BNZ Research

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Currency Research

NZD Corporate FX Update

Jason Wong -

Despite the strong recovery in the NZD it remains “cheap” and we maintain a positive outlook

After falling through the first four months of the year, the NZD staged a strong 4½% recovery in May and has extended gains into early June, to reach a three-month high just over 0.62. There have been multiple driving forces and, despite the strong recovery, the NZD remains fundamentally cheap against our short-term fair value model estimate, which has been hovering around 0.67 through most of 2024.

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 continues to languish near 0.60. Our April forecast revision with a target of 0.60 by end-June allowed for the trading range to extend down to as low as 0.58 but, so far, the intraday low has been 0.5852.

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

Delayed Fed easing = delayed NZD/USD recovery

Jason Wong -

For some time, the underlying assumption driving our FX forecasts has been the beginning of a US Fed easing cycle would drive broad-based USD weakness, allowing a sustained recovery for the key majors. The Fed kick starting a tightening cycle from March 2022 and expectations of tighter policy in the months leading up to that period, drove a significant upturn in the USD and a policy reversal was seen to be critical for any sustained USD downturn to prevail.

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 -

At the beginning of the year our view was that the NZD would track within a 0.60-0.64 trading range until further notice, with the timing of the first Fed easing for the cycle a key variable in a possible topside break, while noting a bevy of headwinds for the NZD. These included macro headwinds in China, NZ’s economy remaining in a rolling recession and the possible re-election of Donald Trump in November’s US Presidential election, all of which held back our enthusiasm for NZD performance.

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

Economy Watch

Narrowing But Large

Doug Steel -

The current account deficit stood at the equivalent of 6.8% of GDP in the year to March 2024. This matched market expectations, although was a little larger than the 6.6% we anticipated.

The annual deficit is still a touch narrower than the 6.9% reading in the previous quarter and is meaningfully smaller than the 8.8% it peaked at in 2022. The deficit is smaller than it was, but it is still relatively large. We suspect that combined with weak economic growth, the deficit will remain on the radars of rating agencies.

Bottom of the Barrel

Doug Steel -

Activity in New Zealand’s services sector dropped to its lowest level of activity for a non-COVID lockdown month since the survey began, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for May was 43.0 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 3.6 points from April and the lowest level of activity for the sector for a non-COVID lockdown month since the survey began in 2007.

BusinessNZ chief executive Kirk Hope said that the May result was as bad is it can get for the sector, reaching contraction levels greater than during the Global Financial Crisis of 2008/09. While most of the sub-index values didn't reach their lowest ever levels, combined they led the May result well below the long-term average of 53.3. The key index values for Activity/Sales (40.9) and New Orders/Business (42.6) were both in significant contraction, while the Stocks/Inventories (42.4) activity level was the lowest recorded for a non-COVID month.

The proportion of negative comments for May (65.4%) was similar to April (66.3%). Given the overall result, respondents continued to note the typical aspects of the current economic downturn.

BNZ's Senior Economist Doug Steel said that "the speed of decline is as worrisome as its size over the past three months. There is weak and then there is very weak. Overall, this tells of a services sector in reverse, at pace”.

Lack of orders

Doug Steel -

Activity in New Zealand’s manufacturing sector experienced a drop in May and ongoing contraction of the sector, according to the latest BNZ –BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for May was 47.2 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 48.8 in April, and means the sector has now been in contraction for 15 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that there was little in the May result to signal a positive turnaround in the sector is coming soon.

“The key sub-index result of New Orders (44.4) remains stubbornly in contraction, and a clear impediment to overall expansion in the sector. To put this into perspective, during the Global Financial Crisis of 2008/09 New Orders remained in contraction for 14 consecutive months. The current results are now a third more than that with New Orders now in contraction for 21 consecutive months. Production (44.5) reverted back to current trends after a surprise expansion in April, although Employment (50.6) did remain in expansion following the expansionary April result.

Despite the dip in the May result, the proportion of negative comments stood at 63.5%, which was down from 69% in April and 65% in March. The vast majority of negative comments focused on a general slowdown and the tough recessionary times at present".

BNZ’s Senior Economist Doug Steel said that “PMI readings to date this year are consistent with falling manufacturing GDP. We anticipate next week’s Q1 GDP figures to include a contraction in the manufacturing component. The latest PMI indicators suggests Q2 will also be weak and potentially weaker than we already anticipate”.

Trend Decline Extends

Doug Steel -

There has been no respite in the trend decline in job ads. Job ads fell 4.8% in May. This follows a similar sized drop in April, taking job ads’ annual decline to 30.5%. Aside from Covid lockdown periods, job ads are at their lowest level since February 2016.

Painful

Doug Steel -

Most interest in today’s ANZ business survey was in its inflation gauges. Inflation expectations have been steadily and consistently falling each month for well over a year, but firms’ pricing intentions had become a bit sticky. Both eased in May.
Inflation expectations fell to 3.59% from April’s 3.76%. This is at a level consistent with annual CPI inflation falling into the mid-3s in Q2. Indeed, a further decline in the final month of the quarter would raise some downside risk to the RBNZ’s (and our) current Q2 CPI inflation forecast of 3.6%.

Retail Wriggle

Doug Steel -

It has not been seen for more than two years. A lift in real quarterly retail sales. The lift might surprise a few or at least have them wondering how sales can increase in the current economic climate. It’s noisy data. The retail sector remains under significant duress.

RBNZ Hawkish

Stephen Toplis -

The Reserve Bank of New Zealand has today delivered a clear warning it is still thinking about raising rates. We don’t think this will happen, but a shot has been clearly fired across the bow.

