BNZ Research

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Currency Research

Upside risk developing for NZD

Jason Wong -

After a strong run late last year the NZD has tracked sideways in 2021, including on a TWI basis. NZD/USD has been consolidating within a clear 0.71-0.73 range. This was largely as expected – given our end-Q1 target of 0.72 when we last revised forecasts mid-December– ahead of an expected move higher through the rest of the year towards 0.76. That said, the positive run of news means that we see some upside risk to our NZD projections bubbling away underneath the surface.

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 -

After a strong run through to early January, the NZD is showing signs of fatigue, which we expect to be temporary. The outlook remains positive for 2021, given the NZD’s leverage to the global economic recovery and rising commodity prices.

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 have upgraded our NZD projections again, reflecting the combination of a steeper than previously projected decline in the USD, supporting commodity prices, and the stronger NZ economic recovery. Our year-ahead target is lifted from USD0.72 to USD0.76.

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

How high can the Kiwi fly?

Jason Wong -

The NZD has been screaming higher recently, breaking up through the 0.70 mark for the first time since mid-2018. The question now is how much higher can the Kiwi fly? Can the Kiwi return to the 0.80 mark last seen in 2014? Yes. Can the Kiwi return to the 0.90 mark last seen in 1981? Yes, one shouldn’t rule out that possibility, even if it seems remote at this juncture.

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

Economy Watch

RBNZ Policy Has Tightened Up…Under The Surface

Craig Ebert -

From the headlines of this afternoon’s Monetary Policy Statement (MPS) it was easy to get the impression of “nothing to see here”. An unchanged OCR (0.25%), an unchanged LSAP, an unchanged FLP, and a still-cautious RBNZ.

However, the more we read of the document the more it was a case of “quite a bit to see here” actually – under the surface. Factors that weighed very heavily on the Bank’s monetary policy assessment have tightened up considerably since its previous policy statement, way back in November. This has put the Bank significantly closer to the frontier of eventually reducing stimulus, compared to where it was a few months ago.

Retailers Suffer Old Mother Hubbard

Craig Ebert -

Normally, a quarterly fall of 2.7% in real retail trade – as was reported by Stats NZ this morning – would cause great alarm. However, these are not normal times. Importantly, the drop in Q4 needs to be seen in the context of the large amount of catch-up spending that occurred in Q3, following the lockdown-depressed Q2. Q4 retail trade was up 4.8% on the same quarter a year prior.

Contraction continues

Doug Steel -

Activity in New Zealand’s services sector remained in contraction for a third consecutive month, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for January was 47.9, which was down 1.2 points from December (A PSI reading above 50.0 indicates that the service sector is generally expanding; below50.0 that it is declining). This was also well below the long term average of 53.8 for the survey.

BusinessNZ chief executive Kirk Hope said that the January result was generally negative when examined more deeply.

“While New Orders/Business (53.7) remained in expansion mode, the remaining sub-indices all displayed contraction, including Activity/Sales (46.4) and Employment (46.9). Looking at the comments made by respondents, the ongoing trend of contraction was typified by the influences of the Xmas period, ongoing COVID-19 related issues (including freight challenges) and a slower return to business as usual post holidays”.

BNZ Senior Economist Doug Steel said that “combining last week’s very strong PMI with today’s soft PSI points to some slowing in growth. But we also need to factor in strong public sector jobs growth and a booming construction sector”.

Solid start to year

Craig Ebert -

New Zealand’s manufacturing sector started the year with expansion, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for January was 57.5 (a PMI reading above
50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up 9.2 points from December, and a solid return to expansion.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the January result was a welcome start to 2021, with the result clearly above the long term average of 53.0 for the Index.

“All major sub-index values were up from December, with New Orders (62.4) leading the way with its highest result since July last year. Production (59.1) rose 6.8 points, while Employment (55.4) produced its highest result since August 2017.”

BNZ Senior Economist, Craig Ebert said that “the 3-month average to January was 53.6, slightly above the long-term norm of 53.0. Also, January’s improvement was encouraging in its composition, with New Orders leading the way”.

RBNZ February MPS Preview

Stephen Toplis -

The RBNZ simply must be less dovish in its February Monetary Policy Statement than it was in November. Nearly every economic development since that November missive has portrayed a stronger, and more inflationary, economy than was expected. This is not a criticism of the RBNZ, as the data flow has bamboozled everyone. But the world is unequivocally different to what we had all expected, and the Reserve Bank will have to recognize this.

A positive start to 2021

Craig Ebert -

By increasing 1.4% in January, job advertising started 2021 on a positive note. However, the result also indicated a loss of momentum. Its January gain was the slowest since August, when COVID-19 restrictions were increased to Level 3 in Auckland and Level 2 everywhere else. That job advertising is not thriving (just yet) was also borne out by the fact January’s level was 6.3% shy of where it was a year prior.

