Markets Wrap: November Nirvana

Jason Wong -

• The market embraced a view that the tightening cycle was over for most major central banks
• This fuelled increased risk appetite, to its highest level in two years, alongside big falls in global interest rates
• The NZD outperformed, with a gain of 6% against the USD and gains on all the key crosses

Commodity currencies underperform in October

Jason Wong -

• The NZD fell 3% in October, the worst of the key majors, against a backdrop of underperforming commodity currencies
• Risk appetite was a drag for the NZD, with equity and bond markets showing negative returns for a third successive month
• The USD was broadly stronger, but after an early October peak showed no further gain despite positive economic releases

NZD ends September strongly, off a low base

Jason Wong -

• A late recovery saw the NZD as the best performing major currency in September against a backdrop of solid USD support
• A key theme was higher and steeper yield curves, seeing long rates at their highest level in over a decade
• The heavy influence of the PBoC prevented further yuan weakness, lending some support to the NZD

Interest Rate Strategy

Outlook for Borrowers: Post November MPS

Stuart Ritson -

The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady as expected, at 5.5%, at the Monetary Policy Statement (MPS). However, the accompanying statement was significantly more hawkish than we, and the market, had anticipated. The Bank noted that inflation is too high, and it remains ‘wary of ongoing inflationary pressures.’ It even debated a rate hike at this meeting and outlined the OCR would likely need to rise further if inflationary pressures were to be stronger than expected.

Markets Outlook

Of Growth, Balance, and Inflation

BNZ Research -

It is the last main data rush before Christmas this week. And a lot of it has potential to alter thoughts around the near outlook for monetary policy. Q3 GDP on Thursday is the focal point. We expect a flat result for the quarter’s growth but wary of the many moving parts that could cause surprise. Selected monthly price indexes will give guidance for Q4 CPI views while the latest net migration numbers will gain more attention given recent attention by the RBNZ and PM. There’s also updates on the balance of payments, card transactions, PMI, visitor numbers, and possibly housing. Big week.

BNZ Markets Today

Stuart Ritson -

US equity markets gained, and treasury yields retraced from an earlier move higher as investors look ahead to key data on the US labour market. The US dollar was broadly weaker, and the yen advanced to its strongest level since August following hawkish comments by Japanese policy makers. Oil prices were little changed after touching a five-month low earlier in the week with the market unconvinced that OPEC+ production will be sufficient to boost prices.

On Watch

BNZ Research -

The market isn’t convinced of the RBNZ rate track. Ultimately, economic developments will inform on the way forward. Today’s trade data revealed a lot of volatility. The week’s remaining GDP component indicators will help finalise estimates for Q3 growth numbers to be released next week. There are also some fiscal updates and commodity price news to monitor.

In with the new…

BNZ Research -

With the installation of the ACT/New Zealand First/National coalition government, and confirmation of its policy settings, we thought it worthwhile providing a brief overview of our thoughts as to the likely financial market and wider economic implications of the changes afoot.

November MPS Preview

BNZ Research -

Financial markets are now pricing three cash rate cuts in 2024. We’re not convinced the RBNZ is ready for this. There may be some push back when it releases its November Monetary Policy Statement. That said, inflation and the labour market are moving in the “right” direction and faster than the Bank had expected. This too needs to be acknowledged with a stance that may well be a tad more dovish than the Bank’s August missive.

Growth Struggles; New Inflation Series Awaited

BNZ Research -

Evidence continues to mount that the NZ economy is struggling to grow. The PMI has gone from bad to worse, while the PSI has slipped back into contraction. Softer activity appears to be feeding back into labour market outcomes. This week brings some new monthly inflation series. It is not a monthly CPI, but the new data will provide monthly guidance on more components of the (still) quarterly CPI. They have the potential to influence near term CPI forecasts.

Waiting for policy

BNZ Research -

The election results are in. New Zealand now has a National-led government. But it will need the support of both NZ First and ACT. It will take a few days to sort the exact shape of the government and its policy mix but the broad thrust of where the triumvirate will head is known and described herein.

