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: Path cleared for 0.70+

Jason Wong -

When we last reviewed our currency forecasts back in August, NZ had just seen a fresh outbreak of community transmission of COVID19 and the RBNZ had released a surprisingly uber-dovish MPS that seemingly set the path for NZ rates to head into negative territory. With that backdrop we unilaterally revised down our NZD projections by about 2 cents across the horizon. We now reverse that call.

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

NZD Corporate FX Update

Jason Wong -

The evident flat profile of NZD/USD over recent months is expected to extend through the rest of the year, ahead of a renewed upswing next year to the 0.70 mark and beyond.

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

NZD/AUD: Macro headwinds still in play

Jason Wong -

Macro forces suggest further downside potential in the NZD/AUD cross rate.
These include (i) the likelihood of a relatively weaker economic recovery in NZ (ii) lower NZ-AU interest rates and (iii) much greater RBNZ vs RBA balance sheet expansion.

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 see scope for some consolidation in NZD/USD through the rest of the year, ahead of a renewed upswing next year to the 0.70 mark and beyond.

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

Economy Watch

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.

A Less-Dovish RBNZ…And Less-Negative Fiscal Path

Craig Ebert -

Finance Minister Robertson’s suggestions for RBNZ Remit changes are, in broad respect, non-dovish. At the same time, we also need to monitor all the levers the RBNZ is presently able to pull/tweak in order to influence the Minister’s core bug-bear in all of this, the rate of house price inflation.

New Business Lifts Services

Craig Ebert -

Activity in New Zealand’s services sector lifted slightly in October, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for October was 51.4, which was up 1 point from September (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining).

BusinessNZ chief executive Kirk Hope said that while the overall small lift in expansion was positive, the sub-indices that make up the main result were mixed.

“New Orders/Business (58.4) lifted to its highest result since June, along with Stocks/Inventories (51.7) returning to expansion since July. However, Employment (49.5) remains in contraction for the 8th consecutive month, while Production (49.9) fell back down under the 50.0 mark.”

BNZ Senior Economist Craig Ebert said that “October’s PSI was still shy of its historical average of 54.0. This was perhaps more disappointing than was the case for the PMI as the service sectors should arguably have been exhibiting a stronger rebound.”

Trend recovery continues

Craig Ebert -

The ongoing pick-up in job ads in October is, to some extent at least, consistent with the recent lifting of COVID-19 restrictions. Advertising rose a further 5.9% in the month, in seasonally adjusted terms. This is after September’s amount rebounded 8.8%, from an August that stalled in the face of markedly re- tightened COVID-19 restrictions that month.

State of Flux

Craig Ebert -

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

The seasonally adjusted PMI for October was 51.7 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down 2.3 points from September.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the sector remains in a state of flux, although still managing to keep in positive territory.

“Despite a relatively strong showing with the key indices of production and new orders in September, October saw both slide to lower levels of expansion. On a brighter note, employment (52.6) reached its highest level since April 2018”.

BNZ Senior Economist, Craig Ebert said that “October’s PMI serves as a gentle reminder of not getting too carried away with the sense of recovery, even if the worst of COVID’s impacts can be assumed to be behind us”.

Negative rates less likely

Stephen Toplis -

The most important detail in today’s Monetary Policy Statement is the Reserve Bank’s unconstrained interest rate track. According to the Reserve Bank’s modelling process, the economy currently needs an effective cash rate of -150 basis points. Back in August the requirement was -240 basis points. In other words, the Bank thinks conditions have improved sufficiently to require 90 basis points less stimulus than was previously assumed.

Firmer Inflation Despite Sub-Par Activity

Craig Ebert -

It wasn’t at all obvious from its principal results, but this afternoon’s ANZ business survey did offer up some points of interest. Namely, that its many inflation gauges had firmed up even further by early November. And this transpired in spite of the survey’s activity indicators still struggling to get back to average, let alone look strong in a historical context.

Labour market fuels hope

Stephen Toplis -

The news headlines read “New Zealand job losses in 3Q highest since 1986”, “Record jump in NZ unemployment rate”. And they are right. But they miss the point. September quarter labour market data could have been so much worse. Some initial forecasts, for example had New Zealand’s Covid-driven unemployment rate peaking in excess of 10%. But it now looks like it will be a far cry from that and may even peak at a level little different to that experienced during the Global Financial Crisis. And the chances of the rate hitting the 1991 peak of 11.2% look very slim indeed.

