BNZ Research

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

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Currency Research

NZD Corporate FX Update

Jason Wong -

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.

NZD/JPY (finally) past its peak?

Jason Wong -

For some time, we have had a negative medium to long-term outlook on NZD/JPY. The BoJ’s ongoing ultra-easy policy stance has been a hindrance to the cross rate falling, but there is increased speculation that the central bank will soon end its negative interest rate policy, either at next week’s meeting or in April.

NZD/JPY is down nearly 3% from its recent nine-year high around 93.5. If the BoJ is indeed about to make a significant policy pivot, then NZD/JPY has probably peaked and our confidence in a weaker cross rate from here would increase.

Most likely, the BoJ will proceed very cautiously, even if it does begin to lift rates. Thus, there is no guarantee our view will play out, but we highlight that JPY is extraordinarily cheap. A hawkish pivot by the BoJ could easily disrupt financial markets accustomed to low Japanese rates and a very cheap yen.

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

Economy Watch

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”.

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.

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”.

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.

Recession Clocks Up Fifth Quarter

Doug Steel -

We were braced for weakness in today’s Q4 GDP figures. In fact, we were braced for it as far back as May 2022 when we first said ‘a recession seems difficult to avoid’ and ‘growth stalls completely in 2023’. That’s essentially what happened last year.
GDP fell 0.1% in Q4, to be down 0.3% on a year earlier. Cue more talk about NZ re-entering technical recession. Technical recession or not (who knows, it could get revised away), to us the bigger picture remains the same. The economy continues to bump along the bottom. It has struggled to grow for more than a year now, real per capita incomes have dropped sharply, and the unemployment rate is rising.

Large Deficit Shrinking

Doug Steel -

NZ’s external deficit is large, but it is narrowing. For the 2023 calendar year, the annual current account deficit stood at 6.9% of GDP. This is smaller than the 7.4% (revised from 7.6%) recorded for the year to September 2023 and a decent chunk narrower than the recent 8.8% peak recorded in calendar year 2022.
The annual deficit matched our expectations although was a tick smaller than market expectations of 7.0%. We expect further deficit narrowing ahead to around 5% in 2024 and near 4% in 2025.

Path of expansion

Stephen Toplis -

New Zealand’s services sector continued its path of expansion in February, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for February was 53.0 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 0.8 points from January and the highest level of activity since March 2023. However, it was still just below the long-term average of 53.4 for the survey.

BusinessNZ chief executive Kirk Hope said that three of the last four months has seen the sector in expansion, with the key sub-index results for both Activity/Sales (53.1) and New Orders/Business (56.0) remaining in positive territory for the current month. In fact, the latter was at its highest level of expansion since December 2022. Employment (49.1) remained in slight contraction, although the rate of contraction continues to decline.

The proportion of negative comments from businesses stood at 57.3% in February, compared with 53.0% in January and 58.7% for December. Respondents still saw the cost of living as the key determining factor on business activity, followed by difficult overall economic conditions.

BNZ's Head of Research Stephen Toplis said that "when we combine the PMI and PSI together to get an indicator of activity, there is a strong suggestion of growth returning later this year. The turnaround occurs a little stronger and earlier than we are forecasting but, whatever the case, it is a heartening sign”.

An inflation surprise

Stephen Toplis -

February’s selected price indicators have given us a lot to think about. As always, volatile monthly numbers ask more questions than they provide answers but the questions that today’s figures provide are very interesting indeed.

In a nutshell, you could describe the release as being good news for the average punter but highly challenging for the Reserve Bank.

Same old, same old

Stephen Toplis -

It’s a case of same old, same old. Labour market conditions continue to ease, and rapidly so. While there may be some suggestion of moderation in the pace of easing, there is nothing to indicate a likely improvement in conditions any time soon. Indeed, the data remain entirely consistent with very low employment growth and an increase in the unemployment rate to over 5% from its current 4%.