BNZ Markets Today

Jason Wong -

Ahead of the Fed announcement this morning, the US 10-year rate fell 12bps to 4.8%, with Treasury looking to slow the pace of increase in long-term debt issuance and a soft ISM manufacturing print further supported the market. There was little reaction to the Fed’s on-hold rates decision. NZ labour market data drove lower rates and an NZD, but the currency reaction reversed overnight.

Labour Market Migrating Toward a Better Balance

Stephen Toplis -

There is a lot to suggest New Zealand’s jobs market is moving towards a better balance and that this will become more obvious as time wears on. That said, Wednesday’s Q3 labour market reports seem more likely to show a gradual rate of cooling, rather than anything dramatic at this stage. With this, we expect wage inflation to be forming a clearer peak.

Pricing Risk

BNZ Research -

The cost of insurance is rising, rapidly. Higher insurance costs for the likes of dwellings, contents, and vehicles were noticeable in last week’s CPI data, even though overall headline inflation came in under expectations. Insurance price movements potentially reflect inflation as well as relative price shifts. Distinguishing between the two is important for the central bank. Regards data this week, we wonder if consumer confidence will show any extra spring lift, and post-election.

It’s not over yet?!

BNZ Research -

National/ACT is the new government on election night but there’s a good chance NZ First is needed post the counting of special votes. Whatever the exact shape of the new mob, we think the likely policy mix is unlikely to change the behaviours of the RBNZ. With growing evidence of a weak(ening) economy and inflation trending lower we still think rates are on hold.

Changing the guard?

BNZ Research -

This week will mark the end to a single party government in New Zealand. Goodness knows what we will end up with but one thing’s for sure, it’s going to take some time before we ascertain the policy mix of the new regime. In the interim we expect upcoming data to confirm that the economy is moribund. The good news is this will help dampen inflation as will the recent decline in oil prices and RBNZ CPI weightings revisions.

Holding Hands

BNZ Research -

The RBNZ’s Monetary Policy Review on Wednesday takes centre stage this week. We think the RBNZ will hold the OCR at 5.50%, as it delivers its one-page missive and record of meeting at 2pm. As we detailed in last week’s preview, we see this course of action as the balance of many competing forces and uncertainties.

RBNZ October MPR Preview

BNZ Research -

Labour market pressures are dissipating and the economy looks unlikely to build any momentum for some time. This suggests the Reserve Bank should be adopting a more relaxed stance than is currently the case. On the other hand, near term CPI inflation will surprise to the upside and the housing market appears to be turning more rapidly than the RBNZ expected. This argues for a tighter monetary policy stance. With such competing tensions, and the uncertainties surrounding the upcoming election, we think the Bank would be best advised to play a straight bat, acknowledge the risks that pervade but produce a steady as you go conclusion.

A Bounce… Along The Bottom

BNZ Research -

Thursday’s GDP figures headline this week’s economic schedule. Should the economy post a rebound in activity in these figures for Q2 – as we think it will – it will no doubt encourage discussion and commentary of the country bouncing out of recession. While that would be technically true, we see it has growth bouncing along the bottom. We see annual growth slowing to 1.3% in Q2 and then to about zero in the coming quarters. The latest PMI and PSI results are consistent with growth struggling into the second half of 2023.

Markets Today

BNZ Markets Today

Stuart Ritson -

US equities gained and treasury yields increased after US labour market data was stronger than expected in November. The S&P advanced 0.4% for its sixth consecutive week of gains and closed above 4600 for the first time in 2023. Higher treasury yields supported the US dollar. Oil prices rebounded from 5-month lows and were underpinned by news that the US intends to refill its Strategic Petroleum Reserve.

BNZ Markets Today

Jason Wong -

Another day, another extension of the global bond market rally, this time driven by weaker oil prices and a soft US ADP employment report being a supporting factor. European 10-year rates are down to their lowest levels since May, while the US 10-year rate has traded as low as 4.1%. Currency moves have been small, with the NZD hovering around 0.6150.

BNZ Markets Today

Jason Wong -

Global rates have fallen to fresh lows, following a series of bond market friendly developments. The US 10-year rate is currently down 8bps to 4.17%, with even larger moves in European and Australian 10-year rates. US equities are flat while the USD is broadly stronger, with the NZD nudging down to 0.6140.