The RBNZ left the cash rate at 5.5% at today’s Monetary Policy Statement but, contrary to popular opinion, raised its modelled cash rate track. And, in the summary record of meeting, the tone was unequivocally hawkish. Indeed, it was noted that the Monetary Policy Committee contemplated raising rates at this meeting. To cap things off, the rate track has a peak of 5.65% implying there is a greater than even chance of a rate hike.

Struggle street

Doug Steel -

New Zealand’s services sector continued to contract further in April, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for April 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 0.1 points from March and the lowest level of activity for the sector since January 2022.

BusinessNZ chief executive Kirk Hope said while the April result was all but the same as March, the sub-index results outlined a difficult time for the sector as a whole. Although Activity/Sales (46.5) improved slightly, New Orders/Business (47.1) continued to fall backwards, while Employment (47.1) dropped to its lowest result since February 2022. Supplier Deliveries (47.6) also dropped to its lowest point since November 2022.

The proportion of negative comments from businesses continued to march upwards over April (66.3%), compared with 63.0% in March and 57.3% in February. A noticeable proportion of respondents noted the current difficult economic times, along with lingering inflationary issues.

BNZ's Senior Economist Doug Steel said that "combining today’s weak PSI with last week’s PMI yields a composite reading that would be consistent with GDP tracking below year earlier levels into the middle of this year. That is what we expect and, if anything, the combined index suggests some downside risk to our forecasts”.

To and Fro

Doug Steel -

Activity in New Zealand’s manufacturing sector experienced a pick up during April, although still remained in contraction, according to the latest BNZ –BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for April was 48.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 46.8 in March, although still lower than the 49.1 recorded in February. The sector has now been in contraction for 14 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that despite ongoing contraction in the sector, there were a few positive aspects to the April result.

“The key sub-index result of Production (50.8) returned to expansion for the first time since January 2023, as well as Employment (50.8) and Finished Stocks (50.4) also both returning to slight expansion. In contrast, New Orders (45.3) remained firmly in contraction, although showing a slight improvement from March. Despite the small improvement in April, the proportion of negative comments again increased to 69%, compared with 65% in March and 62% in February. An overall lack of sales and orders was the dominant theme in comments, along with a struggling economy".

BNZ’s Senior Economist Doug Steel said that “the PMI this year to date is consistent with manufacturing GDP trailing year earlier levels. However, the details were a bit more mixed in April, rather than uniformly weak as has been the case over recent months”.

Another fall

Doug Steel -

Job ads fell 4.4% in April. It extends the downtrend that started in mid-2022. The trend measure itself suggests the rate of decline has slowed over recent months. Job ads are 29.6% lower than a year ago. Aside from Covid lockdown periods, job ads are at their lowest level since April 2016.

Labour market softens

Stephen Toplis -

In totality, today’s labour market data were a smidgen softer than we anticipated. The 4.3% unemployment rate for the March quarter was bang on our expectations but both employment (-0.2%) and the participation rate (71.5%) surprised to the low side. Capping things off, the underutilisation rate rose to 11.2% from 10.7% to be more than two percentage points higher than where it stood this time last year.

Growth Optimism Unwound

Doug Steel -

This afternoon’s ANZ business survey had two key messages. First, the previous post-election bounce in real activity is rapidly unwinding and is outright weak, if not negative. Second, inflation indicators are mixed.

CPI Nothing to Write Home About

Stephen Toplis -

There was nothing in today’s CPI release that should have changed anyone’s view of the world. The 0.6% increase in the March quarter was bang on consensus as was the 4.0% annual reading. Sure, the numbers were greater than the RBNZ projected when it produced its February Monetary Policy Statement but, in our opinion, it’s not enough to spook the Bank.

Lost momentum

Doug Steel -

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

The PSI for March was 47.5 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 5.1 points from February and well below the long-term average of 53.4 for the survey.

BusinessNZ chief executive Kirk Hope said that the drop back into contraction halted the momentum that the sector had experienced for the first two months of 2024. Both Activity/Sales (44.8) and New Orders/Business (48.3) fell back into contraction, although Employment (50.1) did manage to show the smallest amount of expansion since November 2023.

The proportion of negative comments from businesses rose to 63.0% in March, compared with 57.3% in February and 53.0% in January. A number of respondents noted the current recession, as well as ongoing inflationary/cost of living effects.

BNZ's Senior Economist Doug Steel said that "combining today’s weak PSI activity with last week’s similarly weak PMI activity, yields a composite reading that would be consistent with GDP falling below by more than 2%compared to year earlier levels. That is much weaker than what folk are forecasting”.

One step back

Doug Steel -

Activity in New Zealand’s manufacturing sector experienced stronger contraction during March, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for March was 47.1 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 49.1 in February and the lowest result since December 2023. The sector has now been in contraction for 13 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that it was a case of two steps forward, one step back with improving activity levels for the first two months of 2024 being undone somewhat by the March result.

“The key sub-index results for New Orders (44.7) and Production (45.7) both experienced a noticeable drop, while Employment (46.8) was at its lowest level since October 2023. In addition, the proportion of negative comments increased to 65% in March, compared with 62% in February and 63.2% in January. A lack of orders was again mentioned by numerous respondents, along with the general economic slowdown".

BNZ’s Senior Economist Doug Steel said that “the PMI’s average for the first quarter of the year is consistent with manufacturing GDP posting another quarter that is below that of a year earlier”.

