BNZ Research

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Currency Research

NZD: Still struggling

Jason Wong -

Since late November the NZD/USD exchange rate has tracked sideways, confined to about a 0.67-0.69 range. It has started the year on the back foot, falling a little against a backdrop of weaker risk appetite.

As we think about the year ahead, the outlook remains typically uncertain and currency forecasting hasn’t got any easier. This is not a normal economic cycle we’re in, with the pandemic and policy choices playing a significant role in upending the usual relationships we rely on to forecast the NZD. Notably, the NZD showed a middling performance last year despite the tailwinds of stronger global growth, significant strength in commodity prices and higher NZ-global rate spreads.

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 -

We remain cautious on the near-term outlook for the NZD as we head towards, and into, 2022.

The year is closing with still-strong USD momentum, the big dollar in a clear uptrend since the US Fed’s initial hawkish pivot at the June FOMC. As we look to 2022, it is difficult to have conviction that the USD is at a turning point, and our near-term NZD projections are nudged a little lower, reflecting our broadly-based upward revision to the USD. We have pitched our Q1 and Q2 targets at 0.68-0.69, consistent with a view that sustained USD strength will see the NZD languish roughly in a 0.66-0.71 range over the first half of next year. Our assumption thereafter is that the USD might finally be on the turn by that point, easing the path for the NZD to return into the low 0.70s.

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

NZD Update: Strong USD remains in charge

Jason Wong -

In early October we downgraded our outlook for the NZD, noting “headwinds galore”, including (i) the reasonable risk of US inflation proving less transitory than the Fed expects, leading to a bringing forward of rate hikes further into 2022, (ii) the global energy crisis which would hold back global growth, (iii) risks around China relating to its property market woes and its COVID19 elimination strategy, and a range of domestic factors. Our downwardly revised projection had a year-end target of USD0.69 and a relatively flat profile, consistent with a 0.67-0.72 range through to the middle of next year.

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 -

NZD/USD was up about 4% in October, putting it near the top of its trading range since the middle of the year. A return of the global reflation trade and associated higher risk appetite was a key driver of the bounce-back, with higher NZ-global interest rate spreads a secondary force.

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

Economy Watch

On a Brighter Note

Doug Steel -

New Zealand’s manufacturing sector saw an improvement in expansion levels for the last month of 2021, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for December was 53.7 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 2.5 points higher than November.

BusinessNZ’s Director, Advocacy Catherine Beard said that 2021 was close to a year of two halves, with January-July showing generally strong expansion due to playing catch-up from the effects of the 2020 lockdowns. The remaining months of 2021 have been lacklustre, so it remains to be seen whether the sector experiences another period of catch-up heading into 2022.

“In terms of the main sub-indices, it was pleasing to see both Production (56.4) and New Orders (57.5) recording their highest values since July 2021. Employment (52.0) went back into expansion, as did Finished Stocks (52.8).”

BNZ Senior Economist, Doug Steel stated that “in the final quarter of 2021 the PMI averaged 53.2, indicating a return to positive manufacturing GDP growth after a sharp negative in the prior quarter.”

QSBO Revisions Emphasize Slow but Inflationary Economy

Craig Ebert -

One of the key stories in this morning’s Quarterly Survey of Business Survey (QSBO) was that NZIER revised its prior quarter’s result, to correct processing errors. And what a difference they made. Notably, the revisions went a long way to beefing up last quarter’s inflation gauges, some of which we thought looked strangely weak at the time.

A creditable finish to 2021

Craig Ebert -

After being dented by Delta (and associated COVID restrictions) back in August, New Zealand’s job ads bounced back to a creditable extent by the end of 2021. Their 1.0% increase in December might not have restored the absolute peak achieved in July. Nevertheless, job ads with SEEK finished 2021 32% stronger than they were a year ago, and (coincidentally) came in 32% loftier than they were at the end of 2019.

Yes, Q3 GDP Drop Buttresses RBNZ Hiking Bias

Craig Ebert -

If you thought yesterday’s HYEFU had a perplexing mix of (positive) news, try the following on for size. Today’s Q3 GDP report – which registered a quarterly drop in activity of 3.7% – reinforces the case for the Reserve Bank to keep removing OCR stimulus.