BNZ Markets Today

Jason Wong -

Newsflow has been light to start the week and it has begun with a “risk-off” tone, a reversal of the recent trend. US Treasury highs have jumped higher, US equities are lower, and the USD is broadly stronger.

BNZ Markets Today

Stuart Ritson -

The S&P extended recent gains and closed at a 20-month high while treasury yields fell following a softer than expected manufacturing ISM report and comments from Federal Reserve Chairman Powell that failed to deter investor expectations of rate cuts. Investment grade credit spreads reached the tightest level for 2023. The US dollar came under pressure following Powell’s remarks.

BNZ Markets Today

Stuart Ritson -

US equity markets were little changed in early afternoon trade and are consolidating the large gains made in November. Global bonds are higher in yield while the US dollar advanced. It was reported that OPEC+ members agreed to make an additional 1 million barrels a day of supply cuts. The agreement was in line with expectations and Brent crude prices were stable near US$83 per barrel.

BNZ Markets Today

Jason Wong -

Bond markets have been supported by some market-friendly data, extending the recent rally and seeing the US 10-year rate fall to as low as 4.25% overnight. Aided by a stronger USD overnight, the NZD has reversed yesterday’s post-MPS rally, after the RBNZ’s surprising forecast update which showed an increased chance of tighter policy and a higher-for-longer rate track. NZD/USD is trading back around 0.6150.

BNZ Markets Today

Jason Wong -

US Treasury yields are lower, led by the short end, the USD is weaker and US equities are higher, following comments by Fed Governor Waller which seemed to support the market narrative that the Fed’s tightening cycle was over. The NZD has pushed up to fresh highs, approaching 0.6150.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week, as the US returns from holiday. US equities are currently flat, US Treasuries show a modest fall in yields across the curve and currency movements have been small. The NZD is trading little changed from last week’s close after a brief look just over 0.61 overnight, a fresh three-month high.

BNZ Markets Today

Stuart Ritson -

It was a subdued end to the trading week across global markets in the absence of first-tier economic releases and with a holiday-shortened session for US markets. The S&P was near unchanged, and closed 1% higher on the week, which was the fourth straight weekly advance. The US Dollar extended recent declines, global bond yields moved higher and oil prices fell after OPEC+ delayed a scheduled meeting amid a dispute about output quotas.

BNZ Markets Today

Jason Wong -

Markets are quiet, with the US on holiday but European bond yields have pushed higher, with slightly better than expected PMIs, a backdrop of hawkish ECB commentary and Germany suspending its debt limit all in the mix. Currency movements have been modest overnight, and the NZD has held onto its small gain seen during local trading hours and currently sits around 0.6050.

BNZ Markets Today

Jason Wong -

US jobless claims and inflation expectations data weren’t market-friendly, sending US Treasury yields higher, reversing earlier declines, while providing broad support for the USD. Thus, the NZD hasn’t managed to hold onto its recent gains and has fallen to just over the 0.60 mark.

BNZ Markets Today

Jason Wong -

Overnight trading conditions have been uneventful, but the NZD has managed to hold on to most of the gains seen during local trading hours from the tailwind of stronger Asian currencies. The US 10-year rate has consolidated near its recent two-month lows, with the drift down in global rates providing further support to the yen.

BNZ Markets Today

Stuart Ritson -

Global equity markets continue to consolidate recent gains. The S&P is up 0.5% in early afternoon trade while major European indices were close to unchanged. The Nikkei reached a 33-year intra-day high yesterday before closing down 0.6%. Japanese stocks have advanced almost 30% this year, underpinned by strong company results, a weak Yen and progress on corporate governance. Global bond yields are marginally higher, and the US dollar has extended recent losses.

BNZ Markets Today

Stuart Ritson -

US equities made modest gains on Friday in the absence of first-tier economic data or other market drivers. The S&P ended up 0.1%, and consolidated above 4,500, having advanced close to 2% during the week. US investment grade credit spreads were little changed, and are close to the tightest levels for 2023, after the recent strong performance in risk sensitive assets. The US dollar was weak across the board and 10-year US treasuries were stable.