RBNZ Sticks To The Script

Doug Steel -

The RBNZ held its cash rate at 5.50% this afternoon. This was as we expected and expected by all and sundry. It was fully priced by the market. So, no surprise there. In fact, in the big picture there was no surprise whatsoever to us in the very short statement issued today.

Job ads still trending lower

Doug Steel -

Labour market conditions continue to show softening trends. Job ads eased 0.4% in March, to be down 27.2% on a year ago. There is more evidence of some moderation in the pace of decline, but still nothing to indicate any material improvement is likely any time soon.

QSBO Soft

Doug Steel -

A weak economy and broad disinflationary pulse were writ large across this morning’s NZIER Quarterly Survey of Business Opinion (QSBO). Inflation gauges themselves are generally heading in the right direction but remain higher than would be consistent with annual inflation at the RBNZ’s target midpoint.

Confidence rise stalls

Stephen Toplis -

The murmurings of our corporate customer base have had us questioning whether the recent upward trend in business confidence might have stalled. Enthusiasm for a change in government is one thing but new governments can do little to immediately impact the lagged effects of past policy measures (both fiscal and monetary), structural issues and cyclical momentum. And so it came as no surprise to us that today’s ANZ Business Survey reported a modest drop in business expectations.

Financial Markets Wrap

Kiwi flies through May

Jason Wong -

• After a poor run through the first four months of the year, NZD/USD bounced back strongly in May, up 4½%.
• A broadly weak USD, higher risk appetite, higher commodity prices and a more hawkish than expected RBNZ were factors.
• The NZD’s outperformance saw it higher on all the key crosses, including reaching a 17-year high against the beleaguered yen.

NZD remained soft in April

Jason Wong -

• Positive inflation surprises in the US drove higher rates, spilling into other markets, and a broadly stronger USD
• The NZD hit fresh lows against the USD and AUD, but with modest net depreciation overall
• JPY was the weakest major by far, following higher global rates and the BoJ remaining dovish; NZD/JPY rose almost 3%

NZD underperforms in March

Jason Wong -

• Despite higher risk appetite and global commodity prices, the NZD underperformed in March, down 1-2% against most majors
• Softer yuan and yen were drags on the NZD; Soft Q4 GDP highlighted poor NZ economic performance last year
• Global equities reach record highs; modest fall in global rates as developed market easing cycle kicked off by the Swiss

Interest Rate Strategy

NZGB bond programme increased at BEFU

Stuart Ritson -

New Zealand Debt Management (NZDM) updated the borrowing programme alongside the Budget Economic and Fiscal Update (BEFU). Government funding requirements have increased by a further NZ$12 billion compared to the Half Year Economic and Fiscal Update (HYEFU) in December, reflecting a weaker fiscal outlook than previously expected. The further increase in the bond programme takes place against a backdrop of already elevated issuance from a historical perspective.

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

Outlook for Borrowers: Post April MPR

Stuart Ritson -

The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady at 5.5% at the Monetary Policy Review (MPR) on Wednesday. The statement, accompanying the expected ‘on hold’ decision, indicated there is little change in the Bank’s assessment of the economy and inflation outlook from the February Monetary Policy Statement (MPS). The Monetary Policy Committee is ‘confident that maintaining the OCR at a restrictive level for a sustained period’ will return inflation to target this year.

Update on syndication of May 2035 nominal NZGB

Stuart Ritson -

New Zealand Debt Management (NZDM) announced, alongside the Pre-election Economic and Fiscal Update in September, that a new 15 May 2035 nominal maturity will be syndicated this fiscal year. There was a further update in the March tender schedule that the 2035 maturity will be launched by the end of April 2024. The release of the syndicate panel banks today suggests a transaction is imminent. We expect it to launch on 2 April with pricing taking place the following day.

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

Markets Outlook

One After Another

BNZ Research -

We think this week’s Q1 GDP figures will be weak, but noisy. Even if growth can manage a positive sign in Q1, the latest run of indicators including the PMI and PSI suggest increasing downside risks to growth ahead. Softer demand indicators raise the chance that the RBNZ reduce the OCR earlier than projected. But components of inflation may keep the RBNZ wary in the near term. RBNZ Chief Economist to talk on inflation this week. A weak economy and a large current account deficit will remain on the radars of rating agencies.

GDP Preview: Still Struggling

BNZ Research -

The economy still looks like it is bumping along the bottom and contracting on a per-capita basis. The ‘partial’ indicators suggest GDP struggled to grow in Q1. A flat to negative outcome would be a touch lower than what the RBNZ had factored into its May MPS. On the inflation front, Friday’s selected prices for May will be assessed for guidance on Q2 CPI.

Oil, Power, and Growth Indicators

BNZ Research -

Any major deviation from our priors for this week’s range of GDP ‘partial’ indicators could have implications for our pick for Q1 activity, although shouldn’t change the main message of softness. OPEC+ and ComCom decisions suggest opposing forces for energy prices. The aluminium smelter deal looks growth positive.

Economy Pressuring Budget

BNZ Research -

A structural deficit and cyclical pressures make for an awkward backdrop for a Budget. But that is the current situation, leading into the Government’s Budget on Thursday. Given the economic pressures, we expect to see larger fiscal deficits and funding programme than published in the Half Year Economic and Fiscal Update (HYEFU).

Holding Tight

BNZ Research -

The RBNZ Monetary Policy Statement (MPS) is due for release on Wednesday. We expect the OCR to be held at 5.50%. On the outlook, we wouldn’t be surprised to see the RBNZ broadly repeat its previous messaging as it weighs up mixed data and ahead of known unknowns like the details of the Government’s Budget. Large net migrant inflows are cooling rapidly with implications for growth and inflation.

