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: Headwinds and tailwinds

Jason Wong -

The key theme that has driven our positive NZD outlook for more than a year now has been the global recovery story. However, that narrative has hit a bump in the road over the past couple of months as the more contagious delta variant of COVID19 has spread from India across the rest of the world.

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

NZD Corporate FX Update - June 2021

Jason Wong -

We remain positive on the NZD/USD outlook for 2021 as the global reflation theme endures. Our forecasts remain unchanged, targeting an upward grind to 0.76 by year-end. For exporters, a buy-on-dips strategy continues to look appropriate through the year.

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

Economy Watch

Onwards and upwards

Craig Ebert -

New Zealand’s services sector was in expansion mode for the fourth consecutive month, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for June was 58.6 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was 2.3 points up from May, but still below its highest ever result of 61.1 in April.

BusinessNZ chief executive Kirk Hope said that the sector experienced a boost in expansion after a lift in the key sub-indices of Activity/Sales (62.5) and New Orders/Business (66.1).

“While the key indicators show very healthy expansion, comments from respondents were very similar to its sister survey the PMI, highlighting staff/skills shortages and general logistics issues.”

BNZ Senior Economist Craig Ebert said that “combined, the PSI and PMI signal a hefty rate of growth in economic activity – in the realm of a 4% annual rate of growth in GDP. At one level, this is very encouraging. At another, it suggests the economy is running headlong into even-worse capacity constraint, and, with it, serious inflation pressure.”

Inflation Pick-up More Than Transitory

Craig Ebert -

New Zealand’s June quarter CPI jumped 1.3%. This was significantly above market expectations for a 0.7% gain and the Reserve Bank’s view of 0.6%. The outcome lifted annual inflation to 3.3%, from 1.5% in Q1.

Tight at the Top

Doug Steel -

Expansion in New Zealand’s manufacturing sector picked up in June, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for June was 60.7 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 2.1 points higher than May, and the second time it had crossed the 60-point mark in four months.

BusinessNZ’s executive director for manufacturing Catherine Beard said that “the two major sub-index values of Production (64.5) and New Orders (63.6) remain firmly in strong expansion mode. Employment (56.5) also picked up to its highest value since August 2017, while Finished Stocks (57.3) also showed noticeable improvement.”

“The recent partial Wellington lockdown saw activity in that region decline, but was more than compensated for by the other regions recording strong expansion.”

“Despite the overall pick-up in activity, the proportion of negative comments (53.1%) remained higher than positive ones (46.8%). Many of the positive comments outlined increased demand, but this is counterbalanced by significant labour shortages and logistics disruptions many manufacturers are now facing.”

BNZ Senior Economist, Doug Steel stated that “the overt strength in the PMI comes amid ongoing supply side challenges that the sector faces and clear weakness in the Central region during the month.”

Hawkish RBNZ Acknowledges Inflationary Data/Risk

Craig Ebert -

To its credit, the Reserve Bank has acknowledged the sheer pressure of the recent economic data, and its inflationary risks. Accordingly, the Bank has today sent a strong signal that it will soon start hiking. That is, from the super-low level of 0.25% it left its cash rate at, at this afternoon’s Monetary Policy Review (MPR).

Another Record

Doug Steel -

Job advertising continues to build on its already exceptionally high level. The 1.0% increase in June took SEEK NZ ads to another record high. The trend remains firmly positive. Annual comparisons remain distorted by the COVID-compromised base period of last year. A better perspective is gleaned from the fact that job ads in June were more than 24% above pre-COVID highs.

QSBO says RBNZ should buckle

Stephen Toplis -

We knew that today’s QSBO would support our view that the economy was overheating. However, not only did it do that but it reveals an economy even hotter than our already hot perceptions. The RBNZ watches this survey closely. While the survey is probably too late to be fully incorporated into the Bank’s formal forecasting process, it is not too late to enter the Monetary Policy Review deliberations and rhetoric.

Q1 GDP Points to Excess Demand

Craig Ebert -

New Zealand’s GDP jumped out of the bushes in the March quarter, with a seasonally adjusted lift of 1.6%. This boosted annual growth to 2.4%, from -0.8% in Q4. For key perspective, GDP in Q1 2021 was 0.8% above the pre-COVID reference point of Q4 2019. Much more than avoiding a technical recession, NZ GDP has just printed quite strong.

External Deficit To Widen Further

Doug Steel -

It is hardly news that New Zealanders are spending more than they are earning from our transactions with the rest of the world. That has been the case since the early 1970s. But, potentially a bit more troubling is that the annual imbalance is starting to grow, and we think it will expand further over coming quarters.

Above Average

Doug Steel -

New Zealand’s services sector continued in expansion mode during May, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for May was 56.1 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). Although this was down 5.1 points from its highest ever result in April, it was still above its long term average of 53.9.

BusinessNZ chief executive Kirk Hope said that the drop in the level of expansion for May was not unexpected, given the significant level of activity seen in April.

“New Zealand continues to follow global trends with strong New Orders/Business (62.1) and Activity/ Sales (58.7). However, Supplier Deliveries (45.1) remains solidly in contraction.”

BNZ Senior Economist Doug Steel said that “while the current strength in the PSI (and PMI) says good things for economic growth over coming quarters, the obvious supply side stresses suggests significant upward pressure is building on inflation.”

Positive pressure

Craig Ebert -

New Zealand’s manufacturing sector remained at healthy levels of expansion for May, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for May was 58.6 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 0.3 points higher than April.