BNZ Markets Today

Jason Wong -

A risk-off vibe has been overhanging the market, with commodity currencies underperforming over the past 24 hours, albeit with no fresh damage done to the NZD and AUD overnight. US Treasury yields are lower, with the market supported by a series of weaker US economic indicators.

BNZ Markets Today

Jason Wong -

Following yesterday’s substantial decline, US Treasury yields have reversed course, seeing the 10-year rate up 11bps from the NZ close. This followed data showing slightly stronger than expected retail sales but much weaker PPI inflation. Higher rates haven’t got in the way of further upside in US equities, while currency movements have been mainly modest overnight and the NZD has consolidated over the 0.60 mark.

BNZ Markets Today

Stuart Ritson -

There were large moves across global markets as US CPI printed below consensus expectations. The data increased the likelihood that the US Federal Reserve hiking cycle is complete and the next move in the policy rate will be a cut in 2024. Equities made strong gains – the S&P is up 1.8% in early afternoon trade – while bond yields fell sharply and the US dollar lost ground.

BNZ Markets Today

Jason Wong -

Market movements have been modest ahead of tonight’s key CPI release, with little net change in US equities and Treasury yields and modest changes in currencies. The AUD has outperformed, seeing NZD/AUD push lower as the NZD remains flat just under 0.59.

BNZ Markets Today

Stuart Ritson -

US equities extended higher on Friday with the S&P moving back above the 4,400 level. The index is more than 7% above the late October low point. Weaker than expected consumer sentiment and earlier comments by Fed chair Powell, that the central bank won’t hesitate to tighten policy further if needed to contain inflation, failed to undermine the positive risk sentiment. Treasuries and the US dollar were confined to narrow ranges. Oil prices gained 2% reducing the weekly fall to 4%.

BNZ Markets Today

Jason Wong -

Another day of light news sees further market consolidation. The NZD has outperformed, pushing up towards 0.5950 and it is higher on the crosses. The US 10-year rate has pushed higher after trading at a fresh six-week low yesterday afternoon.

BNZ Markets Today

Jason Wong -

Newsflow remains light with modest changes in pricing across equities, bonds and currencies, as the market shows signs of consolidation following last week’s significant moves.
The key market mover has been lower oil prices, with Brent crude down 2½% for the day after yesterday’s 4.2% drop, seeing it trade below USD80 per barrel for the first time since July. When prices were above USD90 the narrative was very tight market conditions, with record demand and tight supplies leading to projections of falling inventories. The focus at the moment is apparently weaker demand, led by China’s tepid economy, while Russian export shipments are running near a four-month high, according to Bloomberg tracking data.

BNZ Markets Today

Stuart Ritson -

Global equities are consolidating the large move from the previous week with the S&P up 0.2% in early afternoon trading amid a quiet economic calendar. The US Dollar has made broad-based gains while global bonds are lower in yield. In commodity markets, oil prices have fallen close to 3%, to the lowest level in more than 3 months, on concerns about global growth following weak Chinese trade data.

BNZ Markets Today

Jason Wong -

It has been a quiet start to what looks to be a quiet week ahead. Equity markets have consolidated while US Treasury yields has pushed higher after last week’s large fall. Currency movements have been modest, with the NZD and AUD slipping after last week’s strong gains.

BNZ Markets Today

Stuart Ritson -

US nonfarm payrolls undershot expectations contributing to a further rally across global bond markets. 10-year US treasury yields fell 9bps on Friday and closed at 4.57%, having fallen 30bps during the week. Risk sensitive assets performed well with the S&P up 1%, taking its weekly advance to almost 6%, which was the largest since June last year. Investors are increasingly confident that the tightening cycle by global central banks is complete. The US dollar lost ground aligned with the pullback in treasury yields and positive risk sentiment.

BNZ Markets Today

Stuart Ritson -

Risk sensitive assets have traded strongly in the aftermath of the FOMC as investors gain confidence that the aggressive monetary tightening cycle is coming to an end. The S&P is up more than 1.5% and is on track for the largest one-day gain since May. Equity indices in Europe and Asia also posted strong gains. Longer dated treasury yields extended lower and the dollar index fell but recovered off the lows. The market now looks ahead to key US labour market data this evening.