Current Inflation No Hurdle For RBNZ

Doug Steel -

The Consumers Price Index (CPI) rose 0.7% in Q3. While this more than offset the 0.5% drop in Q2, it was not enough to stop annual CPI inflation easing to 1.4% from 1.5% a quarter ago.

Milk Price Prospects Lift

Doug Steel -

Global dairy prices have edged a touch higher over the past month or so. The GDT Price Index nudged 0.4% higher at the latest auction overnight. It is only a small move, but it is the third consecutive gain for a cumulative 6.3% lift since early September. Prices are now 4.3% below year ago levels – which is a very commendable outcome given the circumstances.

QSBO Rebound Surprisingly Strong Re the Labour Market

Craig Ebert -

It wasn’t all that surprising to see today’s NZIER Quarterly Survey of Business Opinion (QSBO) bounce back as much as it did. The previous edition, conducted back in late June, was reeling from the shock of the initial COVID-19 lockdown. And New Zealand has been battling its way out of that ever since.

Or, should we say, working its way out of that unfortunate situation? For there was a thread of strength in today’s QSBO that did surprise us to the upside, principally related to the labour market.

House Prices Driven Inexorably Higher

Stephen Toplis -

Whatever the justification for current (and future prices) we caution there will become a point in time when over-zealous investors push prices to simply non-sustainable levels. If house price to income and rent ratios blow out then owning a house will simply become an untenable option for a greater proportion of the population. Ultimately, prices will then have to move. When senior folk amongst the real estate fraternity start to express concern about the sustainability of current price increases you know something must be amiss.

Performance of Services Index - Marginal call

Doug Steel -

Activity in New Zealand’s services sector managed to just slip into expansion for September, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for September was 50.3, which was up 3.1 points from August (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining).

BusinessNZ chief executive Kirk Hope said that like its sister survey for the manufacturing sector, the PSI returned to expansion (albeit close to no change) after lockdown restrictions were lifted in Auckland.

“While the Northern region still displayed contraction in September, its improvement from August, along with increased activity in most other parts of the country, was enough to get the sector back in black”.

BNZ Senior Economist Doug Steel said that “recent PSI and PMI readings are consistent with a big bounce back in Q3 GDP from the massive decline in Q2. The exact degree of it is much more difficult to
judge. What lies ahead is arguably more important – making the PSI and PMI indicators important to monitor over coming months”.

Job ads rebound as lockdown lifts

Craig Ebert -

After being held back by the renewed lockdown in August, job ads rebounded a solid 14.7% in September, as restrictions eased. This left advertising levels down 21.7% on September 2019. This was a lesser fall than the 31.8% annual drop posted in August.

Grinding Out a Very Mixed Business Recovery

Craig Ebert -

This afternoon’s ANZ business survey continued to grind out a recovery, at the margin. Still, the more interesting messages sat just below the nationwide results, highlighting that fortunes remain mixed (and interest rates are not the problem).

RBNZ Forward Guidance Maintained

Stephen Toplis -

- RBNZ reiterates it will keep the cash rate unchanged until after the February meeting
- But it maintains its strong easing bias
- And indicates an early implementation of the proposed Funding for Lending Programme
- November MPS will provide much more detail
- Our rate forecasts are unchanged, for now

A surprise-free 12.2% GDP collapse!

Stephen Toplis -

Perhaps the biggest surprise in today’s GDP data was that there was no surprise. Never before have we experienced such volatility in economic activity. Never before has our statistics agency been faced with so difficult a task in collating its data. The potential for a rogue number was high. But, as it turned out, the 12.2% collapse in GDP reported for Q2 was about as close to our projections (of a 13.0% decline) as could ever be expected. In times gone past a 0.8% error in one’s quarterly forecast might be seen as a shocker. In the new world it’s about as good as it gets!

Recession Narrows External Deficit

Doug Steel -

The external accounts are commanding little market attention at present. This seems fair enough with most focus on the evolution of the Covid-19, the massive hit it has made to economic activity, and the way forward. Nonetheless, it is still notable that NZ’s annual current account deficit continues to shrink and now stands at just 1.9% of GDP for the year to June 2020. We forecast the deficit to narrow even further.

PREFU Highlights Medium-term Fiscal Challenges

Craig Ebert -

The theme of today’s Pre-election Economic and Fiscal Update (PREFU) was of things being not nearly as bad as May’s Budget figured on, but with greater appreciation of the country’s economic and fiscal challenges over the medium-to-long term. And this is about more than just COVID-19.