Labour Market Tightness Staggering

Stephen Toplis -

We have been warning for some time that the scene was being set for the next move in interest rates to be up. Indeed, we abandoned the prospect of sub 0.25% rates back in early November last year. As relatively hawkish as we were, we were not prepared to be definitive that rates would rise. Now we are. There is still massive uncertainty as to when and by how much but, today, we are formally building in a first rate hike in May 2022.

Milk Up

Doug Steel -

Global dairy prices have started 2021 in fine fettle. Happy New Year indeed. Positive momentum was maintained at the latest auction overnight, with the GDT Price Index rising 1.8%.

Under Par

Craig Ebert -

Activity in New Zealand’s services sector improved from the previous month, but
still recorded contraction, according to the BNZ - BusinessNZ Performance of
Services Index (PSI).

The PSI for December was 49.2, which was up 2.5 points from November (A PSI
reading above 50.0 indicates that the service sector is generally expanding; below
50.0 that it is declining). The PSI averaged 47.0 over 2020.

BusinessNZ chief executive Kirk Hope said that the December result typified a
difficult year for the sector, with half the year spent in contraction.

“While June and July showed a post-lockdown recovery, the remainder of 2020 displayed either soft expansion or contraction. The two key sub-indices of activity/sales and new orders/business failed to show any consistent pattern of expansion, while the remaining sub-indices spent a significant proportion of time under the key 50.0 mark”.

BNZ Senior Economist Craig Ebert said that “activity indicators such as these have had their work cut out lately, in trying to nail GDP to the nearest percent. In any case, the composite index is consistent with our view that NZ real GDP will be broadly flat over the six months to March 2021”.

Flat end to year

Doug Steel -

New Zealand’s manufacturing sector experienced contraction for the last month of 2020, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for December was 48.7 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down 6.0 points from November, and the lowest level of activity since May.

BusinessNZ’s executive director for manufacturing Catherine Beard said that after six consecutive months in expansion, the December result was a disappointing way to end the year.

“While production (51.5) managed to keep its head above water, the other key sub-index of new orders (49.9) failed to record expansion. Employment (49.9) also fell just below the 50.0 point mark, while finished stocks (45.9) and deliveries (44.5) both fell well into contraction.”

“Interestingly, the December value was the same as the overall average result of 48.7 for 2020. While seven of the twelve months saw expansion in the sector, the effects of COVID-19 and the subsequent lockdown saw a dramatic fall in activity during the first half of 2020 that brought the overall average down.”

BNZ Senior Economist, Doug Steel said that “the PMI’s three-month moving average sits at an expansionary 51.8, albeit below its long-term average of 53.0. This all suggests some expansion in the final quarter of last year, but the softer December month suggests some caution heading into the New Year.”

Employment Report: 2020 ends on creditable note

Craig Ebert -

Job advertising maintained its creditable recovery into the end of 2020. Its seasonally adjusted gain of 3.0% for December brought the level of ads to about where they were at the end of 2019. This gave a sense of near full recovery from the depths of March/April 2020, when COVID-19 lockdowns were in the extreme. As for the previous peak in job ads, however, this occurred in the first half of 2019. This is a reminder that job advertising was already tailing off a bit over the latter half of 2019, well before COVID-19 came into view.

QSBO: Capacity Constraints Underpin Inflation

Craig Ebert -

This morning’s NZIER Quarterly Survey of Business Opinion (QSBO) broadly affirmed the recovery story we were looking for. However, its details were mixed, in important ways.

NZ: Defying COVID’s Blows

Stephen Toplis -

Many in New Zealand will continue to suffer the fall out from COVID-19 for some time. But, on average, we should remain ever thankful, as we move into the upcoming holiday season, that we live in a country where our almost unique freedom of association and congregation leaves us in a position to enjoy our festive season in a manner that very few can.

Will A Travel Bubble Bring An External Surplus?

Doug Steel -

New Zealand’s annual current account deficit continues to shrink, hitting 0.8% of GDP in the year to September 2020. We think it will narrow a touch further before starting to widen through 2021. Low imports are a key influence at present, while a lack of tourists through the summer peak will be keenly felt. A potential Trans-Tasman travel bubble adds to the prospect of more travellers, although with likely mixed influences on the external accounts amid wider economic benefits.

Fiscal Blow Out Well Contained

Stephen Toplis -

The HYEFU was an unsurprising fiscal missive. That said, its lack of surprise should not shade the fact that, yet again, the fiscal picture continues to paint New Zealand in a very good light under the circumstances. The debt rating agencies should remain very positive about New Zealand’s progress and the willingness of offshore investors to continue funding our debt should be sustained provided New Zealand interest rates do not fall to levels that are simply too low to attract those investors.

Negative November

Craig Ebert -

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

The PSI for November was 46.7, which was down 4.1 points from October (A PSI reading above 50.0 indicates that the service sector is generally expanding; below
50.0 that it is declining). This was the lowest level of activity since May 2020.