BusinessNZ’s executive director for manufacturing Catherine Beard said that “the two major sub-index values of Production (65.3) and New Orders (63.7) remain the cornerstones of ongoing expansion in the sector. In contrast, Employment (51.5) continues to slip into lower expansion, while Finished Stocks (52.4) and Deliveries of Raw Materials (53.5) remain above the 50-point mark.”

“Globally, manufacturing activity continues to expand at a robust pace, culminating in an 11-year high for May. However, this has led to upwards pressure on input prices across most countries, including New Zealand, given comments from respondents outlining increased costs of raw materials.”

BNZ Senior Economist, Craig Ebert stated that “the PMI readings on Finished Stocks and Deliveries of Raw Materials for May appeared reasonable. However, they were also still clearly lagging as components in the PMI. If there was any doubt about supply-side factors being a major problem, this was put paid to by respondents’ comments to May’s PMI.”

Fresh highs

Craig Ebert -

It’s not enough to say job advertising has fully recovered. It is now exceptionally strong. The 5.1% increase in May lifted SEEK NZ ads to a fresh record high. This was true of the seasonally adjusted index, and the (smoother) trend measure, with both marking levels more than 20% north of respective pre-COVID high-points. That’s the perspective to have in mind – particularly as annual rates of growth in advertising are being biased by the COVID-compromised base period of last year.

Hard for Q1 GDP to Fall; Easy for Inflation to Rise

Craig Ebert, Doug Steel -

Having seen the last of the main “partial” indicators come through this morning, we are struggling, even more, to see how Q1 GDP can drop, like the RBNZ anticipated it would in its May Monetary Policy Statement (MPS). Indeed, we have gone from being neutral on March quarter economic activity, to now expecting a 0.8% gain as a central case.

Housing Progression Unsustainable

Stephen Toplis -

The RBNZ has every right to be worried about the potential for a house price correction. It is a moot point whether house prices, per se, can be sustained at current levels. But while levels might be maintainable, we are convinced that current house price inflation is not. Indeed, the longer inflation remains at current elevated levels the greater the chance that the housing market will be forced into a major correction.

Freight Costs A Major Headache

Doug Steel -

There has been a lot going on with New Zealand’s international trade. General commodity price strength has been a feature. But there have been many challenges too, from shipping delays, to container shortages, and elevated freight costs. Such supply chain challenges remain a major issue for many businesses and consumers alike. Trade volumes and prices have been volatile as a result.

RBNZ Signals Future Rate Hikes

Stephen Toplis -

The Reserve Bank of New Zealand has unequivocally moved to a tightening bias. By reintroducing its OCR projection track, and including several rate hikes in that track, there can be no doubt as to where it sees the risks to the current 0.25% cash rate lying. Moreover, it dropped its April Monetary Policy Review comment that “The Committee agreed that it was prepared to lower the OCR if required”. Naturally, it will remain prepared to do so but, clearly, sees little likelihood of that being the case any time soon.

Fiscal Easing Aplenty

Stephen Toplis -

There are very few times in history when the government of the day would be able to announce a massive boost in both its capital and operating expenditure plans while, at the same time, broadly lowering is deficit and debt tracks. And all this in the midst of a global pandemic. Yet this is exactly the position the New Zealand Government found itself in today thanks largely to an economy that has refused to yield to COVID in the manner that most of us had first feared.

Following international trends

Doug Steel -

Like its sister survey the month before, activity in New Zealand’s services sector reached its highest level since the survey began in 2007, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for April was 61.2, which was up 8.3 points from March (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). It was the first time since June 2007 that the sector recorded a post-60 result.

BusinessNZ chief executive Kirk Hope said that the strong April result matches what is occurring across many countries we typically compare ourselves with.

“Australia, the UK and the USA are also posting post-60 results at present, which is indicative of the global economy slowly but surely getting back to some form of normality through increased business activity”.

BNZ Senior Economist Doug Steel said that “the Achilles heel of the PSI remains supplier deliveries. Given supply issues obviously remain a significant issue for many, especially when viewed alongside very strong demand side indicators at present, it points to significant upwards pressure on prices”.

Wheels keep turning

Craig Ebert -

New Zealand’s manufacturing sector continued in expansion mode during April, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for April was 58.4 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). While this was 5.2 points down from March, it was still the second highest result since July 2020 when New Zealand came out of lockdown.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the April result was another positive outcome for the sector. Despite the lower level of expansion in comparison with March, it would have been surprising if the April result had shown even higher expansion levels.

“The two major sub-index values of Production (64.5) and New Orders (60.9) continued to be the main drivers of the April result, with the latter coming off its historic level of expansion. Both Employment (52.7) and Finished Stocks (55.2) remained at similar levels to March, while Deliveries of Raw Materials (52.4) decreased 10.6 points”.

“Given the lower level of expansion for the current month, the proportion of those outlining positive comments decreased from 58% in March to 53.2% in April. Comments continued to outline demand side influences, with increased enquiries and orders”.

Milk Price Drivers Positive

Doug Steel -

Global dairy prices have lifted strongly through 2021 to date. Prices are at high levels. The GDT Price Index is some 44% above year earlier levels and 29% above its five-year average.

Big back-to-back gains

Craig Ebert -

Annual growth in job advertising this April – 355% as it turned out – was always going to be enormous; April last year was hit by the harshest phase of New Zealand’s COVID-19 lockdowns. Still, looking at the latest month to month results, a genuinely strong pulse can’t be denied. The 12% monthly increase in April’s total repeated the 12% gain registered for March. This sent the level of job ads more obviously to a record high.