May MPS Preview

BNZ Research -

We expect the Reserve Bank’s view of the world, as espoused in its upcoming Monetary Policy Statement, will be largely unchanged from what it said back in April. Sure, inflation has been higher than it had anticipated and risks of further near-term upside remain but growth is surprising to the low and unemployment to the high indicating that any near term inflationary issues should dissipate in time.

Softening Affirmed

BNZ Research -

Last week’s Q1 labour market data affirmed our view of a softening market, and we see further softening ahead. Understandably, the RBNZ gave no sense of material surprise to last week’s information. Inflation information and the Budget look the more important events on the local calendar to shape the Bank’s view.

Employment Outpaced?

BNZ Research -

We expect this week’s HLFS to show an increase in employment and unemployment. We think labour supply is expanding faster than labour demand such that we think the unemployment rate will rise. This will put downward pressure on wage inflation. This week’s business survey looks prone to some general softening, but will the pricing indicators follow others downward? RBNZ’s FSR is due Wednesday.

A Peak Into Next Week’s Labour Market Data

BNZ Research -

Next week’s labour market reports are the next domestic data focus. We think they will generally confirm softening in the labour market, although not substantially different from what the RBNZ anticipate. Data this week is expected to show the annual trade deficit continuing to narrow, while consumer confidence is expected to remain weak.

Plain miserable

BNZ Research -

The last seven days has produced a simply miserable set of real economy data which has us questioning whether our expectations for an end-year turnaround are premature. The only redeeming feature is that the economic weakness supports our expectation that inflation will continue to trend lower. Indeed, we have revised down our Q1 pick for CPI inflation, published this Wednesday, to 0.6% delivering an annual 3.9%. It’s still above the RBNZ’s pick but not enough to cause it any great worry.

RBNZ In Wait and Watch Mode

Stephen Toplis -

We expect the RBNZ to hold the OCR at 5.50% this week. In our opinion, the Bank could easily cut and paste the policy assessment it delivered back in February. No change is the unanimous view of those in market polls and is fully priced by the market. Datawise, Tuesday’s QSBO will be well worth a look. We expect the business survey to confirm slack in the labour market, but we also have interest in its near-term indicators for pricing, activity, employment, and investment. Friday’s March price indexes will complete their guidance for Q1 CPI.

RBNZ – Rinse and Repeat

BNZ Research -

Next Wednesday the RBNZ gives us its latest update on monetary settings. In our opinion, the Bank could easily cut and paste the policy assessment it delivered back in February. From a bigger picture perspective very little has changed: growth is moribund, the unemployment rate is rising, inflation and inflation expectations are trending lower. The job is not done because inflation still has some way to fall but current settings seem to be doing the job.

In Confidence

BNZ Research -

We are starting to feel that the trend increase in both business and consumer confidence is slowing. We look towards this week’s suite of indicators for evidence of this. Meanwhile, Wednesday’s Budget Policy Statement should highlight the deterioration in the nation’s fiscal accounts and, hopefully, provide insight into the government’s plans.

Markets Today

BNZ Markets Today

Jason Wong -

A weaker than expected US retail sales report supported US Treasuries, dragging the 10-year rate down to as low as 4.20% and pushed down the USD, reversing earlier strength. The AUD has outperformed after a more hawkish than expected RBA update. The NZD recovered to 0.6140 after a test of 0.61, while NZD/AUD is modestly weaker at 0.9230.

BNZ Markets Today

Jason Wong -

European markets have settled after last week’s selloff, with French assets recovering somewhat. US equities have continued their record-breaking run while, after last week’s strong rally, US Treasury yields are modestly higher. Currency movements have been small, with the NZD giving up a little of last week’s gain and the euro being the best performer, albeit up only 0.3%.

BNZ Markets Today

Stuart Ritson -

A risk off tone dominated global markets into the end of last week as concern about the political crisis in France deepened. European equities were under pressure with the Euro Stoxx falling 2% and the spread between French and German 10-year bonds increased to 77bps, the widest level in more than 10 years. The impact on US equities was more muted with the S&P recovering from an early session dip to close unchanged. Global bond yields declined, and the dollar was broadly stronger.

BNZ Markets Today

Jason Wong -

Much softer than expected US PPI data and a further increase in jobless claims supported US Treasuries, taking yields down 7-8bps across the curve. Concerns around France remain the focus in Europe and with spillover impact for currency markets, with the NZD stuck near 0.6170 despite the weaker US data. NZD/EUR rises to its highest level since early January.

BNZ Markets Today

Stuart Ritson -

Softer than expected US CPI data contributed to large moves across global markets ahead of the FOMC. Bond yields fell sharply as investors increased the amount of easing expected by the Fed this year. The US dollar declined. Equity markets advanced with the S&P making a fresh all-time high. The US Federal Reserve (Fed) left rates unchanged as expected. The Fed’s forecasts signalled one 25bps rate this year, down from 75bps in March.

BNZ Markets Today

Jason Wong -

There has been continued fallout from French President Macron’s decision to call early parliamentary elections, with a flight to quality within European assets. EUR underperformed again and NZD/EUR is at a four-month high. US rates have pushed lower ahead of the key US CPI report tonight, followed closely by the Fed’s policy update. The NZD has outperformed, lifting to 0.6145.