BusinessNZ chief executive Kirk Hope said that the drop in activity was disappointing to see, but symptomatic of how COVID-19 has caused significant disruption throughout most of 2020.

“Almost all of the sub-indices were in contraction during November. Activity/Sales (45.5) went further in contraction from last month, while New Orders/Business (52.6) experienced lower expansion levels. Employment (49.1) remained in contraction for the 9th consecutive month, while logistical disruptions continued to be evident with Supplier Deliveries (39.8) at its lowest since April 2020.”

BNZ Senior Economist Craig Ebert said that “the PSI’s 3-month running average was below the 50 breakeven level in November, with a reading of 49.2. This paints a picture of momentum lost, after a couple of months of solid rebound in June and July.”

Finishing on a stronger note

Doug Steel -

New Zealand’s manufacturing sector experienced a pick-up in expansion during November, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for November was 55.3 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up 2.9 points from October, and the highest level of expansion since July.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the sector has now remained in positive territory for the sixth consecutive month, despite swings in the actual activity levels.

“The key indices of production (55.4) and new orders (57.6) both displayed healthy levels of expansion during November, while employment (51.5) eased back to September levels. Interestingly, finished stocks (59.0) recorded its highest value since the survey began, which may be due to COVID related delayed activity and distribution issues that has plagued 2020”.

“Overall, the sector is shaping up to end 2020 on a positive note, which would be a considerable contrast to what was seen during the first half of the year”.

BNZ Senior Economist, Doug Steel said that “as a measure of change, the PMI suggests that the manufacturing sector continues to move in the right direction after getting hit hard earlier in the year by COVID related restrictions”.

Genuine recovery

Craig Ebert -

With its 6.9% advance in November, job advertising indicated a genuine recovery is in train. This is after gains in September and October that likely had elements of rebound from a compromised August, when COVID-19 restrictions were tightened. The sense of underlying recovery was also evident in the fact November’s ads were down just 5.1% on year-ago levels. This continues a clawback that has been underway ever since April’s ads were down 73.7% on an annual basis.

Patchy Business Recovery Facing Inflation Already

Craig Ebert -

After signs of stalling early this month, the ANZ business survey caught another wave higher through November as a whole. The trouble is, it appears to be running into cost and price pressures, this early in the process.

Financial Markets Wrap

Flat currencies, flat equities, higher rates in January

Jason Wong -

The NZD range traded in January as the USD consolidated after its weak run last year.
There were only modest movements in NZD crosses; CNY was the strongest of the majors.
Global rates pushed higher with US10s back above 1%; NZ 5 year swap rate closes at a 9-month high.

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

Global, domestic tailwinds drive NZD up 6% in November

Jason Wong -

• A market friendly US election result and positive vaccine news drove risk appetite higher through November
• Seeing big gains in equity markets, commodity prices and commodity currencies like the NZD
• Significant re-pricing of RBNZ monetary policy expectations drives NZ rates higher, against the grain of global rates

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

Interest Rate Strategy

Take Profit On NZ Steepener Position

Nick Smyth -

We have been arguing for the NZ curve to steepen since the middle of last year and last September entered a one-year forward 2s10s steepening position in NZD swaps. The curve has steepened very aggressively (NZD 2s10s swap +57bps this month alone), in-line with global curve moves. Our 2s10s 1yF steepener (now a 6-month forward steepener), which we entered at 67bps, is now trading above our revised profit target of 140bps, its highest level since the taper tantrum episode in 2013.

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

NZ Curve Steepening Likely Has Further To Run

Nick Smyth -

Yield curves globally continue to aggressively steepen. The New Zealand 2s10s swap curve breached 120bps this week, the first time since 2017. It has steepened almost 90bps in just four months, a similar move in magnitude and speed as that after the 2016 US election.

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

NZ BEIs widen sharply – Time to take some profit

Nick Smyth -

As regular readers will know, we have been firm advocates of kiwi linkers for several years. In December, we implemented a breakeven (BEI) widener, buying the Sep-2030 linker against selling the May-2031 nominal. Our entry level was 125bps and we set an initial target of 155bps.

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

RV Analysis of the NZGB May 2026

Nick Smyth -

NZDM intends to syndicate a new May-2026 bond this week. This will fill in the gap in the curve between the Apr-2025 and Apr-2027 maturities. After the syndication, there will be approximately one-year gaps between the Apr-2023 and Apr-2029 NZGBs.

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

The (eventual) unwind of RBNZ stimulus – a playbook

Nick Smyth -

The market has almost fully priced out RBNZ rate cuts

The NZ economy proved remarkably resilient post lockdowns, with GDP recovering to its pre-Covid level in Q3 2020. The housing market has been exceptionally strong, leading the Minister of Finance to suggest that house prices be included in the RBNZ’s monetary policy Remit.