Approaching Maximum Sustainable Employment

Stephen Toplis -

We have been saying for some time that the labour market would likely prove to be tighter than the RBNZ had anticipated. In part because of this, CPI inflation should also end up higher than expected. The combination of these factors would thus indicate the RBNZ might need to tighten monetary conditions sooner (though not soon) than it has so far suggested might be the case. There was nothing in today’s labour market data to disavow us of that view. Nor for that matter in the outcome of this morning’s dairy auction or Barfoot’s housing data.

Financial Markets Wrap

NZD modestly higher in May, a fairly uneventful month

Jason Wong -

• Currencies traded fairly tight ranges in May. NZD gains against the USD and AUD were in the order of 1-1½%.
• NZ bonds underperformed, with yields rising against a backdrop of little change in global rates
• Stronger NZ data and the RBNZ being confident enough to signal rate hikes from mid-next year were factors

Global reflation trade supported NZD in April

Jason Wong -

• The NZD was one of the best performing majors in April, recovering from oversold conditions in late-March
• The global reflation trade was a supporting factor, with a backdrop of rising equity markets and commodity prices
• USD showed broadly based falls

Interest Rate Strategy

Outlook for Borrowers: Post-July MPR

Nick Smyth -

The July Monetary Policy Review marked a change in tune from the RBNZ. The RBNZ kept the OCR at 0.25%, as universally expected, but announced it would end its LSAP bond buying next week. The headline to the statement read “Monetary stimulus reduced.” This signals a shift in direction in RBNZ policy towards tightening.

The development of the ESG bond market in NZ

Nick Smyth -

New Zealand playing catch up to global trends

Environment, Social and Governance (‘ESG’) considerations have grown in prominence over recent years. In part, this reflects the continuation of a trend that has been underway for many years, from the release of the UN’s Principles for Responsible Investment (PRI) in 2006, and even before then. But the trend has accelerated over the past few years. Assets under management among ESG funds have grown sharply since 2018 (see Chart 1) while global issuance of ESG bonds has also increased significantly (see Chart 2). Assets under management among PRI signatories now exceed US$100tn.

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

The writing is on the wall for RBNZ QE; NZGB-ACGB spreads to widen further

Nick Smyth -

BNZ economists changed their call on the RBNZ yesterday, after the QSBO business survey, and now forecast the first OCR hike for November this year (previously May 2022). This has a direct read across to our expectations for RBNZ QE since the RBNZ will want to have stopped purchases before it starts raising the OCR.

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

QE and bond market liquidity – Sweden and NZ

Nick Smyth -

Researchers from the Swedish Riksbank recently released a working paper evaluating the impact of QE on Swedish bond market liquidity. The study is important for New Zealand (and Australia) in several respects.

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

Initial RV Analysis of the NZGB May 2032

Nick Smyth -

NZDM will syndicate a new 15 May 2032 NZGB this month. It hasn’t said when in June the deal might come although we think next week (the week before the FOMC meeting and NZ GDP) is a reasonable bet.

For the past three bond syndications, NZDM has said it intended to issue at least $2b with transactions capped at $4b. We expect NZDM to provide the same size guidance this time around. Two of these three syndications were $4b while the most recent, the May-2026, was $3.5b.

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-May MPS

Nick Smyth -

The RBNZ kept its monetary policy settings unchanged at the May MPS, as expected. The OCR remains at 0.25% and there was no change to either its LSAP bond buying programme or the Funding for Lending Programme (FLP).

What caught the market by surprise was the RBNZ’s signal that it expects to start raising the OCR from the middle of next year. This signal came from the reintroduced OCR forecast track which showed the OCR reaching 1.78% by the middle of 2024. The RBNZ’s OCR track is conditional on the economy evolving broadly in-line with its forecasts, but the mere fact it has decided to publish a track showing rate hikes from the middle of 2022 is a signal in and of itself. In fitting with the RBNZ’s shift to a tightening bias, the MPS removed the reference that it was “prepared to lower the OCR if required.”

Bond issuance higher than expected; 30y NZGB incoming

Nick Smyth -

New Zealand Debt Management (NZDM) updated the bond programme today, alongside Budget 2021. The surprise is that bond issuance for the upcoming 2021//22 fiscal year is unchanged from December’s HYEFU, at $30b. We had pencilled-in a reduction to next year’s bond programme to $20b.

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

Bond issuance likely to be reduced next fiscal year

Nick Smyth -

NZDM will update the bond programme next Thursday, alongside the Budget. The last update came in December, at the time of the Half-Year Economic and Fiscal Update (HYEFU). At that December update, NZDM reduced forecast bond issuance by $5b for each year from the 2020/21 to 2023/24 fiscal years. Gross bond issuance was forecast to be $45b for the current 2020/21 fiscal year and $30b for the 2021/22 fiscal year.

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

Value returning to NZ linkers

Nick Smyth -

Breakeven inflation (BEI) has had a very strong run over the past twelve months, both in NZ and offshore. The RBNZ’s decision to include linkers within its QE programme at the May 2020 MPS and the shift higher in global BEIs catalysed a big repricing in NZ BEIs, albeit from what were admittedly very depressed levels in mid-2020. The NZ 10-year BEI came within a whisker of touching 2% in late March, which would have been the first time since 2014.

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

Markets Outlook

Inflation Bubble Suspended?

BNZ Research -

Will the confirmed suspension of the trans-Tasman travel bubble, on COVID-19 grounds, forestall New Zealand’s rising tide of inflation? This is not an idle question. After all, one of the abiding messages from the pandemic to date is that it can just as much aggravate inflation as dent it. And, ultimately, it is not economic growth targets that central banks have, but inflation targets.