External Deficit To Widen Further

Doug Steel -

New Zealand’s current account deficit for the year to September stood at 4.6% of GDP. This was a tick bigger than market expectations of a 4.5% result, although not quite as large as the 4.7% we had anticipated.

Government funding requirements slashed

Stephen Toplis -

Nothing is normal anymore. Who would have thought a government could announce one of the biggest spend ups of all time and accompany this with a massive reduction in its requisite funding programme. Yet this is exactly what today’s Half Year Economic and Fiscal Update HYEFU delivered.

How can this be so? In short, it reflects a massive improvement in the fiscal starting point accompanied by upward revisions to expectations for future government revenue streams.

Waiting game

Craig Ebert -

Activity levels in New Zealand’s services sector improved slightly during November, although still remained in overall contraction, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for November was 46.5 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 1.6 points from October, and almost identical to the September result.

BusinessNZ chief executive Kirk Hope said that the stagnant nature of recent results exemplifies the difficult trading conditions many businesses currently find themselves in.

“The key sub-index of Activity/Sales (45.6) remains in contraction, although continues to improve slightly from its low in August. More encouragingly, New Orders/Business (54.4) returned to expansion for the first time since July, which was likely due to easing of lockdown conditions. While Employment (50.3) remains close to no change, both Stocks/Inventories (46.7) and Supplier Deliveries (37.8) have yet to show expansion since the 2021 nationwide lockdown.”

BNZ Senior Economist Craig Ebert said that “we can surely expect the PSI, and even the PMI, to improve in December, given New Zealand’s move into the less-restrictive “traffic-light” system of COVID management near the start of the month. Still, the latest PSI and PMI results warn against taking a strong bounce in GDP for granted, at this point.”

Ups and downs

Doug Steel -

New Zealand’s manufacturing sector saw a lower level of expansion for November, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for November was 50.6 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 3.6 points lower than October.

BusinessNZ’s Director, Advocacy Catherine Beard said that the up and down nature of the key sub-indices that make up the overall result shows that the sector has some way to go to get back to what we saw during the first half of 2021.

“New Orders (54.7) has remained very consistent over the last three months. Production (52.2), while positive, has remained somewhat lacklustre. Employment (48.2) fell back into contraction for the first time since December 2020, while Finished Stocks (48.3) and Deliveries (42.9) both returned in contraction after exhibiting expansion in October.”

“In addition, the proportion of negative comments from respondents rose to 57.6% in November, compared with 55.4% for October and 71% in September.”

BNZ Senior Economist, Doug Steel stated that “the PMI implications for economic (and employment) growth seem clear – soft. But with obvious difficulties remaining on the supply side, we’d suggest that inflation is still rising.”

Less restriction, more job ads

Craig Ebert -

After finding their feet in October, SEEK job ads took a clear step forward in November. Their 5.1% gain was the best monthly move since May, and set annual growth at a solid 35.4%. Compared to November 2019 – a valid pre-COVID point in time – the latest job ad numbers (seasonally adjusted) stood 28.9% taller.

Q3 GDP Nowhere Near as Weak as Anticipated?

Craig Ebert -

As we wrote in Monday’s BNZ Markets Outlook, “If we were to take a guess at the revision risk for our forecasts, we would say it’s for less of a decline in Q3 GDP than we presently estimate.” Well, we very likely got the direction right, but it seems we didn’t know the half of it. This morning’s gamut of “partials” suggest Q3 GDP will contract in the region of 4%, not the 7% we had pencilled in.

RBNZ: On the way to neutral

Stephen Toplis -

Today the RBNZ raised its cash rate 0.25% to 0.75%. More importantly, it confirmed it will progressively raise that cash rate until monetary conditions are on the tighter side of neutral. And this will be achieved before the end of next year. To cap things off, the Bank also suggests the peak in the cash rate will eventually be between 2.50% and 2.75%.

Retail Spending: Less Down, Less Up

Craig Ebert -

The 8.1% fall in September quarter retail trade wasn’t quite as much as we (and the market) anticipated. However, its details didn’t perturb our view on matters macroeconomic, even alter our estimate for Q3 GDP, which remains for a decline of around 7%.

Milk Price Record Beckons, But Mind Costs

Doug Steel -

We noted a couple of months ago that the balance of risks to domestic milk prices had swung upwards. Since then dairy product price outcomes have added to the case. This includes the latest GDT auction overnight where prices rose 1.9%, with gains across all major product groups.