BNZ Markets Today

Jason Wong -

The outcome of European Parliament elections has been the key driver of markets to start the week, with French President Macron’s call for a snap election after his party’s poor result negatively impacting French assets in particular and dragging down the euro. Elsewhere, the focus is on US CPI data and the Fed’s policy update later in the week, with markets in a holding pattern until then. The US 10-year rate is up 3bps, US equities are slightly higher and the NZD and AUD have recovered modestly after Friday’s heavy loss.

BNZ Markets Today

Stuart Ritson -

An upside surprise to US nonfarm payrolls and strong wage growth contributed to sharply higher global bond yields and a broad-based gain for the US dollar. The S&P, which had initially traded to a fresh intra-day record high ahead of the data, dropped close to 0.5% before rebounding and ending the session little changed. Equity markets were generally softer in Europe and Asia. Global credit markets were little changed with spreads remaining close to the tightest level in several years.

BNZ Markets Today

Jason Wong -

Net market movements have been mostly small, with signs of consolidation across equities, bonds and currencies. European rates are slightly higher after the ECB’s “hawkish cut” and Treasury yields are little changed. The NZD has consolidated around the 0.62 mark and cross movements are negligible. Oil has been the biggest mover, up 2%.

BNZ Markets Today

Stuart Ritson -

Buoyant investor risk sentiment contributed to strong rallies across major equity indices. The S&P is up close to 1% in early afternoon trade, retesting the record high of 5342 reached back in May. The move was underpinned by gains in technology stocks. European stocks also had a strong session with the Stoxx up 1.6% ahead of the European Central Bank (ECB) meeting this evening. Price action was choppy in currency and bond markets amid mixed economic data. Global bond yields are lower.

BNZ Markets Today

Jason Wong -

US Treasury yields have fallen for a fourth successive day, seeing the 10-year rate down towards 4.3%, supported by safe-haven flows after some surprising EM election results, lower oil prices, and softer US labour market data. The USD is broadly stronger overnight, seeing the NZD slightly weaker after its run towards 0.62 yesterday. The yen has outperformed as the market anticipates less BoJ bond buying ahead.

BNZ Markets Today

Stuart Ritson -

US equity markets have started the new month on the back foot, following weaker than expected ISM data, which also led to lower treasury yields and a weaker US dollar. Major European indices advanced while Asian markets made solid gains. Oil prices fell sharply after OPEC+ announced plans to phase out its production cutbacks.

BNZ Markets Today

Jason Wong -

US Treasury yields reversed course after their rise this week, encouraged by weaker data releases overnight. The 10-year rate is down 6bps to 4.55% with a slightly flatter curve. The USD also reversed course and is broadly weaker, seeing the NZD recover overnight to 0.6125 after a brief dip below 0.61 just after the NZ close yesterday. Market reaction to the NZ Budget was minimal.

BNZ Markets Today

Stuart Ritson -

A continued move higher in global bond yields and further tepid demand for US treasury supply weighed on investor risk appetite. Major European equity indices fell close to 1% lower while the S&P is down 0.5% in early afternoon trade. There was limited economic data to provide the market with direction. The US dollar advanced alongside higher bond yields and made broad-based gains against developed market currencies.

BNZ Markets Today

Jason Wong -

A surprise jump in US consumer confidence and weak demand for US Treasuries at the 2 and 5-year auctions have driven up US rates, the 10-year rate rising over 7bps. This reversed earlier weakness in the USD, resulting in small net currency movements for the day. After reaching a fresh 11-week high of 0.6170 overnight, the NZD has fallen back down to 0.6140.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week with US and UK markets closed for holidays. Of note, some dovish comments from key ECB members pushed down European yields but with limited impact on the euro. US equity futures are slightly higher, and US 10-year Treasury futures are little changed. The NZD pushed up to fresh two-month highs just over 0.6150.

BNZ Markets Today

Stuart Ritson -

Global equity markets were mixed into the end of last week. Major European indices were marginally lower, closing at the weakest level in two weeks and the Hang Seng dropped 1.6%, extending the correction after the sharp move higher over the past month. The S&P gained 0.7% after data showed US inflation expectations had receded. Trading volumes were below average ahead of the US public holiday. Tech stocks led the rally and the Nasdaq closed at a fresh record high. Treasuries were little changed, while the US dollar was weaker.

BNZ Markets Today

Jason Wong -

Much stronger than expected US PMI data drove US rates and the USD higher and US equities lower overnight. This saw the NZD lose earlier gains, and it trades back just under 0.61. The spillover from Wednesday’s hawkish RBNZ policy update continued, with domestic rates higher, led by the short-end, NZD/AUD rising to a fresh five-week high, and NZD/JPY up to a 17-year high.

BNZ Markets Today

Stuart Ritson -

Global equity markets are modestly lower as investors look ahead to Nvidia’s quarterly earnings that are published after the US close. The size and volatility of Nvidia makes it an important bellwether for the broader market. The FTSE100 fell 0.5%, its largest drop in more than a month, after stronger than expected inflation data reduced the prospect for rate cuts from the Bank of England (BOE). Global bond yields are higher, and the US dollar was marginally stronger against the majority of G10 currencies.

BNZ Markets Today

Jason Wong -

More hawkish commentary from Fed speakers hasn’t perturbed the rates market, with US Treasury yields down slightly on the day. US equities are flat and currency movements have been small, with the NZD trading just below the 0.61 mark. Domestic focus will be on the RBNZ’s MPS this afternoon, with expectations of little change in tone from previous messages.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week for most markets, with US Treasury yields up slightly, US equities up modestly and modest currency movements. After last week’s outperformance, the NZD is trading softer, just above 0.61 after a brief dip below the figure overnight.