Ups and downs

Craig Ebert -

Activity in New Zealand’s services sector returned to contraction mode for August, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

Newly Restricted

Craig Ebert -

With New Zealand’s COVID-19 restriction levels re-tightened on 12 August, it was no great surprise to see the recent recovery in job advertising take a knock in the month. It slipped a seasonally adjusted 3.1% – the first backward step since April. This caused advertising to slip a bit on an annual basis also – to -32.5%, from -31.5% in July.

Levels of Difference

Doug Steel -

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

Financial Markets Wrap

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.

NZD torn between weak AUD and strong CNY in October

Jason Wong -

• October themes were rising new cases of COVID19 across Europe; US fiscal stimulus talks and the upcoming US election
• The NZD was flat in October, against a backdrop of cautious risk appetite and a much weaker AUD
• RBNZ officials continued to run a dovish line, re-energising expectations for negative rates next year

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

Markets trade more cautiously in September

Jason Wong -

• The strong rally in risk assets gave way to more caution through September, with second COVID19 wave not helping
• NZD/USD falls but more mixed on the crosses; NZD/AUD recovers
• NZ rates fall to record lows, driven by RBNZ bond buying, with NZGB yields negative out to 5-years at one stage

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

Interest Rate Strategy

NZ Rates Market Outlook – Follow-Up Thoughts

Nick Smyth -

rates have repriced higher this week after Finance Minister Robertson wrote to RBNZ Governor Orr, suggesting that house prices be included as a consideration within the RBNZ’s Remit. NZ rates had already moved sharply higher this month as the market interpreted the November MPS as suggesting the RBNZ was less likely to cut the OCR to negative, with the RBNZ acknowledging the resilience in the domestic economy and super-strong housing market. Encouraging news on Covid-19 vaccines has also led the market to factor in a more positive medium-term global growth outlook.

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-November MPS

Nick Smyth -

The RBNZ left the OCR at 0.25% at its November MPS, as universally expected by economists and the market. The RBNZ reiterated its forward guidance, which is that the OCR will remain at 0.25% until at least March 2021. The RBNZ kept its QE bond buying limit unchanged, at $100b, which was also in-line with expectations.

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

Post-RBNZ thoughts: Receive 1y1y swap

Nick Smyth -

NZ rates have experienced a significant re-pricing over the past week. Partly, this reflects the positive vaccine news from Pfizer/BioNtech, which signals a more positive medium-term outlook for the global economy. Additionally, the market has interpreted the RBNZ MPS yesterday as suggesting the Bank is less likely to cut the OCR to negative. The market has priced negative rates out of the NZ curve, with the trough in the cash rate now sitting just above 0.1%. The 2-year swap rate is now at 0.25%, above where it was before the August MPS.

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

How the FLP might interact with a negative OCR

Nick Smyth -

• The RBNZ has flagged that it will introduce a Funding for Lending Programme (FLP) before the end of the year.
• The FLP should drive down retail interest rates, including both term deposit and mortgage rates.
• At an individual bank level, borrowing via the FLP should be attractive because it offers term funding at concessionary rates.
• At a system-wide level, the benefit to banks from the FLP is reduced in a negative rate world. This is because the cash borrowed from the RBNZ will end up as settlement cash somewhere in the system and incur the negative OCR.
• A tiering regime for settlement cash balances would mitigate the negative impact on bank profitability from a negative OCR.
• We provide illustrative examples of the system-wide impact of the FLP being used for various means (reducing wholesale debt, buying bonds), as well as tiering, in the Annex.

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

RBNZ Tapering QE – A Sensible Move

Nick Smyth -

On Friday, the RBNZ announced that it would reduce its weekly QE purchase pace again for this week, the fourth week in a row it has reduced the purchase pace. The weekly QE purchase pace was $1.4b in September but it has since been reduced to $900m.

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-September MPR

Nick Smyth -

• At its policy meeting, the RBNZ kept the OCR on hold at 0.25% and maintained a strong easing bias.
• The RBNZ flagged it would launch a long-term lending scheme for banks before the end of the year.
• We still think there is a high chance that the RBNZ follows this up with a negative OCR next year. At this stage, we are forecasting the OCR to fall to -0.5%.
• We expect short-term wholesale rates to gravitate lower, and into negative territory, as these OCR cuts approach.
• Long-term wholesale rates might still fall a bit further, but they are getting closer to the bottom.