Step Down

Doug Steel -

New Zealand’s services sector stepped further into contraction during October, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for October was 44.6 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 1.9 points from September, reversing some of the 11.1 point increase from August to September.

BusinessNZ chief executive Kirk Hope said that it was disappointing that the gains in September did not also flow through to October.

“The key sub-indexes of Activity/Sales (43.7) and New Orders/Business (46.4) still clearly remain in contraction, while Employment (50.0) remains unchanged. With Auckland taking another recent step towards opening up, this will hopefully provide greater ability for a number of service sector businesses in New Zealand’s largest city to lift their activity levels and prepare more fully for the Xmas period ahead.”

BNZ Senior Economist Doug Steel said that “the ongoing weakness in services overall – in contrast to the improvement we saw in last week’s Performance of Manufacturing Index – fits with our thinking that any bounce in Q4 GDP will be modest, especially in comparison to the decline in Q3.”

Stepping up

Doug steel -

New Zealand’s manufacturing sector saw further steps into expansion for October, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for October was 54.3 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 2.7 points higher than September.

BusinessNZ’s Director, Advocacy Catherine Beard said that the increased activity for October was fairly evenly spread across the sub index values.

“The key sub-indices of Production (54.0) and New Orders (53.9) were both in positive territory for the first time since July. Like the last national lockdown, Deliveries (59.9) led the way towards catching up on activity, although Employment (52.1) fell back to its lowest result since February.”

“In addition, the proportion of negative comments from respondents dropped to 55.4% for October, compared with 71% in September and 78% in August.”

BNZ Senior Economist, Doug Steel stated that “even though October’s reading is above average, we’d classify it more in the realm of some recovery from a large hit rather than an indication of outright strength.”

Maximum unsustainable employment

Stephen Toplis -

There was a very high chance the Q3 labour market data, released today, would be outlandish. And so it proved to be. But no-one expected the data to verge on the ridiculous in the manner they did. This is not to question the validity of the data but to express concern that what we are witnessing may not be sustainable.

Financial Markets Wrap

NZD tumbles through November

Jason Wong -

The NZD trended lower through November, against a backdrop of numerous positive US economic surprises that proved USD-supportive, with a more hawkish pivot from Fed policy makers thrown into the mix. NZ rates were mainly lower as the market priced in a less aggressive tightening path from the RBNZ. World equities hit fresh highs, before the discovery of a new COVID19 variant Omicron reined in risk appetite. Global rates were moderately lower despite ongoing positive inflation surprises that saw G7 inflation at a thirty-year high.

NZD rebounds in October

Jason Wong -

The return of the global relation theme in October saw commodity currencies outperform.
Higher NZ, Australian and Canadian short-term rates supported the move. NZD/USD rose nearly 4%.
NZ rates surge across the whole yield curve; 5-year swap rate now up over 200bps for the year.

Interest Rate Strategy

NZGB bond programme slashed – bullish for NZGBs

Nick Smyth -

New Zealand Debt Management (NZDM) announced a huge $31b reduction to forecast bond issuance at the Half-Year Economic and Fiscal Update (HYEFU) today.

Bond issuance for the current 2021/22 fiscal year (ending in June) has been reduced from $30b to $20b. Given NZDM has already raised $15.2b in the fiscal year to date, this leaves just $4.8b of issuance for the remaining six months of the fiscal year. Consequently, NZDM said it no longer intends to syndicate a new bond in the coming six months (we had thought it might opt for a new linker). Weekly tender issuance is likely to drop from the current $500m per week pace to $200m per week in January, back to what it was pre-Covid (see Chart 1). We think NZDM is likely to revert to tendering one or two bonds per week next year, rather than three bonds per week, as it does now.

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

NZ 5s10s curve likely to steepen in 2022

Nick Smyth -

The NZ yield curve has had a big flattening move over the past two months. The 5s10s curve has flattened from around 38bps at the start of October to just 5bps now. It even briefly traded slightly negative, at -0.25bps, a week ago, its lowest level since the GFC. The 2s10s curve is at around 34bps, near its flattest level since early 2019.

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

Bond programme update - what to watch at HYEFU?