BNZ Markets Today

Jason Wong -

Risk appetite was a little weaker at the end of last week, with equity markets notching falls and the US 10-year rate closing below 1.3%. Currency movements were modest, with notable NZD outperformance following a much stronger than expected CPI print that cemented expectations for a series of rate hikes beginning next month.

Hurry Up and Slow Down

BNZ Research -

We formally expect the RBNZ to start with a 25bps hike at its 18 August Monetary Policy Statement, with a follow up 25bps, to 0.75% at the November MPS. However, an increasingly viable alternative is for the cash rate to get to 1.00% by November. This would most likely entail 25 point moves at successive August, October and November policy meetings. However, it also captures the potential for a 50-point move at one or other of the MPS events, which might involve a pause in October’s MPR.

RBNZ MPR: Bring Your Dictionary

BNZ Research -

At Wednesday’s RBNZ Monetary Policy Review, there will be no new OCR projections for the markets to key off (that will have to wait for August’s MPS). So, it will be largely an exercise in parsing the Bank’s formal policy statement, along with its “summary record of meeting”. Bring your dictionary, for interpretations might be many and varied.

July MPR Preview

BNZ Research -

The RBNZ has been adamant that its decision-making framework has been based on a policy of least regrets. Those least regrets have largely entailed keeping monetary policy as loose as possible to stave of the potential for economic chaos that COVID has threatened. The problem is that monetary settings broadly remain at the same levels that were seen while experiencing the very worst of the economic fallout from the COVID outbreak. No matter how pessimistic you might be, it is hard to deny that conditions are now better than at that time and should remain that way even with further COVID outbreaks likely. On this basis, monetary conditions should be tighter than they are now, and least regrets should be turning towards avoiding the threats imposed by an overheating economy.

COVID Rears Its Ugly Head – Again!

BNZ Research -

If we needed a reminder that COVID-19 is the biggest immediate threat to both New Zealanders and the New Zealand economy we’ve just had it. While the tightened restrictions in the Wellington region are highly damaging for some, they are nothing more than a mild irritant to most. Had the extent of our COVID disruptions been limited to this, it is likely we would all be soon sailing along again as if nothing had happened. And, indeed, for most of the country nothing has. But the current game-changer is not what is happening here but what is evolving across the Tasman.

Exchange Rate Stimulus to Boot

BNZ Research -

Far from riding the coattails of a rate-hike signalling RBNZ, the NZ currency has eased since the 26 May Monetary Policy Statement (MPS). This has added another thread of stimulus, to a local economy that already looks to be pushing its inflationary boundaries.

More growth, more tension

BNZ Research -

There is a flood of data already released and due for release this week all of which is likely to support our view that the economy risks overheating, growth and inflation are surprising to the upside, and supply issues are increasingly problematic.

Determining Q1 GDP

BNZ Research -

This week we get further insight into the progress of around 15% of the New Zealand economy through the first quarter of this year. With the Wednesday release of the respective surveys of manufacturing and wholesale trade, we should get a much better feel for whether the economy contracted in Q1, as hypothesized by the RBNZ.

Inflation warning signs blaze

BNZ Research -

Today’s ANZ Survey supports our view that the demand for labour is exceeding potential supply and inflationary pressures are rising at an accelerating rate. Both these conditions support the RBNZ’s recent decision to ponder raising its cash rate next year. This week we get to see some partial indicators for Q1 GDP. We think the balance of risk is that these will suggest a positive March Quarter outturn in contrast to the RBNZ’s 0.6% expected drop. Meanwhile, keep an eye on the Canterbury floods which are negative for the region’s growth but the rain across the country is a big plus for those dried up hydro lakes.

Risk and Reason for a Less Dovish RBNZ

BNZ Research -

While we expect the RBNZ to broadly maintain its very accommodative line at Wednesday’s MPS, there is a risk it comes across as a little less dovish. The Budget, and even this morning’s stronger than anticipated Q1 retail trade figures, certainly add to the case for less monetary stimulus.

RBNZ MPS and Budget Preview

BNZ Research -

It’s hard to see how the RBNZ’s May MPS could be more dovish than its February equivalent. It could, however, display a distinct tilt to the less dovish side. In our opinion, the labour market is turning out to be tighter than the RBNZ had expected and the outlook for CPI inflation higher. If the Reserve Bank has come to the same conclusion then it would also be consistent to conclude monetary conditions don’t need to be as easy as previously assumed.

Expectations Firming for More Than Just CPI Inflation

BNZ Research -

Expectations are firming for CPI inflation, along with numerous other things about the NZ economy. Wages, economic activity, investment, employment – they are all now anticipated to be stronger in their rate of expansion. Fiscal policy options too, are getting latitude, from the rapidly repairing fiscal accounts, based off strong growth in tax revenue. There is also a certain resilience in the housing data of late, which is interesting.

Labour Market to Get Tighter Than RBNZ Expects

BNZ Research -

xpectations for Wednesday’s Q1 labour market data, while decent, are broadly margin of error material. The real test is what one projects for the unemployment rate over calendar 2021, and into 2022. On this, we see a clear drop, to around 4%, as above-trend demand for staff clashes the available pool of labour expanding at well below normal rates. The Reserve Bank’s last set of forecasts, by comparison, had the jobless rate drifting a bit above 5% over 2021 and not getting below 5% until 2023.

Markets Today

BNZ Markets Today

Jason Wong -

China’s regulatory crackdown has spilled over into other markets, driving a fall in risk appetite, with US equities down as much as 1-2%, dragging the US 10-year rate lower. Commodity currencies have underperformed and a much weaker CNY has done no favours to the NZD and AUD on a day in which even the USD has underperformed.