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

Extend profit target on NZ steepening position and other trade updates

Nick Smyth -

Curve steepening has been the dominant global trend in rates markets in 2021 following the Democrats’ unexpected victories in the Georgia Senate run-offs. Both the NZ and Aussie curves have steepened in sympathy with the US, taking our 2s10s 1yF steepening position above its profit target earlier this year. We entered the position at 67bps in September, with an initial target of 87bps. The curve has retraced modestly lower over the past week to now be around 85bps.

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

Bond Programme Reduced But Less QE Likely

Nick Smyth -

• NZDM announced a reduction to the bond programme alongside HYEFU today, in-line with expectations. The market reaction has been minimal so far.
• NZDM announced its intention to syndicate a new May-2026 nominal bond in February and another nominal bond before the end of June. The other bond could be a 2035, or a curve extension.
• We expect nominal bond tender issuance to fall to between $300-400m per week, from $600m, in January.
• We expect the RBNZ to lower its QE purchase pace next month, in-line with the reduction in issuance. As per our earlier trade idea, we favour wider NZGB-ACGB spreads.

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

Bond Programme Update – Lower Issuance Likely But Also Less QE

Nick Smyth -

New Zealand Debt Management last updated the bond programme in mid-September, alongside the Pre-Election Economic and Fiscal Update (PREFU). At the PREFU, NZDM reduced the bond programme for the current 2020/21 fiscal year (year-ending Jun-2021) from $60b to $50b and FY21/22 from $40b to $35b. The forecast bond programme from PREFU is shown in Table 1.

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

NZ Linkers Back On Our Radar – Position For BEI Widening

Nick Smyth -

• Global breakevens (BEIs) have continued to move higher, as markets start to price a more positive medium-term global growth outlook. Reflationary expectations have picked up and we think this has further to run.
• NZ BEIs have lagged US and Aussie BEIs over the past month and are starting to look cheap in comparison.
• We forecast NZ inflation to remain low over the coming year. But NZ BEIs are already priced for ~1.2% CPI over the next 10-years. And NZ BEIs typically respond more to global forces than near-term domestic inflation developments.
• Given their relatively cheap starting point, NZ BEIs should follow global BEIs higher, if global reflationary expectations gain traction, as we expect.
• The RBNZ is buying $30m NZ linkers per week under QE, roughly the same pace as supply. We expect the RBNZ to maintain this pace for the coming months. The RBNZ’s decision to buy linkers as part of QE has been critical in restoring liquidity to the market.
• We buy the Sep-30 NZGBi and sell the May-31 NZGB.

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

NZ High Grade Market – Outlook And Themes For 2021

Nick Smyth -

• In this note we look ahead to the outlook for the NZ high-grade market next year and identify key themes.
• Domestic high-grade supply, from LGFA and Housing NZ Ltd. is likely to remain elevated, but this should be balanced out by the RBNZ’s LGFA QE purchases and flat-to-negative Kauri SSA net issuance.
• Besides the RBNZ’s ongoing QE purchases in LGFA, bank demand for high-grade bonds is likely to remain strong amidst high deposit growth and large settlement cash balances.
• Low, but not negative, interest rates in NZ is a reasonable backdrop for investor demand. The search for yield is unlikely to go away and provided NZ yields retain a yield pick-up to global peers, foreign demand should hold up.
• High-grade spreads to NZGBs are at all-time tights. With this supportive backdrop, we expect spreads to remain around historically tight levels for an extended period.
• The scope for spread compression is more limited, given their starting point. Carry will be a more important driver of total return going forward, in our view.
• Risks to this low spread outlook include renewed stress in global credit markets (although central banks remain an important backstop), greater supply and the RBNZ winding up its QE programme prematurely.


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

Markets Outlook

RBNZ Anchored to the Rising Inflationary Tide

BNZ Research -

With respect to the Reserve Bank’s now-dual mandate, the labour market has largely side-stepped bad-case predictions, while CPI inflation is also looking far more robust than the Reserve Bank expected. So, as we wrote in our full “RBNZ February MPS Preview” (of 11 February), the Reserve Bank simply must be less dovish in its MPS this Wednesday. However, our preview also made it clear that “This does not mean the Bank will be rushing to shift its current policy stance”.

An Abundance of Caution

BNZ Research -

This morning’s PSI for January – much like the government with its latest COVID-19 restriction increases – displayed an abundance of caution. The PSI certainly didn’t manage to bounce big in January, the way the PMI (to 57.5) did. In fact, it eased to a seasonally adjusted 47.9, from 49.1 in December. The increased COVID-19 restrictions, meanwhile, will play to a wary RBNZ at next week’s MPS, but are also likely to activate more fiscal support/stimulus.

BPS’s Wellbeing Focus Has Housing in Its Sights

BNZ Research -

While the Budget Policy Statement was released today it was arguably the Finance Minister Grant Robertson’s breakfast speech that proved the most pointed. In setting out the government’s policy priorities, he put a clear emphasis on housing. Watch this (policy) space.