Nick Smyth -

The Half-Year Economic and Fiscal Update (HYEFU) takes place next Wednesday, accompanied by a bond programme update from New Zealand Debt Management (NZDM). The last update, at the Budget in May, set the 2021/22 bond programme at $30b, with subsequent fiscal years at $25b (see Table 1). Net issuance is very high by NZ standards this fiscal year because there is no bond maturity, but it is forecast to be lower in future years.

Why are NZ swap spreads so wide?

Nick Smyth -

New Zealand swap spreads have moved sharply high over the past month. The 3-year swap spread is close to 50bps, its highest level since 2015, while the 10-year swap spread is close to its highest level since 2019, just under 30bps. NZ hasn’t been unique in seeing swap spread widening, with similar moves seen offshore (see Chart 2). In this note, we address the NZ-specific drivers affecting swap spreads at the short end and the longer end of the curve.

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

Markets Outlook

2022: Wary of an Inflationary Outbreak

BNZ Research -

While the impact of COVID on GDP is hard to gauge it seems reasonably clear that Omicron, by dint of its transmissibility, has the potential to have a significant impact on the availability of staff. We know this from what other developed countries have been going through over the last month or two, including Australia. Brace for a worse shortage of staff, and its inflationary potential.

Hold Your Horses

BNZ Research -

New Zealand’s customarily mad week of economic reports, just before Xmas, is upon us. It’s hard to wrap a common theme around all of them. Each of them will be interesting in their own right.

Just picking out Thursday’s Q3 GDP, we expect this to decline “just” 4%, after last week’s run of “partials” proved not as weak as we anticipated. In any case, the salient question is how well (or otherwise?) the economy is bouncing back from its Q3 dip, and what inflation is doing besides.

Gauging the Near-term Bounce

BNZ Research -

This week has a cluster of September quarter activity “partials”. These will tell us whether we need to revise our expectation for Q3 GDP (presently -7%, the same as the RBNZ expects). More interestingly, there are several key data snaps for November. These will indicate how well the economy has since been expanding. Also note that RBNZ top brass are speaking Tuesday from about 9:00am, in the form of Hawkesby and Bascand (at scheduled forums).

Green Light to Red and Orange

BNZ Research -

The traffic-light COVID system NZ is moving to Thursday/Friday will, on balance, allow Auckland to be freed up materially from its present level-3, step-2, setting, even though it goes into red to begin with. This has the potential to release a lot of pent-up demand into the economy. Areas outside of Auckland shifting to orange will, in theory at least, lend a supportive tailwind. We will be monitoring the nearer-term spending indicators with this in mind. Having said this, the traffic-light system brings with it the likelihood of more occurrence of COVID-19 across the country than otherwise. This, in turn, might well inject a note of caution into the economy over time. Meanwhile, we monitor assessments of the Omicron variant closely.

Turning Down

BNZ Research -

All eyes will be on the RBNZ this week. Will Governor Orr hike rates 25 or 50 basis points, is the focus for financial markets. For the wider community, though, it’s how far will rates eventually go that is of greater importance. We think quite a long way, and this will ultimately result in a softening in activity and house prices, and a higher unemployment rate.

November MPS preview

Stephen Toplis -

When the Reserve Bank Monetary Policy Committee meets ahead of its Monetary Policy Statement on November 24 there will be almost no discussion about whether the cash rate should be lifted. Instead the debate will be over how much and how fast?

Days of Reckoning Fast Approach

BNZ Research -

New Zealand is rapidly headed towards its days of reckoning. In our opinion, the single biggest uncertainty facing the economy over the next twelve months is how business and consumer sentiment responds to endemic COVID.

To the Extent It’s Unsustainable

BNZ Research -

We don’t need Wednesday’s Q3 labour market reports to tell us that things are extremely tight, and increasingly inflationary. But they will probably do so all the same. And the robustness of the results will be all the more remarkable, in that they will come to pass amid the latest COVID-19 lockdowns, which began mid-August (and continue).

Markets Today

BNZ Markets Today

Jason Wong -

After last week’s notable selloff in global equity markets, selling pressure has intensified overnight, with Russia/Ukraine on the brink of war adding to investor concerns, alongside the expectations of a slower global economy and tighter global monetary policy. As we go to print, US equities are down in the order of 3-3½%, following a near-4% slump in European equities. Bond markets show a fairly muted rally under the circumstances, while safe haven currencies have outperformed. The AUD is off more than 1% while the NZD has printed a fresh 14-month low.