BNZ Markets Today

Jason Wong -

It has been a mostly uneventful end to the month, despite the heavy event calendar. The key market move has been a weaker JPY, even in the face of a further watering down of its yield curve control policy. There was a change in direction in US Treasuries and the USD after the US employment cost index came in slightly stronger than expected, although month-end flows could well have been a contributing factor. Broad-based USD strength sees a weaker NZD, with some support just over 0.58.

BNZ Markets Today

Jason Wong -

Risk appetite has begun the week on a positive note, with the market taking a sanguine view of developments in the Middle East. Equity markets are higher, oil prices are down 3% and the USD is broadly weaker. US Treasury yields have pushed higher, with nerves ahead of the Treasury’s refunding announcement and a Nikkei report that the BoJ will discuss a further tweak of its yield curve control policy.

BNZ Markets Today

Stuart Ritson -

Global equities ended the week on a soft note with geopolitical risks and an underwhelming corporate earnings season undermining market sentiment. The S&P closed 0.5% lower taking weekly losses to more than 2%. The market has now entered a ‘correction’ having declined more than 10% from the peak near 4600 in July. Oil and gold prices increased with gold trading above $2,000 an ounce for the first time since May. US treasuries gained with the front-end outperforming while the US dollar index ended little changed.

BNZ Markets Today

Stuart Ritson -

Investor risk sentiment remains fragile with global equities extending recent losses amid disappointing earnings from large US tech companies. The S&P is down more than 1%, falling further below the 4,200 level which formed the topside of the range through the first half of the year. Major equity benchmarks also declined in Europe and Asia. US treasury yields are lower, and the dollar index is little changed.

BNZ Markets Today

Stuart Ritson -

US equities traded lower with the S&P down close to 1.5% in afternoon trade as US treasury yields moved sharply higher. The move in treasuries contributed to a stronger US dollar. European stocks ended little changed while initial gains by Asian equities, after China announced new debt issuance and a higher budget deficit, faded. The Hang Seng China Enterprises Index was up more than 3% intraday before closing 1% higher.

BNZ Markets Today

Jason Wong -

The key market movement overnight has been broad USD strength, seemingly kicked off after some weak European PMI data, but it might also just be a case of an unwind of the previous day’s move. NZD/AUD has gone sub-0.92, ahead of key Australian CPI data today. The US 10-year rate has sustained the move lower seen in the previous session.

BNZ Markets Today

Jason Wong -

The bond market has been wild, with the US 10-year rate trading an 18bps range overnight on little news, consistent with a fickle market, with a sharp fall to 4.83% after piercing up through the 5% mark for the first time since 2007. The sharp drop in yield supported a turnaround in US equities and pushed the USD lower. The NZD traded at a fresh year-to-date low just over 0.58 before recovering up through 0.5850.

BNZ Markets Today

Jason Wong -

Against a backdrop of weaker risk appetite, commodity currencies have underperformed over the past 24 hours, with the NZD trading at a fresh low for the year before recovering. Trading has been whippy over the past hour or two in response to a speech by Fed Chair Powell, with a fickle market responding to both dovish and hawkish soundbites. The US 10-year rate traded at a fresh 16-year high of 4.99% but the USD has been broadly weaker overnight.

BNZ Markets Today

Stuart Ritson -

Global bonds markets remain under pressure with US treasuries making fresh multi-year highs ahead of a widely anticipated speech by Fed Chair Powell. The rise in yields contributed to a pullback in equities – the S&P was down 0.7% in early afternoon trade – and a higher US dollar. NZD/USD made fresh 2023 lows below 0.5860.

BNZ Markets Today

Jason Wong -

There has been plenty of news to digest. The NZD and AUD are at opposite ends of the leaderboard for the day after a weaker than expected NZ CPI print and more hawkish than expected RBA meeting minutes, seeing narrower NZ-Australia rate spreads and NZD/AUD down nearly a cent. Much stronger than expected US retail sales drove higher Treasury yields, but the blip up in the USD was short-lived, speaking to long USD positioning. There was also a flash crash in USD/JPY after a Bloomberg report on upcoming BoJ deliberations.

BNZ Markets Today

Jason Wong -

Newsflow has been light to start the week but the market has adopted a “risk-on” tone, after heading into the weekend on a cautious note that had seen the VIX index close above 19 and sending our risk appetite index back below 50% at the end of last week.