BNZ Markets Today

Jason Wong -

US and European equity markets show modest changes, trading near their record highs set at the end of last week while global rates are also little changed, although real rates have hit a record low. Currency markets show a bit more price action, with a broadly-based fall in the USD that helped the NZD regain the 0.70 handle overnight.

BNZ Markets Today

Nick Smyth -

Markets ended what was a turbulent week on a positive note on Friday, with the S&P500 pushing up to a record high amidst positive corporate earnings. The US 10-year rate tracked sideways, ending the week just below 1.30%, and currency moves were also minimal. The week ahead includes the July FOMC meeting, the first estimate of US Q2 GDP and Australian CPI

BNZ Markets Today

Jason Wong -

Global equity markets show modest gains while the US 10-year rate has traded a wide range again with yields currently down slightly. Currency movements have been modest, with the EUR on the soft side after the ECB reaffirmed its dovish credentials. The NZD and AUD show modest gains overnight.

BNZ Markets Today

Jason Wong -

Equity markets have recovered further overnight, with Monday’s fears now seemingly a distant memory. Unlike yesterday, better risk sentiment is evident across other asset classes as well, with US Treasury yields up towards 1.3%, commodity prices rebounding and commodity currencies recovering nicely.

BNZ Markets Today

Jason Wong -

There has been little news overnight, but US equities have bounced back, recovering yesterday’s losses. Other asset classes aren’t showing the same reversal. The US 10-year rate is barely higher and, while commodity currencies have outperformed overnight, movements have been small.

BNZ Markets Today

Jason Wong -

The new week has begun with a significant deterioration in risk appetite, attributed to fears of the spreading delta variant of COVID19 and some accusations of China cyberattacks not helping. There have been some chunky falls in global equities, rates and commodity prices overnight. The usual safe-haven currencies have outperformed while commodity currencies have copped it, sending the NZD to the bottom of the range and fresh year-to-date lows for the AUD.

BNZ Markets Today

Nick Smyth -

Markets have traded with risk-off tone overnight, with equity markets lower, the US 10-year rate dropping further, to around 1.30%, and the USD strengthening. There haven’t been any obvious catalysts for the shift in sentiment. In the UK, rates increased sharply after a second BoE MPC member spoke of tightening policy earlier. Commodity currencies have come under pressure amidst the risk-off backdrop, with the NZD dropping back below 0.70. NZ CPI is released this morning, with the market pricing around a 70% chance of an OCR hike next month.

BNZ Markets Today

Nick Smyth -

The NZD and NZ rates are higher over the past 24 hours in the wake of the RBNZ’s MPR, which the market interpreted as opening the door to an OCR hike next month. The market now prices around a 70% chance of an August hike. Offshore, the US 10-year rate has dropped back below 1.40% while the USD has reversed yesterday’s post-CPI appreciation. There hasn’t been much new from Fed Chair Powell’s Congressional testimony, with the USD and rates making most of their moves lower before Powell started speaking. Elsewhere, the Bank of Canada tapered its bond buying, as expected, but the statement disappointed market expectations, seeing the CAD underperform. Finally, media report that Saudi Arabia and the UAE have agreed to a deal over oil quotas, paving the way for an increase to OPEC+ supply in the coming months.

BNZ Markets Today

Nick Smyth -

US CPI released overnight was much higher than expected for the third month running, albeit boosted by some temporary factors like used cars. The CPI release saw the market bring forward Fed rate hike expectations while a very weak 30-year US bond auction drove longer-term rates higher, with the US 10-year breaking above 1.40%. Equity markets reversed earlier gains as the US 10-year started to climb. The USD has experienced a broad-based appreciation and is trading near a 3-month high while the NZD has slipped back to around 0.6940, having earlier made a fresh year-to-date low. The RBNZ Monetary Policy Review takes place this afternoon while Fed Chair Powell testifies to Congress tonight.

BNZ Markets Today

Nick Smyth -

Market moves have been limited overnight as investors wait on the US CPI release tonight and Fed Chair Powell’s testimony later in the week. The S&P500 and USD have edged higher while the US 10-year rate has consolidated after Friday’s sharp increase. The NZD has eased back to around 0.6775.

BNZ Markets Today

Nick Smyth -

Friday saw a complete turnaround from the risk-off moves the previous night. The US 10-year rate, which hit 1.25% on Thursday night, rebounded to 1.36%, while the S&P500 and NASDAQ closed the week at record highs. Market sentiment was boosted by the PBOC’s announcement that it would cut reserve requirements. The NZD bounced back to around 0.70 amidst a weaker USD and higher commodity prices. It’s a big week ahead, with the RBNZ MPR and NZ CPI the domestic highlights.

BNZ Markets Today

Nick Smyth -

It has been a risk-off trading session overnight with equities falling sharply and the US 10-year rate hitting a 4½ month low of 1.25%, although both have recovered somewhat over the past few hours. There haven’t been any major catalysts although commentators are blaming the moves on concerns around a slowdown in growth and the rising spread of the delta variant. Safe haven currencies have appreciated while commodity currencies have slumped. The AUD has made a fresh low for the year while the NZD has dropped to 0.6940, nearing support levels. Yesterday saw a big fall in long-term NZ rates.

BNZ Markets Today

Jason Wong -

The US 10-year Treasury rate continues to trend lower, going sub 1.30% to its lowest level in over four months. With inflation seen as less of a threat, the S&P500 has reached another fresh record high, showing small gains. The FOMC minutes didn’t throw up any surprises. Currency movements have been modest, with some small NZD outperformance as rate hike expectations get solidified.