BNZ Markets Today

Jason Wong -

Global equity markets have recovered some losses after the recent sell-off, supported by some pullback in global rates. US equity indices show broadly based gains of more than 1%, while US 2 and 10 year rates show mild falls. The NZD has recovered overnight to be flat for the day just below 0.68, while the AUD has solidified the gain seen during local trading hours.

BNZ Markets Today

Nick Smyth -

The global bond sell-off has paused overnight, but not before the 10-year German bund yield hit 0% for the first time since 2019. Equity markets are slightly higher while the USD is weaker. The NZD has gravitated back towards the 0.68 mark. Yesterday saw a huge move higher in short-end NZ rates in thin market conditions, with investors seemingly reluctant to stand in the way ahead of what is likely to be another very strong CPI release next week.

BNZ Markets Today

Nick Smyth -

In a continuation of this year’s trends, global rates continue to push higher, putting pressure on equity markets, especially tech stocks. The US 10-year rate has reached a 2-year high, around 1.86%, with the market now putting a small chance on a 50bps Fed rate increase in March. The NASDAQ continues to struggle, down more than 2%. The USD has benefited from higher rates and the pickup in risk aversion, taking the NZD below 0.68.

BNZ Markets Today

Nick Smyth -

It’s been a quiet start to the week with the US cash markets closed for Martin Luther King Jr. Day. But global rates continue to trend higher, with the 10-year bund yield nearing 0% and the market moving to fully price four Fed rate hikes by the end of the year. The PBOC cut its 7-day and 1-year interest rates by 10bps yesterday, although there was limited reaction, with the market focused on the risk of an Omicron wave in the country. Equity markets are higher to start the week while currency movements have been minimal, the NZD still trading around the 0.68 mark.

BNZ Markets Today

Nick Smyth -

It’s been an action-packed start to 2022, with some large moves seen across asset classes. US Treasury yields have moved sharply higher to start the year on the back of more hawkish rhetoric from the Fed and generally strong economic data, with the market now expecting the first rate hike to come in March. After a strong end to 2021, US equity indices have fallen this year, led by interest rate-sensitive tech stocks. The USD is generally weaker, despite the market increasing its Fed rate hike expectations. But the NZD has underperformed, still trading around 0.68.

BNZ Markets Today

Jason Wong -

Risk sentiment has soured as the new week has begun, driving 1½-2% falls in global equity markets, a 4-5% plunge in oil prices and making US Treasuries well supported. The NZD has underperformed, falling to just above 0.67, and is down on all the key crosses.

BNZ Markets Today

Nick Smyth -

The US curve was flatter on Friday and the USD stronger amidst a risk-off backdrop and more hawkish rhetoric from Fed officials. The NZD ended the week back near its lows for the year, at around 0.6740. In news over the weekend, the Netherlands has announced a new lockdown in response to Omicron while Biden’s signature Build Back Better fiscal bill now looks like it will struggle to pass the Senate after moderate Democrat Joe Manchin signalled he would vote against it.

BNZ Markets Today

Nick Smyth -

A further hawkish shift among central banks has been in evidence over the past 24 hours. The Fed announced an accelerated tapering pace and signalled three rate hikes next year while the BoE surprised markets by raising its cash rate overnight. But bond rates haven’t been overly affected (indeed US rates are lower overnight). The USD is broadly weaker since the Fed update and equity markets higher, albeit with tech stocks underperforming overnight. The NZD is back up to 0.68 amidst the weaker USD and improvement in risk appetite.

BNZ Markets Today

Jason Wong -

Markets continue to trade cautiously ahead of the Fed’s economic and policy update at 8am NZ time. US equities are down for the third day running, while US rates and currencies only show small movements leading into the meeting.

BNZ Markets Today

Jason Wong -

The market has maintained a cautious tone, ahead of the FOMC update tomorrow morning, with very strong US PPI inflation data adding to jitters. US equities are down over 1%, while US rates have nudged higher. Currency movements have been modest, with the NZD continuing to languish around 0.6750.