BNZ Markets Today

Stuart Ritson -

Rising investor risk aversion impacted global markets into the end of last week amid concerns about an escalation in the conflict between Israel and Hamas and the potential for it to spread more widely. Global equities fell – the MSCI world index ended down nearly 1% - and flows into safe haven assets picked up. The VIX measure of S&P implied volatility gained the most since March, US treasury yields decreased and the US dollar index moved higher.

BNZ Markets Today

Jason Wong -

Focus was on the US CPI report overnight and a strong underbelly of inflation played to the higher for longer rates narrative, driving US rates and the USD much higher. The NZD and AUD performed poorly overnight, with the NZD languishing back down at 0.5930.

BNZ Markets Today

Stuart Ritson -

Global markets were generally subdued overnight with investors looking ahead to key US CPI data this evening and the release of the minutes from the September FOMC meeting where the US Federal Reserve held rates steady at a 22-year high of 5.5%.

BNZ Markets Today

Jason Wong -

The market is currently taking a sanguine view of the war underway between Israel and Hamas, with oil trading sideways, sustaining the near-4% gain yesterday, equities gaining ground and no evidence of a safe-haven bid in currencies.

BNZ Markets Today

Jason Wong -

Conflict between Israel and Hamas that escalated over the weekend gripped the market’s attention as the new week kicked off. Weaker risk appetite initially enveloped markets, with asset prices initially moving in their typical direction after such a major geopolitical event – global equities weaker, oil prices higher, and bond markets receiving a safe-haven bid alongside the USD. But not all moves have been sustained, with the S&P500 now higher and the NZD surprisingly recovering up through 0.60.

BNZ Markets Today

Stuart Ritson -

US nonfarm payrolls easily beat expectations at the end of last week resulting in significant moves across asset markets. US bond yields surged to fresh cycle highs before retracing with similar price action in the US Dollar which rallied initially before losing traction. The S&P erased early losses and closed 1% higher. Oil prices were little changed but still made the largest weekly fall since March, amid concerns about weaker global demand and elevated interest rates. Rising geopolitical risk in the Middle East is likely to support oil prices as well as dampen investor risk sentiment.

BNZ Markets Today

Stuart Ritson -

US equities slipped in overnight trade though remained above the 3-month lows reached earlier in the week at the height of the bond market selloff. Oil prices extended lower having suffered the largest daily decline in a year the previous day. Brent crude fell to lows near US$84 per barrel, down 14% from the late September highs. Global bond yields are lower with more subdued market moves after the recent volatility and the US dollar is weaker.

BNZ Markets Today

Stuart Ritson -

US Treasury yields pulled back from 16-year highs reached in early European trade in a move supported by softer than expected US labour market data. The retracement provided some respite for investor risk sentiment which was under pressure from the relentless move higher in real yields in recent days. US equities recovered off the lows and the US Dollar weakened. Oil fell to the lowest level since early September with Brent crude prices close to US$10 below the recent $97.50 peak.

BNZ Markets Today

Jason Wong -

It’s a daily case of wash, rinse, repeat, with higher rates, steeper curves, a stronger USD and weaker equity markets, with a strong US JOLTS report adding to the damage.

BNZ Markets Today

Jason Wong -

The new month has begun with more of what we saw in September – higher and steeper yield curves with fresh highs in long-term rates being set, those higher rates negatively impacting the equity market and weaker risk appetite and economic resilience supporting the USD.

BNZ Markets Today

Stuart Ritson -

Global markets were generally subdued into month-end. Early gains in US equities faded with the S&P ending little changed on the day. The S&P fell more than 5% in September amid concerns about monetary policy remaining at restrictive levels for a longer period. Global bond yields fell on Friday, aided by signs of easing inflation in the Eurozone and the US, but ended the month with large losses.

BNZ Markets Today

Jason Wong -

Another day, another bond market sell-off with fresh highs in global rates, although the net change in the US 10-year rate has been small, after some reversal. Higher risk appetite sees a recovery in US equities and a broadly weaker USD. The AUD has been the top performer, while the NZD has recovered to 0.5960.