Just How Slack Is the Labour Market?

BNZ Research -

The prognosis of New Zealand’s labour market slack is shaping up as important for the Reserve Bank’s reaction function. This is now that the other part of its mandate, CPI inflation, is firming up to around the middle of the 1 to 3% target band. While the Bank expects the unemployment rate to be “only” 5.6% in Q4 2020, it also doesn’t expect it to peak until Q2 2021, at 6.4%, and then only gradually reduce, to 5.5%, by the end of 2022. Pre-COVID, 5.5% unemployment was viewed as still quite slack. However, we suspect that level will indicate more tightness in the market, in effect, than the “old days” ever did.

The Times They Are a Changin’

BNZ Research -

Today’s missive outlines a few major threads of importance. One is inflation, and its upside potential. Another is the labour market, and its relevance (too) to RBNZ policy. The last, but by no means the least, is climate change policy. This will have important implications for economies and, by implication, financial markets. With this in mind, we would draw attention to the draft report the newly-minted Climate Change Commission (CCC) is due to release Monday next week.

2021: The Coast Is (Not Quite) Clear

BNZ Research -

2020 was the year the New Zealand economy did far better than it might have. Could 2021 be the year it doesn’t push on quite as well as is now hoped? To be sure, the potential for a solid expansion is there, as the recent rebound clicks more into place, and to the extent border controls can be managed down (with cast-iron safety). We formally forecast GDP growth of 5.3% for calendar 2021, compared to calendar 2020. However, risks clearly continue to hover. The biggest of these remains COVID-19, especially with its increased prevalence abroad over just the last month or two.

A Strong Basis to Skirt Disinflation

BNZ Research -

While the immediate outlook on the headline CPI appears subdued, there is forming a strong economic basis for inflation to firm up over the coming year or two.

A Run Of (Mainly) Positives

BNZ Research -

There is a wide variety of local economic information this week – none of it top-tier in importance, but most of it probably positive nonetheless. It will give insight into Q3 GDP, and how the terms of trade, the housing market, construction, bank lending, the labour market, and the fiscal accounts have been doing. Also watch for a business update from Fonterra on Friday.

Markets Today

BNZ Markets Today

Jason Wong -

The global reflation trade continues with the US 10-year yield up to a fresh high of 1.43% overnight, before falling back down. US equities were initially perturbed by that move, but have since pushed higher, with Fed Chair Powell again in the background doing his best to sound dovish. The NZD has made further post-MPS gains, hitting the 0.74 mark, while other commodity currencies have also outperformed.

BNZ Markets Today

Jason Wong -

Equity markets remain on the backfoot, with the S&P500 on track to post a sixth consecutive daily fall. US Treasuries are in a consolidation mode tracking sideways, while currencies have shown only small movements, the NZD tracking not far off yesterday’s high ahead of the RBNZ MPS this afternoon.

BNZ Markets Today

Jason Wong -

There was plenty of action in markets during NZ trading hours, with the reflation trade dominating, seeing fresh highs in rates, commodities and commodity currencies. It has been less interesting overnight, as US and Australian rates have reversed course while equity markets are trading with a cautious tone. The NZD is currently close to yesterday’s high, while the AUD has punched up through 0.79.

BNZ Markets Today

Nick Smyth -

Global bond yields continued to move sharply higher on Friday, with the US 10-year rate hitting its highest level in 12 months and yield curves steepening. The increase in global rates saw the S&P500 give up earlier gains and close marginally down on the day. The reflation theme continues to drive sector rotation in equity markets, with small cap and cyclical stocks outperforming. Surprisingly, the USD didn’t benefit from the sharp increase in US real yields. The AUD made a three-year high on Friday while the NZD hit 0.73.

BNZ Markets Today

Jason Wong -

Global equities have taken on a more cautious tone after the recent rise in bond rates, and with weaker US data overnight not helping. The NZD continues to hover around the 0.72 mark, while GBP remains the flavour of the month.

BNZ Markets Today

Jason Wong -

The USD is modestly stronger while US equities and US Treasury yields are modestly lower overnight. These trends were in play ahead of a huge surprise in the strength of US retail sales and the report extended those market movements, although not by much. This sees the NZD trading sustainably below 0.72

BNZ Markets Today

Jason Wong -

There hasn’t been much news overnight, with only second-tier economic releases, but that hasn’t stopped US Treasury yields continue their run higher, while US equities hit a fresh record high after the long weekend. Higher US real rates have supported the USD, seeing it make broadly based gains, with the NZD flirting with the 0.72 level.

BNZ Markets Today

Jason Wong -

Newsflow has been light with the US on holiday, but global equity markets and commodity prices continue to roar ahead, while global rates push higher. Currency markets remain uneventful and show modest changes, with the USD remaining on the backfoot.