BNZ Markets Today

Jason Wong -

It has been an eventful 24 hours in markets, with big turnarounds in the NZD and AUD currencies after their gains post QSBO and RBA policy updates, following a fall in risk sentiment. US Treasury yields have fallen to their lowest level in over four months. There are a few catalysts but individually they don’t look particularly significant. It’s just been one of those days.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week with the US on holiday. S&P500 and US Treasury futures are little changed, while currency movements have also been small.

BNZ Markets Today

Nick Smyth -

It was a risk-on trading session on Friday, with the S&P500 and NASDAQ ending the week at fresh record highs, commodity prices higher and the USD weaker. Markets interpreted a mixed US nonfarm payrolls report, which featured higher-than-expected job growth but an unexpected rise in the unemployment rate, as providing no further impetus for the Fed to turn any more hawkish. The US 10-year rate fell to 1.42%, its lowest close since early March. The NZD rebounded back above 0.70, recovering some of its underperformance earlier in the week.

BNZ Markets Today

Nick Smyth -

Overnight market moves have been reasonably subdued, with investors waiting on the key nonfarm payrolls report tonight. US equities are slightly higher, with some rotation back into ‘reflation trade’ favourites, while the US 10-year rate is hovering just under 1.50%. The USD has strengthened and is trading back near its recent highs. This has seen the NZD fall back to 0.6965, although it is up on most of the key crosses overnight.

BNZ Markets Today

Jason Wong -

There has been a lot of economic data to digest but the market has been unwilling to move too much ahead of the key US employment report at the end of the week. US equities are flat and the US 10-year rate has drifted lower. The USD was broadly stronger going into the 4pm London fix. The NZD has been one of the better performers overnight, but languishing below 0.70, even if higher on the crosses.

BNZ Markets Today

Jason Wong -

Against a backdrop of strong confidence data, US and European equities trade near record highs while US Treasuries continue to remain range bound. Perhaps the most interesting market dynamic is the commodity currencies languishing again, seeing the NZD back below 0.70.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the trading week with a slightly cautious tone. Most equity markets are flat to lower, US Treasury yields have trended down and commodity currencies have underperformed. This sees the NZD down 0.4% to 0.7045.

BNZ Markets Today

Nick Smyth -

Market sentiment remains broadly positive with the S&P500 closing last week at a record high and the US 10-year rate pushing up above 1.50% on Friday. Currency moves were modest, but with the NZD and AUD outperforming again. The market continues to bring forward the timing of RBNZ rate hikes, with a better than even chance of an OCR hike now priced by November.

BNZ Markets Today

Jason Wong -

With the Fed’s policy update last week now seemingly a distant memory, global equity markets are pushing higher while the US 10-year rate is stuck in a tight range just under 1.5%. Currency movements have been modest, but the NZD continues to grind a little higher, while GBP has underperformed as the Bank of England gives no hint of tightening policy.

BNZ Markets Today

Nick Smyth -

Market movements have been subdued overnight, with limited moves in equity, bond and currency markets. The US 10-year rate continues to hover just below the 1.50% mark. Commodity currencies have outperformed, with the NZD continuing to recover from its sell-off last week.

BNZ Markets Today

Jason Wong -

Market movements have been more modest compared to the past week, a sign of calmer conditions returning as investors further digest last week’s FOMC policy update. Equity markets show modest gains, US Treasury rates have been rangebound. The USD is on the soft side, helping the NZD crack the 0.70 mark and trade around 0.7025.

BNZ Markets Today

Jason Wong -

After last week’s massive positioning upheaval in financial markets a modicum of sanity has returned. A reversal of sorts has begun, with US equities rebounding, the US Treasuries curve steepening and the USD showing a broadly based fall. The NZD and AUD have made gains in the order of 0.8%, with the former knocking on the door of 0.70.

BNZ Markets Today

Nick Smyth -

Last week’s hawkish FOMC meeting continues to reverberate in financial markets. Reflationary sentiment continued to unwind on Friday, with equities and commodity prices moving lower again, the US Treasury curve flattening hard and the USD strengthening. In Australia, the market brought forward the expected timing of the first hike by the RBA to late 2022 while in NZ, the market now prices an almost 70% chance of a Feb-2022 hike. The NZD remained under pressure amidst the reversal in commodity prices and risk-off backdrop, making a fresh year-to-date low on Friday and ending the week around 0.6935.

BNZ Markets Today

Jason Wong -

The fallout from the more hawkish Fed update has continued into a second day, with some notable positioning shakeouts in currencies, commodities and the Treasuries curve. The NZD has fallen over 1% overnight and taken a peek below 0.70 while AUD has traded below 0.7550. The US Treasuries curve has flattened significantly, while some significant sector rotation is evident in US equities.

BNZ Markets Today

Nick Smyth -

Bond yields have moved sharply higher overnight, with equities falling, after the FOMC ‘dot plot’ indicated two rate hikes in 2023, compared to none at its meeting in March. The initial market reaction has also seen the USD strengthen with risk-sensitive currencies, including the NZD and AUD, underperforming. The NZD is currently trading around 0.7060. Markets are still in flux, with Powell still midway through his press conference.

BNZ Markets Today

Nick Smyth -

The market has traded with a slightly cautious tone overnight as investors wait for the key FOMC meeting tomorrow morning. US equity markets have eased back from the record highs set yesterday, the USD is stronger and most commodity prices (except oil) are lower. The US 10-year rate continues to hover around 1.50% ahead of the Fed update. The NZD has drifted down towards 0.71 amidst USD strength and softness in commodity prices.