BNZ Markets Today

Jason Wong -

Markets have opened the busy week ahead with a fall in risk sentiment, with notable falls in global equity markets and global rates and safe-haven currencies outperforming. The NZD has unwound much of last week’s gain to sit just above 0.6750.

BNZ Markets Today

Nick Smyth -

Risk appetite improved further on Friday as US CPI proved to be not as high as some had feared and more tentative evidence emerged suggesting Omicron might result in relatively mild illness. The S&P500 jumped 1% to a new record close while oil prices were up 1%, capping off an 8% gain for the week. Bond yields were slightly lower and the USD slightly softer after the CPI release, although the firm consensus is still that the Fed will announce an accelerated tapering pace at its meeting later this week. The NZD continues to hover around the 0.68 mark.

BNZ Markets Today

Nick Smyth -

It’s been reasonably quiet overnight with equity markets and bond yields pulling back slightly and the NZD dipping back below 0.68. US CPI is focus in the session ahead. Yesterday, we revised up our NZ Q3 GDP forecast and now look for GDP to fall “only” 4% in Q3.

BNZ Markets Today

Jason Wong -

Following the policy easing early this week, the market has taken a more optimistic view on China’s outlook, driving the yuan to a three-year high, with some positive spillover for the AUD and NZD, the latter pushing back up through 0.68. US equities have consolidated after the strong bounce-back over the previous two sessions while global rates have pushed higher.

BNZ Markets Today

Jason Wong -

Risk sentiment has recovered further, with a more than 2% gain in US and European equities, a 4% lift in oil prices and US rates pushing higher. Commodity currencies have outperformed although the NZD has lagged the movement in AUD and CAD again, with only a modest gain to 0.6775.

BNZ Markets Today

Jason Wong -

Whippy market conditions continue, with a new week seeing a reversal of some of Friday’s price action, with US equities up about 1% and the US 10-year rate up 7bps. Oil prices are up over 3%, which has supported the AUD and CAD, but the NZD has been left behind in the commodity currency recovery, languishing around 0.6750.

BNZ Markets Today

Nick Smyth -

Friday saw broad-based risk-off moves, with equities and bond yields down sharply and the NZD and AUD tumbling to fresh lows. Frothy sectors of the market, including tech stocks and bitcoin, saw big moves. The nonfarm payrolls report was mixed, but most analysts don’t think it will get in the way of the Fed accelerating its tapering pace.

BNZ Markets Today

Nick Smyth -

After a rocky couple of trading sessions, equities and bond yields have rebounded overnight. Volatility is high and sentiment fickle and much will depend on news on Omicron over the coming days and weeks. Currencies have seen limited movement overnight, with the NZD hovering just above 0.68. Yesterday saw a huge flattening in the NZ yield curve, with the gap between 5-year and 10-year swap rates shrinking to 0bps for the first time since the GFC.

BNZ Markets Today

Jason Wong -

Market sentiment continues to sway, with risk appetite turning positive yesterday afternoon, supporting a recovery in equity markets and commodity currencies on a 24 hours basis. Still, the recovery remains unconvincing, with US rates barely higher and the preeminent safe-haven currency, the yen, being the strongest overnight performer. The NZD and AUD have slipped overnight.

BNZ Markets Today

Jason Wong -

It has been a rocky trading session overnight, with risk sentiment hit by a double blow of sobering comments by Moderna’s CEO on the Omicron variant and hawkish commentary by Fed Chair Powell in front of lawmakers. Global equity markets are under pressure, the VIX index has spiked back up to 28 and the Treasury market shows a decent flattening in curve. Commodity currencies have underperformed, with the NZD printing a fresh low, while safe haven currencies have been in demand.

BNZ Markets Today

Jason Wong -

Some of Friday’s “risk-off” price action has reversed, as investors show less fear about the new COVID19 variant Omicron. The S&P500 is currently up 1.6% while the US 10-year rate is up 6bps. The USD has been well supported, seeing the NZD continue to struggle, going sub-0.68 to a fresh low for the year, underperforming other commodity currencies, with the AUD relatively flat.