BNZ Markets Today

Jason Wong -

Ahead of the long weekend in the US, the S&P500 rose 0.5% to close at a record high while the US 10-year rate closed above 1.20% for the first time in almost a year. Currency markets were dull by comparison, with the NZD flat at 0.7220 and losing further ground to the AUD, with NZD/AUD down close to 0.9300.

BNZ Markets Today

Jason Wong -

The low volatility in most asset prices evident this week has continued for another day, as newsflow remains light. The S&P500 is down slightly, US yields have ticked higher and commodity currencies have shown some modest outperformance.

BNZ Markets Today

Jason Wong -

It has been another quiet overnight trading session, with global equities nudging lower and soft US CPI data helping US rates nudge lower. Currency movements have been small, although notably the NZD has underperformed again, but managing to keep its head above the 0.72 mark.

BNZ Markets Today

Jason Wong -

It has been an uneventful day for financial markets, with US equities consolidating recent gains, US 10-year yields nudging lower, and small movements in currencies. The NZD has been the weakest of the majors overnight, giving up a little of the gain seen during the local trading session.

BNZ Markets Today

Nick Smyth -

Reflationary expectations in the market continue to build. The market brushed off a weaker-than-expected US nonfarm payrolls release on Friday, instead focusing on the prospect of another huge US fiscal stimulus and Covid vaccine rollout. Equities and commodities have continued to push higher while the US 10-year rate hit its highest level since March, before retracing over the past few hours. US market-based inflation expectations have reached their highest level since 2014. The USD is on the back foot again, seeing the NZD push back above 0.72.

BNZ Markets Today

Nick Smyth -

Risk sentiment remains buoyant, with the market putting the GameStop saga from last week firmly behind it. The S&P500 and small-cap Russell 2000 indices are toying with fresh all-time highs. The USD has continued its recent mini resurgence and the EUR has broken below 1.20 for the first time since December. The GBP has outperformed post the BoE meeting with the market scaling back rate cut bets while the NZD has drifted back to 0.7150 amidst broad-based USD strength. NZ rates continued to head higher and the curve steeper yesterday while NZ market-based inflation expectations reached a six-year high.

BNZ Markets Today

Jason Wong -

Global equities have made small gains overnight and the US 10-year rate has pushed a few basis points higher, following stronger than expected employment and ISM services data. Currency moves have been small overnight, but the NZD has given up some of yesterday’s post-employment report gains, which drove a further sharp increase in rates.

BNZ Markets Today

Jason Wong -

It looks like the frenzy in stock (and silver) trading by retail punters is nearing an end and it’s back to “business as usual”, with equities showing another day of solid gains. The USD has found some broad-based support. The AUD is the worst performer after the RBA’s dovish surprise, while EUR is struggling as well. UST10 yields have pushed a little higher.

BNZ Markets Today

Nick Smyth -

Equities have bounced back strongly overnight from their falls last week amidst some signs that the market is moving on from the GameStop saga. The USD is stronger across the board, which has seen the NZD drift down to 0.7160. Elsewhere, the Reddit crowd helped drive silver prices to their highest level since 2013.

BNZ Markets Today

Jason Wong -

US equities closed last week on a poor note with the focus on the retail investors versus hedge funds battle rather than more fundamental drivers. Hence, this wasn’t a classic risk-off move, with commodity currencies mostly trading higher Friday night (AUD the exception, being flat) and US 10-year rates nudging higher. Weaker China PMI data over the weekend will set the trading tone as the new week begins.

BNZ Markets Today

Jason Wong -

US equities have bounced back strongly overnight after the previous day’s plunge, supported by economic data and a move to curtail speculative activity in the market on retail trading platforms. Better risk sentiment sees the US 10-year rate higher, after temporarily going sub 1% late yesterday, while the AUD and NZD are on a much better footing than they were during Asian trading.

BNZ Markets Today

Doug Steel -

After largely drifting through the week to date, markets are trading with a distinctly risk off tone ahead of this morning’s (8am NZT) FOMC announcement. Equity markets across Europe and the US are weaker, US bond yields are lower, and USD firmer.

BNZ Markets Today

Doug Stell -

Not a whole lot of news to drive markets overnight resulting in broadly flat US equity markets and little change in bond yields. Some minor moves in currencies, with the US dollar a touch weaker.

BNZ Markets Today

Doug Steel -

Wellingtonians coming back from their sunny anniversary day yesterday won’t notice much change across many major markets from our last report on Friday. Market movements have been reasonably subdued albeit with some risk off type moves on Friday, initial recovery into the new week, before another dip in risk sentiment appeared this morning. The net result sees equities generally lower, US bond rates lower, and the US dollar a touch firmer.