BNZ Markets Today

Jason Wong -

The new week has begun on a quiet note, with little news to drive markets and some prevailing nerves ahead of the FOMC policy update later in the week. Currency movements have been small apart from a weaker yen, as US Treasury rates reverse some of last week’s downward move. Oil prices hit a 2-year high. The S&P500 is currently down 0.3%, falling from the record high set towards the end of last week.

BNZ Markets Today

Jason Wong -

Last week ended with a rebound in the USD, seeing the NZD and AUD close the week on a soft note at 0.7130 and just over 0.77 respectively. US equities showed small gains, hovering near record highs. The US 10-year rate drifted higher but still ended down 10bp for the week in which annual CPI inflation cracked 5%, with inflation expectations lower

BNZ Markets Today

Jason Wong -

The market was unperturbed by another shockingly high US CPI print, with the S&P500 reaching a fresh record high and the US 10-year rate pushing down to a fresh three-month low. The USD is broadly weaker overnight, but currency moves have been modest, with the NZD back to around 0.72.

BNZ Markets Today

Nick Smyth -

Global rates have fallen overnight, despite little fresh news. The US 10-year rate is trading below 1.50% and is set for its lowest close since early March. Movements in equities and currencies have been limited ahead of the US CPI release and ECB policy meeting tonight. The NZD is back below 0.72.

BNZ Markets Today

Jason Wong -

Global equity markets are flat while rates have pushed lower, ahead of key US CPI data this week and the FOMC’s policy update next week. Commodity currencies have underperformed for no obvious reason, seeing the NZD slip below 0.72.

BNZ Markets Today

Nick Smyth -

The main event since Friday has been the US nonfarm payrolls report which showed lower-than-expected job growth but further evidence of wage pressure. The market reaction was consistent with investors seeing less risk of an imminent tapering decision by the Fed, which saw lower bond yields and higher equity markets. The USD has been broadly weaker since Friday given the combo of lower yields and improved risk appetite while the NZD and AUD have been outperformers. On Friday, the RBNZ announced a reduction to its bond buying pace for this week, from $350m to $250m, the lowest weekly pace since the QE programme commenced.

BNZ Markets Today

Nick Smyth -

US Treasury yields and the USD have rebounded overnight on the back of stronger-than-expected US economic data (ISM Services index and ADP employment). Equities are lower, with interest rate-sensitive tech stocks underperforming, although they recovered some of their earlier losses on reports that Biden might choose not to raise the headline corporate tax rate, in a concession to Republicans. The NZD and AUD have underperformed against a backdrop of a higher USD and weaker risk assets, with the NZD trading around 0.7130 this morning. All eyes are on the US nonfarm payrolls report tonight, with the market believing this will have an important bearing on whether the Fed will soon begin a tapering discussion.

BNZ Markets Today

Nick Smyth -

Most markets have gone sideways overnight as investors wait on the US nonfarm payrolls report later this week. There has been little news to drive markets. The NZD has underperformed, for no obvious reason, and is trading this morning around 0.7235. NZ rates rebounded yesterday, with the 10-year swap rate continuing to hover around 2%.

BNZ Markets Today

Jason Wong -

There has been a heap of data and newsflow to digest but the net result is only small changes to financial asset prices, with the market focused on the US employment report at the end of the week. US equities are flat, the US 10-year rate has traded a tight range and the USD is flat. Within the mix, the NZD has slightly underperformed, drifting down towards 0.7250.

BNZ Markets Today

Jason Wong -

Markets have been quiet with the UK and US on holiday. US equity futures are slightly weaker while the USD is weaker across the board, seeing the NZD and AUD start the week on a positive note.

BNZ Markets Today

Jason Wong -

Ahead of the US holiday weekend there wasn’t a great deal of price action on Friday, as US equities closed slightly higher, US Treasury yields pushed lower and currency markets were relatively flat, although the NZD and AUD showed some modest underperformance for no obvious reason.

BNZ Markets Today

Nick Smyth -

Market moves have been reasonably modest overnight. Bond yields have rebounded after their recent declines, with the US 10-year rate back above 1.60%, while equity markets are largely unchanged. The GBP has outperformed after the usually dovish MPC member Vlieghe outlined a scenario where the BoE could hike rates early next year while the NZD is trading around 0.73. Yesterday saw another big jump higher in the NZ 5-year swap rate as the market continued to digest the implications of Wednesday’s RBNZ MPS.

BNZ Markets Today

Jason Wong -

There has been little newsflow overnight to drive markets. US equities show small gains and the US 10-year rate has traded a tight range. The NZD has moved back below 0.73 following the post-MPS rally, driven by a stronger USD overnight.

BNZ Markets Today

Jason Wong -

Gobal equities are treading water, with not a great deal of newsflow, apart from ongoing soothing words from Fed officials about the inflation outlook. US Treasury yields have pushed lower alongside German rates, while there has been little movement in currency markets.

BNZ Markets Today

Jason Wong -

After a quiet Asian and European morning session, risk appetite improved during US trading, with US equities up over 1% and the NZD leading the charge after last week’s underperformance. Bonds are well bid, with global rates drifting lower.

BNZ Markets Today

Nick Smyth -

Market moves were subdued to end last week, with little change in bond yields and US equities. The EUR fell after some dovish comments by ECB President Lagarde, with the market looking through a generally upbeat set of European PMIs. The NZD was dragged down with the EUR, ending the week around 0.7170. The RBNZ MPS is the highlight of the week ahead for the domestic market.