BNZ Markets Today

Stuart Ritson -

Global equity markets were little changed into the end of last week in the absence of fresh market catalysts or first-tier economic data. The exception was Chinese stocks which continued to push higher, despite mixed activity data, with investors focused on new measures from policy makers aimed at stabilising the housing market and boosting consumer sentiment. The Hang Seng was close to 1% higher on Friday taking its weekly advance to nearly 4% and is easily the best performing major market in May.

BNZ Markets Today

Jason Wong -

The key market move overnight has been a retracement of US Treasuries, with yields steadily higher, reversing the fall seen following the US CPI release the previous night. This hasn’t perturbed equity markets, with the Dow Jones index breaking 40,000 for the first time, but the rates-sensitive JPY is the weakest major overnight and NZD/JPY reached 95. The NZD is flat around 0.6120.

BNZ Markets Today

Stuart Ritson -

Global asset markets made strong gains following the widely anticipated US CPI data, which along with softer than expected retail sales, contributed to markets bringing forward expectations of when the Federal Reserve will begin its easing cycle. The S&P rallied close to 1% which took the index to a fresh all-time high above 5300 and European stocks also closed at record levels. US treasury yields moved sharply lower, and the US dollar was significantly weaker.

BNZ Markets Today

Jason Wong -

Markets remain in a holding pattern ahead of tonight’s key US CPI release. There was some sticker shocker from a higher PPI print overnight, but on further reflection the data were mixed, and the spike in the USD and rates was very short-lived. US equities are up modestly, US Treasury yields are down slightly, and the USD is broadly weaker, seeing the NZD push up to 0.6040.

BNZ Markets Today

Jason Wong -

It has been a typically quiet start to the week with little newsflow to drive markets. Global equity markets are flat, US Treasury yields are down slightly, and currency movements have been modest. The NZD is flat, consolidating just over the 0.60 mark.

BNZ Markets Today

Stuart Ritson -

Weaker than expected US consumer confidence data and higher treasury yields, following a rise in inflation expectations, contributed to the S&P retracing from earlier gains to close modestly higher on Friday. Across the Atlantic, UK and European stocks closed at record levels, with the former helped by stronger than expected GDP data. The Hang Seng – which is the best performing global index in May - rallied 1.5% following reports of a tax waiver plan for China domiciled investors that access Hong Kong shares via Stock Connect.

BNZ Markets Today

Stuart Ritson -

Global markets were generally confined to narrow ranges in the absence of first-tier economic data or other catalysts. After four days of consecutive gains, the S&P was little changed in early afternoon trade. Equities in Europe remained well supported with key indices extending recent gains to fresh record highs. The FTSE was up 0.5% matching the gains for the region wide Stoxx 600. Global bond yields are modestly higher while the US dollar index was little changed.

BNZ Markets Today

Jason Wong -

Against a backdrop of little fresh news, US Treasury yields continue to edge lower, with the 10-year rate down to a four-week low. The USD is stronger, although movements have been small to modest across the board and the NZD is close to 0.60.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week in what will likely be a quiet week overall, with a very light economic and event calendar. With UK and Japan holidays, trading conditions are lighter than normal. Global rates are slightly lower, with the US 10-year rate consolidating just below 4.5%. The NZD has spent most of the day consolidating just over 0.60, while the yen is weaker after last week’s strong recovery.

BNZ Markets Today

Stuart Ritson -

Global equity markets made solid gains on Friday. Weaker than expected US labour market data in conjunction with a soft services ISM pointed towards moderating economic activity, and rekindled hopes for rate cuts by the Federal Reserve later this year. The S&P gained 1.2%, the largest advance in more than two months. US treasury yields declined sharply after the data but rebounded off the lows while the US dollar was weaker against G10 currencies.

BNZ Markets Today

Jason Wong -

Markets have settled after the flurry following the Fed’s policy update yesterday and the moves have been in a similar direction, with US Treasury yields falling further and the USD weaker. JPY has outperformed, after another bout of official intervention shook out some more speculative positions. The NZD has pushed up through 0.5960.

BNZ Markets Today

Jason Wong -

The Fed’s policy update didn’t offer any surprises and there was little initial market reaction, but US rates and the USD fell during Chair Powell’s press conference, where the clear message was one of an easing bias, with a rate hike “unlikely”. As we go to print, US Treasuries are down around 10bps on the day and the NZD is trading at its highs, up towards 0.5940.

BNZ Markets Today

Stuart Ritson -

Investor risk sentiment was undermined into April month end by US economic data that revealed persistent wage pressures and a sharp fall in consumer confidence. The S&P fell close to 1% and looks set for its weakest monthly performance since September.

BNZ Markets Today

Jason Wong -

Risk appetite is slightly higher at the start of the new week. The key market movement has been yen volatility, with signs of official intervention after the currency cratered in early Asia trading. USD/JPY has traded within a 3.5% range and has settled around 156. The USD is broadly weaker, and the NZD has pushed up towards the 0.60 mark. Global rates are modestly lower.

BNZ Markets Today

Stuart Ritson -

Global asset markets advanced into the end of last week. The S&P gained more than 1%, underpinned by strength in technology companies, following upbeat earnings reports from Alphabet and Microsoft. Equities were also supported by personal consumption expenditure (PCE) data which revealed strong consumption and inflation, which was in line with expectations, and not as high as some investors had feared after the Q1 data released the previous day.