Earnings season highlights economic challenges

Jason Wong -

The latest corporate earnings season for NZX-listed companies has drawn to a close. The publicly available releases contain a rich source of information. We parsed the public releases and investor presentations of 39 company earnings releases through a macro lens to gather as much information as possible on the economic backdrop in NZ. This information can be timelier than official economic releases and thereby provides an added source of data to assess economic conditions.

Businesses See Some Improvement In Year Ahead

Doug Steel -

Today’s ANZ business survey contained little to change our view of the world. The outlook for activity over the coming year is somewhat better than it has been over the past year or so. Inflation is elevated and some pointers look a bit sticky, but they continue to suggest inflation is trending lower. Employment intentions is one area that does continue to raise some questions.

RBNZ Holds

Doug Steel -

The RBNZ held the cash rate at 5.50% this afternoon. The Bank also maintained its tightening bias, albeit somewhat watered down from its November statement.

This was very close to our expectations as detailed in our MPS preview. Our broad assessment is that the labour market is easing, spare capacity is growing, and inflation, both headline and core, is falling. And established measures of inflation expectations are falling. Hence there is no need to lift rates further.

Financial Markets Wrap

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

NZD flat in February

Jason Wong -

• Timing of policy easing pushed out around the world; Fed speakers united and data non-compliant with an early easing
• Global rates push higher and many equity markets reach record highs; Currency markets well-contained
• NZD/USD trades less than a 2-cents range, closes month modestly weaker; JPY underperforms

Interest Rate Strategy

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.

Outlook for Borrowers: Post February MPS

Stuart Ritson -

The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady as expected, at 5.5%, at the February Monetary Policy Statement (MPS). The Bank, although remaining hawkish, eased its rhetoric from the previous MPS in November. A mild tightening bias was retained but Monetary Policy Committee (MPC) members noted that overall, risks to the outlook for inflation were more balanced than at the time of the November 2023 Statement.

Markets Outlook

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.

On the improve

Stephen Toplis -

Activity in New Zealand’s manufacturing sector continued to show improvement in February, but still remained in contraction, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for February was 49.3 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 47.5 in January and the highest level of activity since February 2023. However, the sector has now been in contraction for 12 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that the improved February result showed signs of a gradual turnaround in the sector.

“The key sub-index of Production (49.1) was at its highest level since January 2023, while Deliveries (51.4) was at its highest point since March 2023. However, New Orders (47.8) has now remained in contraction for nine consecutive months and likely needs to get much closer to the 50-point mark to edge the sector back into expansion".

The proportion of negative comments in February stood at 62%, which was down from 63.2% in January but up from 61% in December. A lack of orders (both domestic and offshore) was mentioned by many respondents, as well as the general slowdown in the economy.

BNZ’s Head of Research Stephen Toplis said that “New Zealand’s manufacturing sector is still in recession, but this month’s PMI indicates there is light at the end of the tunnel. The 49.3 reading is within a smidgen of “breakeven” and the new orders to inventory differential provides support for an increase in production. Moreover, New Zealand’s underperformance against the rest of the world is narrowing quickly”.

GDP going nowhere fast

BNZ Research -

We’ve settled on 0.1% for our Q4 GDP pick. But the data are very noisy at the moment so there is a huge margin of error around this projection. Whatever the exact number the conclusion will be the same, New Zealand economic growth has stalled and on a per capita basis it is going backwards at a rapid rate of knots.

Monitoring Growth, Or Lack Thereof

BNZ Research -

There is no top-tier data this week, but a collection of the remaining key indicators for Q4 GDP are worth watching. We are looking for them, collectively, to suggest that economic growth struggled in Q4. This morning’s data saw a substantial drop in the terms of trade – reflecting a material drop in the country’s purchasing power. A very large drop in import volumes suggests demand has slumped. But there was plenty else to ponder in today’s extremely volatile set of trade figures for Q4.

RBNZ To Aggressively Maintain Tight Conditions

BNZ Research -

RBNZ takes centre stage. It seems to us there is no need for the RBNZ to raise rates further. Monetary conditions are tight and doing the work. Whether the Reserve Bank sees things as we do is moot. Its rhetoric has certainly been extremely hawkish of late. We acknowledge there is still more of a chance the RBNZ lifts its cash rate on Wednesday than it lowers it. We expect the Bank to aggressively justify holding interest rates at current levels for an extended period.