BNZ Markets Today

Jason Wong -

Good Morning
Another day, another record high for the S&P500, but risk sentiment has nudged lower in the last few hours to see the index back to flat. The USD has been broadly weaker, but after breaking 0.72 to the upside again, the NZD has drifted back down, alongside other commodity currencies.

BNZ Markets Today

Jason Wong -

Markets are in a “risk-on” mood with a new US President at the helm, expectations of additional fiscal stimulus and positive US earnings reports. US equities show good gains with the S&P500 and Nasdaq index printing fresh record highs. Commodity currencies head the leaderboard, while US Treasuries are tracking sideways.

BNZ Markets Today

Nick Smyth -

There remains an undercurrent of positivity in markets as investors look towards more US fiscal stimulus and vaccine roll-out. Equities, rates and commodities have all moved higher overnight, regaining some of their losses from last week. Meanwhile, the USD weakened, partially reversing its mini bout of strength last week. The NZD continues to lag other commodity currencies, with the NZD/AUD sliding to a fresh three-month low.

BNZ Markets Today

Jason Wong -

Markets have opened the week on a quiet note, with the US on holiday. In currency markets there has been a slight risk-off tone, seeing the commodity currencies underperform, while S&P500 and Treasury futures are little changed.

BNZ Markets Today

Nick Smyth -

The key market development since we last wrote this report was the Democrats’ unexpectedly victories in the two Senate run-off races in the state of Georgia. The results give the Democrats 50 out of the 100 seats and, with VP-elect Kamala Harris having the casting vote, overall control of the Senate, albeit with a wafer-thin majority. The Democrats’ control of both the House and Senate gives President-elect Biden greater ability to pursue his policy agenda, including more fiscal stimulus. On Friday, Biden outlined his plans for a huge $1.9 trillion stimulus (~9%/GDP), comprising another round of cheques for households ($1,400 for most Americans), $400 per week in additional unemployment benefits through September, and greater funding for state and local governments, health care and education. Biden is seeking the support of some Republicans in the Senate to push through the stimulus (60 votes are needed to avoid the filibuster), so the proposal might yet get watered down during negotiations. Biden is expected to outline his plans for a second fiscal stimulus, focused on longer-term issues such as infrastructure and climate change, next month.

BNZ Markets Today

Jason Wong -

Risk sentiment has soured, with the market ignoring the positive news of a US fiscal stimulus deal and focusing on the renewed travel restrictions across Europe. The S&P500 is currently down 0.7% and European equities fell over 2%. Oil prices are down over 4% and commodity currencies like the NZD have underperformed.

BNZ Markets Today

Nick Smyth -

Market moves were reasonably subdued on Friday as investors waited on the outcome of Brexit and US fiscal stimulus negotiations. Equities declined slightly, US rates nudged higher, while commodity prices continued to firm (copper reaching $8,000 for the first time since 2013). The NZD consolidated above 0.71 while the NZ 10-year swap rate hit 1% for the first time since April. In news over the weekend, the UK announced that London would go into full lockdown as new Covid-19 cases surge while a US fiscal stimulus deal looks to have been secured.

BNZ Markets Today

Jason Wong -

With a US fiscal stimulus deal imminent and a UK-EU trade deal also getting closer, risk sentiment is positive, with these factors outweighing further disappointment in US economic data. The USD remains under downward pressure, taking other majors to fresh heights, including the NZD.

BNZ Markets Today

Jason Wong -

There has been a flood of economic news and other headlines, almost too many to mention (sorry Bitcoin cheerleaders), but the net result is only modest changes in financial prices, ahead of the Fed announcement due at 8am NZ time. The impact on the market of very weak US retail sales data has been offset by signs that agreement on a US fiscal stimulus package is imminent, while the hurdles are being cleared for a Brexit trade deal as well. Euro area activity data positively surprised.

BNZ Markets Today

Jason Wong -

After a run of four daily losses, the S&P500 is on a much better footing, with optimism on a US fiscal stimulus package, a Brexit deal and another vaccine likely to be rolling out next week. The US 10-year rate has pushed higher and the USD shows a broadly based fall, with GBP leading the charge higher.

BNZ Markets Today

Nick Smyth -

Markets moves have been modest overnight. On the positive side of the ledger, there is greater optimism that a no-deal Brexit can be avoided as well as growing hopes that a US fiscal stimulus bill might pass. On the negative side, London is set to move into tighter lockdown amidst a “new variant” of Covid while New York was told to prepare for another full lockdown. The S&P500 is up 0.2%, US Treasury yields are unchanged while the USD is marginally weaker so far this week. There hasn’t been much market reaction to yesterday’s announcement from PM Ardern that a Trans-Tasman travel bubble was likely in Q1.

BNZ Markets Today

Nick Smyth -

Market moves were subdued on Friday. Equity markets and bond yields ended slightly lower while, in currencies, the USD and JPY outperformed. The NZD made a new post-2018 high on Friday, before retreating. Over the weekend, the EU and UK have agreed to extend trade talks (again), which may raise hopes that a no-deal Brexit can be averted.