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

How Much Has RBNZ QE Been Worth?

Nick Smyth -

In this note we come up with some rough and ready estimates for the impact of QE on NZ 10-year rates, both swap and bond.
RBNZ QE may have lowered the 10-year swap rate by 25-45bps, relative to where it might otherwise be now.

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

NZDM cuts bond programme, NZGBs to outperform swap

Nick Smyth -

NZDM announced a $10b reduction to the bond programme for the current 2020/21 fiscal year (from $60b to $50b), alongside the Pre-Election Economic and Fiscal Update (PREFU). This reduces forecast net issuance from $49b to $39b for this fiscal year (still ~13%/GDP).

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

Markets Outlook

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.

Retail Spending: After the (Q3) Flood?

BNZ Research -

There are three reports we’d draw attention to for this week – namely Q3 retail trade, the RBNZ Financial Stability Report (FSR), and the public release of the audited 2019/20 Crown accounts. They should all tell of a surprising degree of robustness for now, but with question marks remaining about the medium term.

Growth Constrained After Big Q3 Bounce?

BNZ Research -

Much like the Performance of Manufacturing Index (PMI) for October released last week, today’s Performance of Services Index (PSI) warned about not over-forecasting the economic recovery that is broadly underway. While demand indicators are firm at present, there are challenges on the supply side. And we have yet to feel the full hit from the lack of tourism.

MPS Reaches Fork in the Road

BNZ Research -

The not-so-bad local news of late – including last week’s Q3 labour market data – will presumably help keep the Bank from committing to a negative cash rate for down the track. However, the better than anticipated starting point on the economy probably won’t prevent the OCR committee from retaining a strong easing bias. This is knowing the directives it ultimately has to (try to) achieve on inflation and full-employment, not to mention ongoing worries about the global economy.

RBNZ To Restate Easing Bias

BNZ Research -

Gone are the days when previewing the likely actions of the central bank was “simply” a matter of picking the interest rate track the RBNZ would publish. Interest rates are still part of the puzzle but even that piece has become more complex with the possibility/probability that the cash rate will, for the first time ever, soon go negative. In addition to rates, we have another suite of possible policy measures to ponder any or all of which could be drawn upon in the 11 November Monetary Policy Statement. At the top of the list for the upcoming MPS are details on the Funding for Lending Programme, an update on the Large Scale Asset Programme and any information that the RBNZ might provide on how it might respond to surging house prices.

Will Inflation Really Slump That Much?

BNZ Research -

It would seem easy to assume a lot of downward pressure on inflation, given the monumental shock from COVID-19. However, because this shock has substantially affected the ability to supply, not just aggregate demand, it remains an open question as to how much excess supply there will be over the coming period, in effect. Last week’s QSBO certainly asked some questions in this regard.

From Politics to Policy

BNZ Research -

We suspect financial markets will be much less excited than many media pundits appeared to be, about Saturday’s General Election outcome. Yes, it was an overwhelming win to the incumbent Labour party, but one that was broadly telegraphed in the polls. There is still the issue of what influence the Green party might have at the margins. But the key from here will be the policy dictated by the Labour-majority government, as this is revealed in due course.

BNZ Markets Outlook

Doug Steel -

There hasn’t been much economic data out of late, but what there has been continues to indicate a recovering economy. But in case anyone was thinking the generally better than expected run of data over recent weeks may tempt the RBNZ to back away from its easing bias, we were delivered a firm reminder that this is not the case by Assistant Governor Hawkesby and Chief Economist Ha last week.

RBNZ Sounding Very Dovish (Just as Firms Re-Flicker)

Craig Ebert -

Today’s dovish statements from the RBNZ, in the extreme, appeared to grate with the coincidental news that NZ firms are seeing more light at the end of the tunnel, and, in particular, that their pricing intentions are now as robust as they were pre-COVID.

Pulled Up on a Technicality

BNZ Research -

The QSBO’s postponement still leaves this Thursday’s preliminary ANZ survey to update one’s fix on business sentiment and expectations. While this might register further remediation, the survey will surely highlight, most of all, that the economy still has a very long way back, before employment is even close to being sustainably maximised, and inflation broadly pressured.
And it’s this broader context, rather than the marginal economic news – which, in many respects, has been better than anticipated – that will shape the Reserve Bank’s thoughts and actions.

Wage Flexibility Helping to Preserve Jobs?