Markets Today

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 -

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.

BNZ Markets Today

Jason Wong -

Market reaction to the Fed’s latest policy update has been well contained so far, with some relief that the Fed still projects three rate cuts this year, albeit sees less scope for lower rates further out. The US Treasuries curve is steeper on the day, driven by lower rates at the short end. The NZD hit a fresh low for the year of 0.6025 last night but is closer to 0.6070 as we go to print.

BNZ Markets Today

Stuart Ritson -

Global asset markets were generally subdued as investors looked ahead to the US Federal Reserve rate decision which will help frame the outlook for policy easing this year. The S&P recovered from an earlier dip to be marginally higher in afternoon trade with similar small moves across other major global indices. The Nikkei registered a 0.7% gain after yesterday's widely anticipated Bank of Japan meeting. Treasury yields drifted lower and the US dollar advanced.

BNZ Markets Today

Jason Wong -

It has been a typically quiet start to the week, with investors keeping their powder dry ahead of a busy week. Currency markets barely have a pulse, with tiny net movements, while US rates have pushed up to flirt with fresh highs for the year. US equities are up 0.8%.

BNZ Markets Today

Stuart Ritson -

Global equity markets struggled to gain traction as investors look ahead to key central bank meetings this week. The S&P fell 0.7% while major European indices were little changed. In Asia, the Hang Seng fell nearly 1.5% following weak house price data from China and the PBOC’s decision to leave rates on hold and withdraw liquidity. US treasuries ended modestly higher in yield and the US dollar was stable.

BNZ Markets Today

Jason Wong -

It hasn’t been a very good day for asset markets, with US data showing a stagflationary bias – higher inflation and weaker consumer spending – driving a sell-off of US Treasuries and equities. The 10-year rate is up 10bps on the day after PPI inflation came in strong, while the S&P500 is down 0.5%. Higher US rates have driven broad gains in the USD. Unusually, the yen has been least affected as speculation of a rate hike by the BoJ next week increases. The NZD has fallen to 0.6130 and oil prices are higher on a change in outlook from the International Energy Agency.

BNZ Markets Today

Stuart Ritson -

Global asset markets were confined to narrow ranges in the absence of first-tier economic data or other catalysts. The S&P was little changed in early afternoon trade and is consolidating near record highs. European stocks edged higher to a new all-time peak while the Hang Seng managed to build upon the 3% rally from the previous session, indicating an improved sentiment towards Chinese equities. US treasury yields moved higher ahead of 30-year supply while currency markets were broadly subdued. Oil prices rose after Ukraine carried out drone strikes on refineries in Russia.

BNZ Markets Today

Jason Wong -

US rates and the USD are modestly higher after the US CPI report was a touch stronger than consensus, providing no fuel for those looking for an imminent Fed rate cut. Treasury rates are up 5-6bps across the curve. The NZD has slightly underperformed, falling to 0.6150 and down modestly on most crosses.

BNZ Markets Today

Jason Wong -

It has been a typically quiet start to the trading week, more so with focus on the US CPI report due tonight. Heavy supply is weighing on US Treasuries, seeing yields modestly higher, US equities are down slightly, and currency movements are well contained. The NZD is down slightly to 0.6165.

BNZ Markets Today

Stuart Ritson -

Global equities retreated into the end of last week. The S&P briefly spiked to a fresh all-time high, just below 5,200 after the US labour market data was released, but subsequently faded to close 0.7% lower. US treasuries settled marginally lower in yield following a volatile period around the data while the US dollar index ended little changed. Bitcoin briefly passed $70,000, to set a new peak, before rapidly retracing. Gold extended its rally and reached a fresh all-time high of $2,195 per ounce.