BNZ Markets Today

Jason Wong -

The US GDP report released overnight could be described as anti-Goldilocks, with both weaker growth and higher inflation than expected. The rates market was more focused on the latter than the former, seeing a further paring of US rate cut expectations, sending yields higher. A stronger USD reaction wasn’t sustained and the NZD is little changed at 0.5945 from where we left it ahead of the ANZAC day holiday. The yen continues to underperform, raising the spectre of official intervention. A better strategy would be for the BoJ to convey a more hawkish tone at today’s policy update.

BNZ Markets Today

Stuart Ritson -

Investor risk appetite has continued to recover underpinning global equities. The S&P gained more than 1% as the market looks ahead to corporate results from large technology companies. The FTSE 100 traded to a new all-time high before retracing amid a broad-based rally across European stocks. US treasury yields fell following weaker than expected preliminary PMIs for April, which contrasted with evidence of a recovery in Europe, and contributed to a weaker US dollar.

BNZ Markets Today

Jason Wong -

There has been little newsflow to kick-start the week but risk appetite is higher as Middle East tensions settle. US equities rebounded after a weak run, the UK FTSE100 closed at a fresh closing high and commodity currencies have outperformed. The NZD has consolidated above the 0.59 mark and is flat to higher on the key major cross rates. There have only been small changes in US Treasury yields.

BNZ Markets Today

Stuart Ritson -

Global equity markets traded lower on Friday, but pared the worst of the losses that came amid a sharp rise in investor risk aversion following news that Israel had launched retaliatory strikes against Iran. Risk sentiment recovered after Iran’s state media played down the damage from the attacks raising hopes that the hostilities wouldn’t escalate into a broader conflict. US treasuries ended little changed, reversing an earlier fall in yields, while the US dollar was stable. Brent crude ended the week at US$87.30, having jumped as high as US$90.75, earlier in the session.

BNZ Markets Today

Jason Wong -

Newsflow has remained light, generating modest movements in asset prices. US equities are down modestly while US Treasury yields have pushed higher, with a stronger Philly Fed survey and hawkish Fed-speak not helping. The USD is broadly stronger, reversing the previously day’s loss, with the NZD nudging down to 0.59.

BNZ Markets Today

Jason Wong -

There is a modest risk-off tone in the air, with US equities weaker, US Treasury yields lower, credit spreads wider and oil prices weaker. Currency movements haven’t been affected by the risk-off move, with the USD broadly weaker overnight. The NZD and AUD have been the best performers over the past 24 hours, with higher rates post the NZ CPI supporting a move for the NZD above 0.59, which has been sustained overnight.

BNZ Markets Today

Stuart Ritson -

Global bond market remained under pressure. US treasuries yields made fresh highs for the year which constrained equity market performance. The S&P was marginally lower in early afternoon trade, with limited rebound from recent weakness, despite trading at one-month lows. The VIX gauge of US stock market volatility remained elevated reflecting the uncertain geopolitical backdrop. In currency markets, the US dollar was confined to a choppy range. Asian currencies were in focus after the PBOC set a weaker daily reference rate for the yuan and the yen was volatile amid intervention concerns.

BNZ Markets Today

Jason Wong -

Markets continue to trade with a cautious tone, with Israel vowing to retaliate against Iran’s weekend attack. US equities are down close to 1% and oil prices are barely lower, with Brent crude about USD90. US Treasury yields rose to fresh 2024 highs, with much stronger than expected US retail sales being a factor. The USD has been well supported, with the yen, NZD and AUD notable underperformers, weakening to fresh lows.

BNZ Markets Today

Stuart Ritson -

Risk aversion gripped global assets markets into the end of last week amid rising geopolitical tensions. There were growing concerns that Iran could launch a retaliatory attack on Israel following the air strike on the Iranian consulate in Syria. Over the weekend, Iran’s military seized an Israeli-linked container ship, and launched drones and missiles towards Israel, in a significant escalation of hostilities. These developments will weigh on investor rise appetite as Israel calibrates a response.

BNZ Markets Today

Jason Wong -

Markets have settled after the shock from the hot CPI print the previous night, helped in part by a more benign PPI print. US Treasury yields show only small movements, with a modestly steeper curve led by a retracement in the 2-year rate. The 10-year Treasury found support with yields just under 4.6% overnight. US equities have bounced back. The ECB’s in-line policy update had little impact on the market, while the NZD and AUD have outperformed with the NZD close to 0.60.

BNZ Markets Today

Stuart Ritson -

Stronger than expected US CPI data, contributed to a reassessment about how soon the US Federal Reserve might cut rates, and prompted large moves across global asset markets. US treasury yields surged higher contributing to broad based gains in the US dollar. The higher rates backdrop undermined equites. The S&P fell more than 1% to retest the lows near 5140 from last week.

BNZ Markets Today

Jason Wong -

It has been another uneventful day in financial markets, with the key move being a steady fall in US Treasury yields after the recent lift to 2024 highs, ahead of tonight’s key US CPI report. US equities are down modestly. Currency moves have been small in net terms although the NZD and AUD remain on the positive side of the ledger as global commodity prices continue to push higher.

BNZ Markets Today

Jason Wong -

Market movements have been well contained to kick off the week without any key catalysts to perturb pricing. There was a total eclipse of the sun in the US and a total eclipse of the year-to-date highs for US rates overnight, before they settled back down, seeing the 10-year Treasury yield little changed from the NZ close. US equities are slightly higher and the USD is slightly weaker. The NZD and AUD have outperformed a touch, supported by higher commodity prices.