Craig Ebert -

We wonder if jobs are being saved by flexible pay arrangements, rather than just mostly by the wage subsidy. If so, it would be another example of good disinflation/deflation, which is helping clear markets – in this case, for labour. But any deflation, of course, tends to engender a great sense of failure for a central bank these days, who instead tend to see increased inflation as a necessity for economic success.

RBNZ to Defer Guidance Shift to November’s MPS

BNZ Research -

We can imagine the Bank’s “commitment” to keep its Official Cash Rate (OCR) at 0.25% until at least March 2021 will probably be left in for Wednesday’s Monetary Policy Review. It could be a case of damned if you do, damned if you don’t. But removing it, at this juncture, seems the bigger risk, in that it could cause a market shunt that the Bank feels a tad confronting to its optionality around OCR movements and timing thereof.

GDP and Monetary Policy Preview

BNZ Research -

By the end of the next two weeks we will have a much better view of the damage done to the economy by the initial Covid-driven lockdown. Moreover, we will have confirmation of the way the authorities, both fiscal and monetary, will continue to support the economy as it continues its recovery from the depths of the initial Covid lockdown.

GDP Hard To Measure But Important To Judge

BNZ Research -

Of course, measurement of economic activity, with any precision, is always difficult. And the task has become even harder with the disruptions brought about by COVID-19. Nonetheless, the degree to which economic activity is, in fact, bouncing around is still important to appreciate. It can’t be discounted just because it’s hard to measure.

Markets Today

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.

BNZ Markets Today

Jason Wong -

Markets are quiet with the US on holiday. S&P500 futures are down modestly, following AstraZeneca’s news that a new trial will have to take place after a mistake became evident from its initial trial. US Treasury futures are slightly higher. Currency movements have been small, with the NZD flat at 0.70 and GBP and SEK showing modest weakness. Bitcoin is in freefall.

BNZ Markets Today

Jason Wong -

Market conditions are quiet ahead of the US Thanksgiving holiday, but a more cautious tone has been adopted, seeing small falls in US and European equities and a small fall in the US 10-year rate. That backdrop hasn’t stopped the NZD printing a fresh 2½-year high just above 0.70, with other currencies showing small gains against a soft USD.

BNZ Markets Today

Nick Smyth -

NZ rates re-priced sharply higher yesterday, and the NZD touched 0.70 for the first time since mid-2018, after the Minister of Finance suggested the RBNZ Remit should include consideration of house prices. The market moved to all-but price out easing from the NZ curve yesterday, although there has been a partial reversal overnight. Offshore, equity markets, commodities and global rates have all pushed higher after Trump finally consented to the transition process and as the market continues to digest recent encouraging news on Covid-19 vaccines. The USD is set to close at its lowest level in 2½ years.

BNZ Markets Today

Jason Wong -

The USD strengthened overnight, driven by surprisingly positive Markit PMI data. This saw the NZD drop from a fresh 2-year high, to dip back below 0.69 and now on its way back up. Sector rotation remains the theme for equity markets, against a backdrop of little overall movement

BNZ Markets Today

Nick Smyth -

US equities and global rates fell modestly on Friday after the US Treasury said it would withdraw funding for several of the Fed’s emergency facilities, including its corporate bond buying programme, at the end of the year. The news was unexpected but, given the robust state of credit markets, didn’t provoke a major market response. Currency moves were subdued on Friday although, of note, the NZD touched 0.6950, its highest level since late 2018.

BNZ Markets Today

Jason Wong -

Investors remain in a cautious mood, not helped by the spread of COVID19 across the US and new restrictions that are gradually being imposed. US equities are down slightly and global rates have nudged down further. Currency movements have been mostly small overnight, although the AUD has notably underperformed, that sees the NZD/AUD cross at a 7-month high at 0.95.

BNZ Markets Today

Jason Wong -

More positive vaccine news has supported risk assets, with modest gains in global equity markets and a nudge higher in global rates. The USD shows broadly based falls, with the NZD leading the charge, printing a fresh 20-month high and pushing higher on the crosses.

BNZ Markets Today

Jason Wong -

Good Morning

Markets are trading with a more cautious tone, with equity markets making modest losses, global rates nudging lower, and commodity currencies underperforming overnight. The NZD has traded mostly below 0.69 overnight, after touching a fresh 20-month high yesterday.