BNZ Markets Today

Jason Wong -

It’s a case of more of the same overnight, with weaker equity markets in the face of fresh cycle highs for bond yields with steeper curves, higher oil prices and a stronger USD.

BNZ Markets Today

Jason Wong -

Risk sentiment is weaker in overnight trading, with a higher VIX and US equities down over 1%. The US 10-year Treasury continues to trade near its highest level since 2007. The USD is broadly stronger, although with only small moves, leaving NZD near 0.5950.

BNZ Markets Today

Jason Wong -

Newsflow has been light but that hasn’t stopped a further sell-off of global bond markets, with the US 10-year Treasury trading at a fresh 16-year high and Germany’s 10-year rate at a 12-year high. The DXY USD index rose to a fresh high for the year. The NZD has been surprisingly resilient, holding steady around 0.5960, amidst further pessimism around China, seeing NZD/AUD push higher.

BNZ Markets Today

Jason Wong -

US Treasuries ended the week with a relief rally, the 10-year rate closing Friday down 6bps after trading at its highest level since 2007. The S&P500 fell for a fourth consecutive day. Currency moves were modest, with a weak yen after the BoJ maintained a dovish stance. The NZD saw a modest gain on Friday night, closing the week at 0.5960, to be the best of the majors for the week, up 1%.

BNZ Markets Today

Jason Wong -

Markets have been jittery following the Fed’s hawkish-hold yesterday, while in a close call the BoE opted to leave rates unchanged, for the first time in nearly two years. Steeper yield curves have been the order of the day, with long-dated global rates trading at fresh multi-year or multi-decade highs across many countries. Equity investors are showing some nerves, with notable falls across Europe and the US. After hitting a fresh six-month high, the USD DXY index is now flat for the day. After briefly going sub-0.59, the NZD has consolidated in familiar territory back over 0.59.

BNZ Markets Today

Stuart Ritson -

In a hawkish hold, the US Federal Reserve left the target range for the Fed Funds rate unchanged at 5.25-5.50%, as was widely anticipated and signalled rates are likely to stay higher for longer. The committee said it remained ‘highly attentive to inflation risks’, noting that economic activity had been expanding at a ‘solid pace’. The Fed maintained a tightening bias and repeated language saying officials will ‘determine the extent of additional policy firming that may be appropriate.’

BNZ Markets Today

Jason Wong -

Ahead of a busy week, market movements have been modest. The USD is slightly weaker, with a small fall overall, and the NZD has consolidated just over 0.59. US Treasury yields are well contained with a flattening bias and US equities show a small lift.

BNZ Markets Today

Stuart Ritson -

US equities fell on Friday led by technology stocks following indications of weak demand from Taiwan’s TSMC, the world’s top chipmaker. The Nasdaq fell 1.6% while the S&P pulled back 1.2% to end little changed over the week. The beginning of a strike among US autoworkers also dampened investor sentiment. Global bond yields increased, and the US Dollar made marginal gains. Brent crude remained near recent highs at US$94.30 per barrel having increased a further 4% last week.

BNZ Markets Today

Jason Wong -

A dovish hike by the ECB pushed down European rates and drove the EUR down to a six-month low, dragging down GBP in its wake. Commodity currencies have held their ground against a generally well-supported USD, the NZD remaining in a tight range just over 0.59. Oil prices are up to a fresh high and, alongside some resilient US economic data, have imparted some modest upside to US Treasury yields.

BNZ Markets Today

Stuart Ritson -

The widely anticipated US CPI report for August printed higher than expected but the response across financial markets was largely subdued. US equities were little changed while the lasting impact on currency and bond markets was limited.

Rural Research

Lamb Chop

Doug Steel -

Lamb prices remain under downward pressure. Falling prices at this time of year isn’t particularly unusual, but following a very uncharacteristic drop through winter it sees prices pushing further below average. Lower prices will put pressure on budgets across the sector.

Rural Wrap: Enter El Niño

Doug Steel -

Weather risk is omnipresent in NZ agriculture. It always seems to be more a case of identifying what risk is present or looming rather than if there is any risk at all.

Adverse weather has already contributed to difficult conditions this year. The latest example is the heavy rain that caused major flooding down south in September that led to a state of emergency across Southland.