BNZ Markets Today

Nick Smyth -

Risk sentiment has rebounded over the past 24 hours with investors seemingly deciding that the tapering talk in yesterday’s Fed minutes won’t translate into action any time soon. Equities have recovered strongly while the USD and bond yields have fallen, largely reversing their moves yesterday. The NZD is back to around 0.72. Yesterday, the NZ government outlined an expansionary Budget alongside higher-than-expected bond issuance and plans to issue a 30-year government bond for the first time, but the market was unmoved.

BNZ Markets Today

Nick Smyth -

Markets have traded with a risk-off tone overnight, with equities and commodity prices falling and the USD strengthening. US Treasury yields have increased after the Fed minutes said a number of members thought it might be appropriate to start discussing tapering in upcoming meetings. Meanwhile, bitcoin had another one of its periodic meltdowns overnight, losing over 30% at one point, before recovering. The NZD has underperformed and is back around 0.7150. The NZ Budget is released this afternoon, with the market looking for a reduction to forecast bond issuance.

BNZ Markets Today

Jason Wong -

US equities show modest falls and bond market benchmarks have showed little movement overnight. In currency markets some modest but broad USD weakness is evident. That move sees the NZD push higher, settling around 0.7250.

BNZ Markets Today

Jason Wong -

Markets have begun the new week trading with a more cautious tone after the rollercoaster ride last week. The S&P500 is currently down ½%, led by weakness in the tech sector, with the Nasdaq index down about 1%.

BNZ Markets Today

Jason Wong -

Even with a run of softer than expected US economic data, risk appetite ended last week on a positive note, with a second day of solid gains after the losses seen earlier in the week. The S&P500 rose 1.5%, the USD showed broadly-based losses and the NZD gained some 1% in Friday night trading to close the week near 0.7250. The US 10-year rate drifted lower, falling 3bps on the day to 1.63%.

BNZ Markets Today

Nick Smyth -

US Treasury yields retraced some of their sharp post-CPI moves overnight, with the US 10-year rate falling back to 1.66%. Equity markets have also partially recovered after their heavy losses yesterday. Currency movements have been relatively muted, although the NZD has outperformed, albeit modestly. Yesterday, global forces dragged the NZ 10-year swap rate back above 2% for the first time since March.

BNZ Markets Today

Jason Wong -

A monstrous US CPI print for April shocked the market, driving down US equities, lifting US Treasury yields and supporting the USD. The fall in risk appetite has seen the NZD and AUD hit the hardest, overnight extending the losses during NZ trading hours and both down 1.4% from this time yesterday.

BNZ Markets Today

Jason Wong -

US equities have been hit again overnight but this time the sell-off has been broader, while European equities are also much lower. Currency markets haven’t reacted to the sell-off and show only modest moves. The US 10-year Treasury yield has pushed a little higher.

BNZ Markets Today

Jason Wong -

Another notable rotation out of tech stocks has dragged down the S&P500 against the backdrop of inflation fears, as some key industrial commodity prices stretch higher and the US 10-year break-even rate prints a fresh eight-year high. Currency markets show only modest movements apart from a strong gain in GBP, following the Scottish elections over the weekend. NZD temporarily broke above 0.73.

BNZ Markets Today

Nick Smyth -

The ‘reflation trade’ gathered momentum on Friday, with a disappointing nonfarm payrolls report seen as providing further ammunition for the Fed to keep monetary policy ultra-accommodative. The S&P500 made a fresh record high, US 10-year breakeven inflation rose above 2.5%, copper prices made an all-time high, and the USD weakened sharply. The NZD appreciated to a two-month high amidst a weaker USD backdrop, ending the week around 0.7280.

BNZ Markets Today

Nick Smyth -

It’s been a quiet overnight session for markets, with equities and bond yields treading water ahead of the nonfarm payrolls report tonight. The USD is weaker overnight, and the NZD has consolidated above 0.72. Commodity prices remain strong.

BNZ Markets Today

Nick Smyth -

US equities and rates markets have tracked broadly sideways overnight, as the market moves into a holding pattern ahead of the nonfarm payrolls report tomorrow night. Commodity prices remain firm, driving gains in commodity currencies and inflation expectations. The NZD has outperformed after a strong HLFS labour market report yesterday.

BNZ Markets Today

Jason Wong -

Risk sentiment has weakened, with a chunky fall in US equities, slightly lower US 10-year rates, and support for safe-haven currencies. The NZD and AUD have been two of the worst performing over the past 24 hours. While it might just be a case of US equities being overdue for a correction, comments on rates by Treasury Secretary Yellen also got the market’s attention.

BNZ Markets Today

Jason Wong -

The week has begun with a reversal of some of the price action seen on Friday night, with US equities higher and the USD lower. A softer than expected ISM manufacturing index has supported a slight fall in the US 10-year rate and weaker USD dynamic. The NZD is back with a 0.72 handle.

BNZ Markets Today

Jason Wong -

Risk sentiment soured on the last day of April, with US equities lower, the US 10-year rate down a touch and a broadly based increase in the USD. The NZD gave up all its gains for the week, and more, falling a chunky 1.2% on Friday night to about 0.7160.

BNZ Markets Today

Jason Wong -

Another day, another high for the S&P500, against a backdrop of strong economic data and a good earnings season. US Treasury yields are slightly higher, with a fresh eight-year high in the 10-year break-even inflation rate. The USD is a touch stronger, so the NZD shows a small fall to the 0.7245 mark.

Rural Research

Strong Opening Forecast

Doug Steel -

The new dairy season starts with international prices at elevated levels. Global dairy prices have been strong through 2021 to date, although they have been easing back slowly from a peak in early-March.