BNZ Markets Today

Nick Smyth -

Hot on the heels of Pfizer’s encouraging news last week, Moderna announced overnight that its vaccine had been found to be 94.5% effective. The news has generated a reasonably modest bounce in global rates and equities, with markets having already moved significantly on the Pfizer news last week. The USD is broadly weaker, and the NZD stronger, against a risk-on backdrop.

BNZ Markets Today

Nick Smyth -

Markets traded with a positive tone on Friday, with equities increasing further and global rates edging higher. The Russell 2000 small cap index made a new all-time high, with investors looking past the surge in COVID-19 cases in the US and instead focusing on the potential for economies to reopen next year as a vaccine(s) becomes available. The NZD rose more than 1% last week, the top-performing G10 currency, as the market priced-out negative rates for the RBNZ.

BNZ Markets Today

Jason Wong -

Markets have taken on a more cautious tone, following the vaccine optimism-led rally in risk appetite, with US and European equities lower overnight. This has supported US Treasuries, alongside soft CPI data, seeing the 10-year rate down 4bps since the NZ close. Commodity currencies are slightly weaker overnight, with the NZD falling to 0.6850 as we go to print.

BNZ Markets Today

Jason Wong -

Global equities continue to rally in the aftermath of the positive vaccine news earlier in the week and the result of the US election. The US bond market is closed for Veteran’s Day. With a stronger USD overnight, there has been no follow-through for the NZD, after its strong rebound post the RBNZ’s MPS, which drove domestic rates much higher. However, the NZD has continued to push slightly higher on the crosses.

BNZ Markets Today

Nick Smyth -

arkets have largely consolidated overnight after the big moves following Pfizer’s positive vaccine announcement. Global rates have pushed higher while the S&P500 is flat, with big tech stocks continuing to underperform. Currency moves have also been modest, with the NZD continuing to hold above 0.68. There was a big re-pricing in the NZ rates market yesterday, with rates higher across the curve, as the market pared back its OCR rate cut expectations. The RBNZ MPS takes centre stage today.

BNZ Markets Today

Jason Wong -

Risk appetite has surged, with enthusiasm of Biden’s victory in the US election buttressed by positive vaccine news by Pfizer/BioNtech. US equities have surged to fresh record highs while bond markets are under massive pressure, with double-digit gains in yields across many markets. Currency safe havens CHF and JPY have plunged and while the NZD recorded a fresh 20-month high, its gains relative to yesterday afternoon are modest.

BNZ Markets Today

Nick Smyth -

Equity markets consolidated on Friday following several days of large gains. The S&P500 was up 7.3% last week, its best week since April. US Treasury yields moved higher after a stronger-than-expected nonfarm payrolls release while the Bloomberg USD index fell to a fresh 2½ year low. The NZD touched 0.68 on Friday night, the first time in more than 18 months. Over the weekend US media have finally called the US election for Biden, although Trump has refused to accept the result.

BNZ Markets Today

Jason Wong -

The market has taken the close US election results and associated uncertainty in its stride, with US equities surging ahead and currency markets unperturbed. The Treasury market has cheered the lack of a blue wave with its associated spend and borrow implications, seeing the 10-year rate down 12bps for the day to 0.78%.

BNZ Markets Today

Jason Wong -

The market is trading as if the US election is over and the results are in, with a clear outcome that will lead to further fiscal stimulus. US equities are charging ahead, the US 10-year rate has pushed up to a fresh four-month high and the USD is weaker across the board. The NZD is up through 0.67.

BNZ Markets Today

Jason Wong -

Equity markets have rebounded following last week’s substantial fall, ahead of the US election. Strong US ISM data have been a supporting factor. The US 10-year Treasury rate has also been in reversal mode, drifting lower. Commodity currencies have outperformed, although movements have been modest.

BNZ Markets Today

Nick Smyth -

US equity markets have rebounded strongly overnight after yesterday’s big sell-off while US Treasury yields have also moved sharply higher. Conversely, European rates have fallen, alongside the EUR, after the ECB foreshadowed more monetary easing at its December meeting. The NZD has fallen back towards 0.66 amidst broad-based USD strength.

BNZ Markets Today

Jason Wong -

US and European equity markets have fallen significantly overnight ahead of new country-wide restrictions being imposed across France and Germany, as new cases of COVID19 surge. Despite the equity market sell-off, global rates markets have seen only small falls in yields. Safe haven currencies have outperformed, with commodity currencies near the bottom of the leaderboard.