BNZ Markets Today

Stuart Ritson -

US equities advanced following labour market data which pointed towards a resilient economy and intensified the debate about when the Federal Reserve might begin to ease monetary policy. The S&P gained more than 1%, rebounding from the weak previous session, which saw the index fall more than 2% from intra-day highs and the VIX spike to the highest level this year.

BNZ Markets Today

Jason Wong -

Risk appetite is higher ahead of the key US employment report tonight. Equity markets are stronger, with the S&P500 up 0.7% and Treasury yields show little net movement. The USD is broadly weaker, with the NZD and AUD outperforming against a backdrop of rising commodity prices. The NZD is trading at 0.6045, with NZD/AUD falling to a 9-month low around 0.9130.

BNZ Markets Today

Stuart Ritson -

After a soggy start to the second quarter, global equities have stabilised. The S&P is up 0.3%, rebounding from earlier losses, after treasury yields retraced following data that pointed to a slowdown in the US services sector. In currency markets, the US dollar fell sharply. Gold prices extended to fresh record highs, above US$2290 per troy ounce, having gained more than 15% since mid-February.

BNZ Markets Today

Jason Wong -

Global rates are higher, with the US 10-year Treasury yield reaching a fresh high for the year of 4.40%, not helped by oil prices rising to fresh year-to-date highs. Equity investors are showing further signs of fatigue, with the S&P500 close to 1%. Currency moves have been modest but, despite weaker risk appetite, the USD is broadly weaker and the NZD is up slightly overnight to 0.5965.

BNZ Markets Today

Stuart Ritson -

Stronger than expected US ISM manufacturing data contributed to sharply higher treasury yields, which supported the dollar, and saw US equities start the new quarter on a soft note. The S&P was down 0.4% in early afternoon trade. Gold prices retreated from record highs near US$2265 per ounce. China equities made strong gains with the CSI 300 Index up more than 1.5%, supported by a rebound in manufacturing activity. The manufacturing PMI rose to the highest level in a year raising hopes the economic recovery gained traction in March.

BNZ Markets Today

Stuart Ritson -

Global equity markets are generally higher, in the absence of economic data or fresh catalysts, with investors looking ahead to a speech by influential Federal Reserve Governor Christopher Waller. The S&P is marginally higher in early afternoon trade with earlier gains having faded. Equity indices in Hong Kong and mainland China fell, and have now erased gains for March, as optimism around the policy-driven rally fades. US treasuries moved lower in yield while yen volatility was the focus in currency markets.

BNZ Markets Today

Jason Wong -

Market price action has been limited by a lack of newsflow. Currency movements has been remarkably well contained, with the NZD steady just over the 0.60 mark. Global equity markets show small gains while global rates also show only small movements.

BNZ Markets Today

Jason Wong -

It has been a typically quiet start to the week without any catalysts to drive markets. Global equity markets show only small changes, global rates have pushed higher, and currency movements have been modest. The NZD has spent the day hovering around 0.60, some support gleaned from the PBoC supporting the yuan after its surprising neglect on Friday.

BNZ Markets Today

Stuart Ritson -

Global equity markets were mixed with the S&P ending little changed on the day but 2.3% higher over the course of last week, which was the largest advance in 3 months. In the absence of first tier economic data, US treasuries yields declined, and the US dollar advanced. The Chinese yuan reached the lowest level against the US dollar in 4 months weighing on Australasian currencies.

BNZ Markets Today

Jason Wong -

Last night a surprise rate cut by the Swiss National Bank got the market’s attention but spillover to the key markets has been limited. European yields have pushed lower against little change in US Treasury yields. USD weakness after the Fed’s policy update yesterday has completely reversed. After a brief look above 0.61, the NZD is trading down to 0.6045. NZD/AUD has fallen below 0.92.

Outlook for borrowers

Outlook for Borrowers: Post May MPS

Stuart Ritson -

The RBNZ left the Official Cash Rate (OCR) steady at 5.5% at the May Monetary Policy Statement. However, the Bank upgraded its hawkish bias, referencing domestic inflation pressures, which have fallen more slowly than it had expected. The RBNZ raised its modelled cash rate track, which now peaks at 5.65% in December, implying a higher probability of a further rate hike, relative to the February Statement. As a result, the first projected rate cut has been pushed back to H2-2025. Although the Committee reached a consensus decision to leave rates on hold, a hike was discussed.

Outlook for Borrowers: Post April MPR

Stuart Ritson -

The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady at 5.5% at the Monetary Policy Review (MPR) on Wednesday. The statement, accompanying the expected ‘on hold’ decision, indicated there is little change in the Bank’s assessment of the economy and inflation outlook from the February Monetary Policy Statement (MPS). The Monetary Policy Committee is ‘confident that maintaining the OCR at a restrictive level for a sustained period’ will return inflation to target this year.

Rural Research

Forecasts and Outcomes

Doug Steel -

Fonterra put a wide, but realistic, range on its opening 2024/25 milk price forecast. The $8.00 midpoint came along with a range of $7.25 to $8.75 attached.
The new season midpoint forecast is higher than the current $7.80 forecast for the 2023/24 season. But it is lower than some might have expected. The SGX-NZX futures pricing for the 2024/25 season has been hovering around the $8.50 mark recently. That said, the latter is market pricing for the actual outcome not a forecast of Fonterra’s forecast.

Unfavourable Terms

Doug Steel -

The nation’s terms of trade might well be one of the, if not the, most underrated economic indicators. It doesn’t get much airtime in the popular press. But it is of critical importance to the real purchasing power of the nation’s exports and hence incomes.