BNZ Markets Today

Nick Smyth -

What was expected to be a quiet post-Thanksgiving session on Friday turned into a mini market meltdown, as investors took fright at the discovery of new Covid-19 variant, Omicron. Equities and oil prices plunged while government bond yields fell sharply as investors scaled back expected tightening from central banks. Risk-sensitive currencies, including the NZD, fell while the JPY and EUR appreciated strongly. Markets are likely to remain volatile until more information is known about the variant and particularly how effective the current crop of vaccines are against it.

BNZ Markets Today

Jason Wong -

Another string of strong US data releases and another FOMC member potentially joining the faster QE taper camp have supported higher US short rates and the USD. That has added to downside pressure on the NZD seen after the RBNZ’s 25bps hike yesterday, sustaining a sub-0.69 move lower, and down on all the key crosses.

BNZ Markets Today

Jason Wong -

The aftermath of the reappointment of Powell as Fed chair has continued into another day, with US Treasuries pushing 3-4bps higher, and US equities not liking the higher rates backdrop. Currency markets show modest changes. EUR is on a slightly better footing after stronger PMI data and some hawkish ECB-speak. The NZD continues to languish, ahead of today’s RBNZ MPS.

BNZ Markets Today

Jason Wong -

US equities, bond yields and the USD dollar are all higher after President Biden reappointed Powell as chair of the Fed. US Treasury yields are up 5-7bps. The stronger USD backdrop sees the NZD head lower, down 0.7% to 0.6955, but the AUD has managed to hold its ground after last week’s notable underperformance.

BNZ Markets Today

Nick Smyth -

News that Austria will go into lockdown, as it battles surging Covid cases, hit risk sentiment on Friday, triggering falls in long-end global rates and the euro. Meanwhile, hawkish commentary from Fed officials, raising the possibility of a faster tapering timeline, boosted Fed rate hike expectations and the USD. The NZD fell to around 0.70 amidst a stronger USD backdrop. The main event this week is the RBNZ MPS, with the market evenly balanced between a 25bps hike and a 50bps move. The NZ 2-year swap rate continues to make new highs with liquidity still strained.

BNZ Markets Today

Nick Smyth -

Offshore markets have been relatively quiet overnight. There have been small gains in US equities while bond yields and the USD are slightly lower. The NZD and NZ rates were higher yesterday after a jump in the RBNZ’s inflation expectations survey. The NZ 2-year swap rate hit its highest level since early 2017 with nerves running high ahead of the RBNZ’s MPS next week.

BNZ Markets Today

Jason Wong -

Markets are showing signs of consolidation, with little change in global equities, US rates down slightly and the NZD tracking around 0.70. GBP has outperformed following another positive inflation surprise.

BNZ Markets Today

Jason Wong -

Strong US economic data and a strong UK labour market report have set the tone for markets overnight, with the USD and GBP outperforming, sending the NZD down below 0.70 and the AUD towards 0.73. There has been less reaction in the bond market, with US Treasuries trading a tight range.

BNZ Markets Today

Jason wong -

Global rates have pushed higher on the back of some hawkish central bank commentary, with US break-even inflation rates up to fresh highs. There’s a slightly risk-positive tone in currency markets, seeing small outperformance of commodity currencies.

BNZ Markets Today

Nick Smyth -

Equity markets recovered further on Friday after their post-US CPI sell off earlier in the week. The USD was weaker, although it remains near a 12-month high, while the NZD recovered to 0.7040. Bond yields consolidated while US inflation expectations continue to make new highs.

BNZ Markets Today

Nick Smyth -

Markets have been quieter overnight, with the US bond market closed for Veteran’s Day and no major economic data released. US equities have recovered a little from their post CPI sell-off while the USD has pushed up to its highest level in more than a year. The NZD has fallen to around 0.7015 amidst broad-based USD strength. In other news, the NZ government announced that it plans to issue an inaugural sovereign green bond late next year.

BNZ Markets Today

Jason Wong -

Team transitory suffered a blow after another shockingly high US CPI print that has reverberated across markets, seeing much higher US rates across the curve and spilling over into Australian bond futures. The data supported the USD, dragging the NZD below 0.71, while the AUD is finding support around 0.7350.

BNZ Markets Today

Jason Wong -

Risk sentiment is weaker for no obvious reason, with US equities on track for a rare fall today while global bond markets show a broadly-based rally, sending the US 10-year rate down to the low 1.40s. Daily currency movements have been minimal apart from notable weakness in the NZD and AUD.