BNZ Markets Today

Jason Wong -

Equity markets have continued to take on a cautious tone, given the spread of COVID19 across Europe and the US, as hospitalisation and death rates increase (the UK recorded its highest daily death total from COVID19 since May) and more restrictions come on board to contain the spread. There are no fresh headlines on US fiscal stimulus talks and there is still the US election to navigate. Some 60m Americans have already cast their vote, in a surge of early voting to avoid crowded polling stations on election day.

BNZ Markets Today

Nick Smyth -

It has been ‘risk off’ start to the week with investors focusing on the resurgence in COVID-19 in Europe and fiscal stimulus talks stalling. The S&P500 is off more than 2% while US Treasury yields have fallen back below 0.8%. The USD has gained a little ground, albeit from what was its lowest closing level since May 2018. The NZD has been fairly resilient, despite the risk-off backdrop, with the NZD/AUD cross pushing towards 0.94 for the first time since July.

BNZ Markets Today

Jason Wong -

US equities found a bid and US 10-year rates reached a fresh multi-month high after news that a fiscal stimulus agreement was “just about there”. The NZD and AUD have recovered yesterday afternoon’s losses following talk of foreign meddling in the US elections. The NZD’s outperformance sees its higher on all the key crosses.

BNZ Markets Today

Jason Wong -

The USD shows broadly-based weakness, with US fiscal talks still in the headlines. The US 10-year Treasury rate hit a four-month high before peeling off. The NZD and AUD have recovered nicely, while GBP has outperformed as EU-UK trade talks look to restart, with hope for a deal by mid-November. CAD is the weakest major, not helped by a 4% fall in oil prices.

BNZ Markets Today

Jason Wong -

US equities are in recovery mode, following yesterday’s swoon, on a day with little fresh news to report. US Treasury yields are ticking higher, while the NZD and AUD are trying to recover after the losses seen during local trading hours, after more dovish-speak from the RBNZ and RBA.

BNZ Markets Today

Nick Smyth -

US equity markets have seen modest falls overnight while bond yields are little changed. US fiscal stimulus talks are ongoing, but markets remain sceptical of a pre-election deal. The USD is broadly weaker, with the GBP gaining on reports the UK may amend its controversial Internal Market Bill. The NZD has moved a bit higher against this weaker USD backdrop and the NZD/AUD cross has pushed up to an almost three-month high.

BNZ Markets Today

Nick Smyth -

There were limited moves in most asset classes on Friday. US equities were flat-to-lower, but still higher on the week, while currencies and bond yields were little changed. UK PM Boris Johnson told the country to prepare for a no-deal Brexit, but the GBP was unphased, suggesting the market remains sanguine that a trade deal can be reached. The NZD was unchanged on Friday but down almost 1% on the week amidst a turn-around in the USD and spill-over from a weakening AUD, as investors position for more RBA easing. NZ’s Labour party achieved a landslide in the weekend’s election but there shouldn’t be much sustained market reaction with the result broadly in-line with pre-election predictions.

BNZ Markets Today

Jason Wong -

Risk appetite has weakened, following fresh restrictions across London and France to bring the spread of COVID19 under control, and a weak US labour market reading. Equity markets have extended this week’s losses while safe haven currencies have outperformed. The NZD and AUD are two of the weakest currencies, the latter not helped by a dovish RBA yesterday.

BNZ Markets Today

Jason Wong -

US equities are trading on a cautious note again, with little positive news to drive stocks higher. Global bonds are well bid, while currency markets have been largely dormant, with a rebound in GBP the only movement of note as EU-UK trade talks continue. The NZD remains range-bound, with dovish RBNZ comments having no impact yesterday.

BNZ Markets Today

Jason Wong -

There has been plenty of newsflow over the past 24 hours, both positive and negative, although erring towards the latter, seeing equity markets take on a more cautious tone, with modest falls across the US and Europe, and global rates are lower. The USD shows broadly based gains for the day, with notable weakness in EUR, GBP and AUD.

BNZ Markets Today

Jason Wong -

US equities have continued to ramp higher, led by big tech, while the US bond market is closed for the Columbus Day holiday. Currency movements have been modest, with a weaker CNY dragging down the NZD and AUD to start the week.

BNZ Markets Today

Nick Smyth -

Markets ended last week on a positive note as investors warmed to the prospect of a clear Biden win at the election and Democrats and the White House resumed fiscal stimulus talks. Equities increased again, capping off a strong week, while the USD fell sharply to near a 2½ -year low. The NZD appreciated over 1% on firmer risk appetite. The PBOC has made a rule change over the weekend, making it less expensive to short the CNY.