BNZ Markets Today

Jason Wong -

The USD is back under pressure after weak US jobless claims figures and so is GBP after the odds of no trade deal between the EU and UK increased. Commodity currencies are leading the charge, with the AUD blasting up through 0.75 and the NZD back towards the top end of its recent range. The ECB met expectations with the expansion of its bond buying programme.

BNZ Markets Today

Jason Wong -

It has been another uneventful night of trading, with little progress on US fiscal stimulus talks and as UK POM Johnson heads to Brussels to get Brexit talks back on track. In a reversal of yesterday, US equities are slightly lower, while the US 10-year rate is slightly higher. Currency moves have been modest, but with notable outperformance of the AUD and a softer EUR against a backdrop of a slightly better performance for the USD.

BNZ Markets Today

Jason Wong -

It has been a fairly uneventful overnight session in markets with familiar stories such as COVID19 vaccine news, US fiscal stimulus negotiations and Brexit hogging the headlines but not much of it moving the market. US and European equities show small gains, the US 10-year rate is down slightly and currencies are little moved. The NZD has been treading water centred around 0.7040.

BNZ Markets Today

Nick Smyth -

Markets have largely consolidated overnight, with the S&P500 pulling back slightly from its record high and bond yields giving back most of their gains from Friday. Growing fears of a no-deal Brexit led to a sharp fall in the GBP, although it has recovered over the past few hours. There hasn’t been much spill-over to other currencies or risk asset markets from the concerns around Brexit. The NZD has appreciated modestly, with the USD still under pressure.

BNZ Markets Today

Nick Smyth -

Market sentiment remains very positive. Nonfarm payrolls were weaker than expected but this didn’t phase markets, which saw it as increasing the chances that another fiscal stimulus package is passed soon. Equity markets rose to new highs, the US 10-year Treasury hit 0.98%, commodity prices rallied, and the USD downtrend continued. The NZD took a breather, after hitting 0.71 on Friday morning, and is back down at around 0.7040. Brexit talks are heading down to the wire.

BNZ Markets Today

Jason Wong -

US equities have pushed up to a fresh record high overnight, with investors choosing to accentuate the positive on mixed news headlines. US Treasury yields have slipped, as they retreat from gains earlier in the week. The USD’s downward path continues unabated, seeing the NZD break 0.71 overnight even though it was one of the weakest performers, so it is lower on the key crosses. GBP has recovered yesterday’s losses to head the leaderboard.

BNZ Markets Today

Jason Wong -

Global equity markets are treading water, with the S&P500 flat, after posting a record high the previous day. The US 10-year rate has pushed higher, despite softer than expected employment data. GBP has underperformed on negative headlines around the EU-UK trade deal. After printing a fresh 2½-year high, the NZD is back down to where it sat this time yesterday.

BNZ Markets Today

Nick Smyth -

Market sentiment remains very positive amidst Covid-19 vaccine hopes, talk of more US fiscal stimulus, strong economic data and reports that Brexit talks have entered “the tunnel”. Global rates have increased sharply overnight, the S&P500 is up more than 1% and the USD has fallen further. The EUR has decisively broken above 1.20 and is trading at its highest level since mid-2018 while the NZD has pushed up to around 0.7060. The NZD/AUD cross has risen to almost 0.96.

BNZ Markets Today

Jason Wong -

US and European equity markets are weaker on the last day of a very strong month, with month-end flows likely explaining some of the move. The same can be said for currency markets, with the USD strengthening after the London fix. After recording a fresh high, the NZD is back down to around 0.7025. The US 10-year rate has nudged higher.

BNZ Markets Today

Nick Smyth -

Market movements were limited on Friday, with trading activity predictably subdued the day after Thanksgiving Day holiday in the US. Equity markets nudged higher, with tech stocks outperforming, while bond yields fell. The USD drifted lower to reach a fresh multi-year low. The NZD spent the session consolidating above 0.70.

Rural Research

World Food Prices Rising

Doug Steel -

Global food prices are rising. As always, there is much variation across prices for individual products, but a clear upwards trend has emerged overall in recent months.

The UN Food Price Index – which measures international prices for a basket of food groups – rose strongly into the end of 2020 after prior declines as the pandemic took hold. Prices have lifted further in early 2021.

Milk Up

Doug Steel -

Global dairy prices have started 2021 in fine fettle. Happy New Year indeed. Positive momentum was maintained at the latest auction overnight, with the GDT Price Index rising 1.8%.

Milk Prices Nudge Higher

Doug Steel -

We enter the second half of the dairy season with less trepidation than at the start of the season back in June. The economic bounce back from the initial COVID restrictions around the world has been stronger than many predicted. This, including Asia doing better than elsewhere, has set a better backdrop for dairy demand. GDT prices have increased circa 12% since the start of the season.