BNZ Markets Today

Jason Wong -

US and European equities rose to fresh record highs, with the prospect of rate cuts supporting investor confidence in the market, although global rates only show small movements. The ECB left rates on hold and President Lagarde hinted at a June rate cut. The USD is broadly weaker again, with the NZD lifting to 0.6170, although JPY has outperformed as the BoJ edges closer to a rate hike.

BNZ Markets Today

Jason Wong -

US Treasury yields are lower, the USD is weaker and US equities have recovered some of yesterday's losses. Chair Powell reiterated the Fed’s view of easier policy later this year in front of lawmakers, while US labour market data were line. The NZD has recovered to 0.6135 and, alongside the AUD has slightly outperformed, seeing most crosses modestly higher.

BNZ Markets Today

Jason Wong -

A risk-off vibe overhangs the market, with weaker IT stocks a drag on US equity market performance. That has helped support the bond market, with a weaker US ISM services report chiming in, seeing US Treasury yields down 4-6bps for the day. Currency moves have been modest. China’s optimistic 5% growth target did nothing to support commodity currencies, and the NZD is languishing just under the 0.61 mark.

BNZ Markets Today

Stuart Ritson -

US equity indices are little changed with investors looking ahead to key economic indicators and comments from Fed officials, including Chair Powell’s testimony before the House Financial Services Committee, later in the week. In Japan, the Nikkei 225 increased 0.5% and traded above the psychological 40,000 level for the first time. The Nikkei is the best performing major stock index in 2024, having gained 20% in local currency terms, and 13% in US dollar terms. This compares with an 8% rise in the S&P.

BNZ Markets Today

Stuart Ritson -

Positive risk sentiment propelled global equity indices to fresh record closes at the end of last week. The S&P traded above 5,100 and the Eurostoxx 50, looked past stronger than expected inflation data, to eke out a new all-time high. Treasury yields and the US dollar fell following weak manufacturing data and WTI crude prices rose above US$80 per barrel.

BNZ Markets Today

Jason Wong -

There has been plenty of news to digest over the past 24 hours. In-line US PCE deflator data came as a relief and triggered a rally in the bond market, seeing US Treasury yields lower across the curve. US equities are flat. The NZD is little changed from this time yesterday, at 0.6080, while a hawkish speech by a BoJ board member has seen a sustained lift in the yen.

BNZ Markets Today

Stuart Ritson -

Global assets markets are little changed overnight in the absence of first tier economic data. Investors are looking ahead to key inflation data in the US and big European economies which could influence the expected path for interest rates. The S&P is marginally lower in early afternoon trade continuing the sideways price action from recent sessions. Global bond markets are stable while the US dollar advanced. Bitcoin surged above $60,000 for the first time since November 2021 extending gains to over 40% in 2024.

BNZ Markets Today

Jason Wong -

It has been another uneventful trading session, with flat US equities, small changes in US Treasury yields and currency markets well contained. Focus today will be on the RBNZ’s MPS where there is strong consensus for no change in rates, but nervousness that impatience by the MPC could trigger another rate hike.

BNZ Markets Today

Jason Wong -

It has been a quiet start to a busy week, with little newsflow. The NZD and AUD have kicked off the week on a softer note, the former sustaining the modest fall seen during NZ trading hours, as traders pared long positions ahead of the RBNZ’s MPS. Global rates are higher, led by Europe, seeing the US 10-year rate up 6bps overnight versus the NZ close. US equities are flat.

BNZ Markets Today

Stuart Ritson -

US equity indices ended little changed on Friday after a week where major global indices in Japan, Europe and North America reach record highs. There was limited economic data or other catalysts to provide direction with the S&P confined to a narrow range. Global bond yields moved lower, and currency markets were little changed.

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.

Outlook for Borrowers: Post February MPS

Stuart Ritson -

The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady as expected, at 5.5%, at the February Monetary Policy Statement (MPS). The Bank, although remaining hawkish, eased its rhetoric from the previous MPS in November. A mild tightening bias was retained but Monetary Policy Committee (MPC) members noted that overall, risks to the outlook for inflation were more balanced than at the time of the November 2023 Statement.

Rural Research

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.