BNZ Markets Today

Jason Wong -

It’s been a quiet start to the week, with global equity markets flat to slightly higher, US Treasuries reversing some of Friday’s rally, and a more risk-positive tone in currency markets that sees the NZD pushing up into the high 0.71s.

BNZ Markets Today

Nick Smyth -

Friday’s nonfarm payrolls report was stronger than expected, although it is unlikely to change the Fed’s economic outlook and tapering plans. Global rates fell sharply, with the US 10-year rate dropping to 1.45%, as the market continued to digest the BoE’s on-hold decision the previous night. Equities continue to grind higher while the USD was slightly weaker, the NZD ending the week around 0.7120.

BNZ Markets Today

Nick Smyth -

The main news overnight has been the Bank of England’s shock decision not to raise interest rates, which the market had fully priced in. UK rates fell as much as 20bps and the GBP slumped 1.4%, with the decision reverberating to other bond markets (US 10-year rate -9bps). Equities continue to grind higher, with the S&P500 and NASDAQ hitting fresh record highs. The NZD has fallen almost 1% and is back down to 0.71. Focus shifts to the nonfarm payrolls report tonight.

BNZ Markets Today

Jason Wong -

Market movements have been well-contained ahead of the FOMC meeting this morning and in the initial aftermath of the statement, which didn’t surprise. We await Fed Chair Powell’s press conference, where he will likely be probed on the timing of the first rate hike, and there will be interest in how much he pushes back on market pricing for hikes from the second half of next year.

BNZ Markets Today

Jason Wong -

Newsflow overnight has been light, but yesterday’s RBA announcement and update by Governor Lowe triggered a fall in the AUD, and the NZD has fallen just as much, both currencies down about 1.2% from this time yesterday, seeing the NZD test 0.71. US equities continue to print record highs, while the bias for global rates has been to the downside, ahead of the important Fed update in 24 hours.

BNZ Markets Today

Jason Wong -

Newsflow to begin the new week and month has been slow, but things will pick up pace as the week progresses. The lift in risk appetite seen through October, has spilled over into November, with fresh highs in global equity markets, a bid tone to commodity currencies, and global rates pushing higher.

BNZ Markets Today

Nick Smyth -

Bond markets remain volatile amidst high inflation and growing expectations that central banks will bring forward interest rate hikes. Friday saw the highest quarterly wage growth in the US in almost 40 years and European core inflation above the ECB’s 2% target for the first time since 2002. The US 10-year rate fell slightly on Friday but there were big movements in Australia after the RBA decided against enforcing its Yield Curve target once again, signalling that it will ditch the policy and its 2024 rate guidance at its meeting tomorrow. NZ rates had some respite on Friday, falling back after their big moves higher earlier in the week. The USD was stronger on Friday, with the EUR giving back its post-ECB gains and the NZD falling back below 0.72. Equities continue to edge higher.

BNZ Markets Today

Nick Smyth -

Global bond markets remain very volatile, even though there hasn’t been much spill over into other asset classes like equities and currencies at this stage. Yesterday saw a huge move higher in Australian short-end rates after the RBA decided not to enforce its Yield Curve Control target, with NZ short-end rates increasing sharply in response. Overnight, the EUR is higher as President Lagarde stopped short of saying market pricing for rate hikes next year was wrong. Equity markets have increased, the USD has weakened, and the NZD has bounced back to 0.72.

BNZ Markets Today

Jason Wong -

There has been a notable rally in the global bond market, sparked by a slashing of UK debt supply following the UK Budget and talk of month-end buying, with a hawkish Bank of Canada thrown into the mix. The US curve shows a significant flattening, with higher short rates and the 10-year rate down 8bps. CAD has outperformed, while the USD is broadly weaker, supporting a modest rise in the NZD.

Rural Research

Prices Firm Amid Uncertainty

Doug Steel -

The identification of Omicron, another concerning COVID variant, is the latest pandemic development for the world to navigate. It initially spooked financial markets and cast a cloud on the outlook for global growth.

Milk Price Record Beckons, But Mind Costs

Doug Steel -

We noted a couple of months ago that the balance of risks to domestic milk prices had swung upwards. Since then dairy product price outcomes have added to the case. This includes the latest GDT auction overnight where prices rose 1.9%, with gains across all major product groups.