BNZ Markets Today

Nick Smyth -

It has been a relatively quiet offshore trading session overnight, with equities extending their gains from yesterday and US bond yields moving a touch lower. Currency movements have been reasonably contained although, of note, the NZD/AUD cross has fallen to a four-week low. The movement in the cross follows dovish comments from RBNZ Assistant Governor Hawkesby and Chief Economist Ha at a media briefing yesterday, which reinforced the market’s conviction in a negative OCR next year.

BNZ Markets Today

Nick Smyth -

Equity markets and bond yields have been very volatile over the past 24 hours, initially diving after Trump said he was unilaterally ending fiscal stimulus negotiations, then rebounding overnight. The S&P500 and US 10-year rate have made an almost complete recovery from their lows yesterday morning while the USD has again turned lower on improved risk appetite. There has been no such recovery for the NZD though, which is trading near the lows of the day, below 0.66. There has been little reaction so far to the just-released FOMC minutes.

BNZ Markets Today

Nick Smyth -

Equity markets and bond yields have consolidated overnight after their big increases in Monday’s session, after Trump left hospital. The RBA kept its policy settings unchanged yesterday, as expected, but the statement was dovish, setting up the market for a series of incremental easing measures next month. The NZD has drifted slightly lower, within a narrow trading range.

BNZ Markets Today

Nick Smyth -

Equity markets and bond yields have rebounded strongly overnight on US fiscal stimulus hopes and signs that President Trump’s condition is improving. Markets also appear to see a greater chance of a clear Biden win in the election, reducing the risk that Trump disputes the result and creates a drawn-out period of uncertainty. The USD has weakened across the board, with the exception of the JPY, reflecting improved risk appetite. The NZD has been little moved, despite the ‘risk-on’ tone to markets.

BNZ Markets Today

Nick Smyth -

Equity markets were very volatile on Friday night. News that President Trump had tested positive for COVID-19 sparked an immediate sell-off in equities, although the S&P500 subsequently pared a large portion of its losses on more encouraging noises around a US fiscal stimulus package. Most of the volatility was confined to equity markets, with little net change in currencies and rates. There have been conflicting reports on Trump’s medical condition, but the latest from his doctors is that he is improving and could be discharged as soon as tomorrow. Today, the NZ government reviews the COVID-19 alert levels, with the possibility that Auckland could join the rest of the country at level 1 from Thursday.

BNZ Markets Today

Jason Wong -

Despite some mixed US economic data and an apparent stalemate reached in US fiscal relief package negotiations, US equities have begun the new quarter on a positive note. Currency movements have been modest apart from some whipsawing in GBP on Brexit-related news, while the NZD has outperformed.

BNZ Markets Today

Jason Wong -

Stronger than expected US data and renewed hopes that US lawmakers can agree to a fiscal stimulus package have supported risk sentiment, seeing higher US equities, higher Treasury yields and stronger commodity currencies.

BNZ Markets Today

Jason Wong -

After yesterday’s strong rally, global equity markets are trading more cautiously, ahead of the first US Presidential debate. The NZD and AUD have shown further recovery after last week’s plunge, while EUR has also recovered. Oil is much weaker.

BNZ Markets Today

Jason Wong -

Newsflow has been light but risk appetite has improved as the new week kicks off, with strong broadly-based gains in equity markets. The USD is struggling alongside the yen, while GBP has outperformed as a new round of UK-EU trade negotiations begin.

BNZ Markets Today

Jason Wong -

US equities rebound, but S&P500 still down for the week
Fiscal talks news and US Supreme Court nomination post-date Friday close
NZD flat; NZD/AUD closes above 0.93

BNZ Markets Today

Jason Wong -

Risk sentiment has recovered somewhat, sending US equities into positive territory after a weak start. This has also been evident in currency markets, with the NZD and AUD in recovery mode as we go to print. GBP has been supported by a mini-fiscal stimulus, something still absent from the US, but the market hasn’t given up on hope for that.

BNZ Markets Today

Jason Wong -

Yesterday’s recovery in US equities turned out to be one of a dead-cat nature, with a tech-led fall overnight. The NZD and AUD are the weakest currencies for the day, with yesterday’s falls extending overnight.

BNZ Markets Today

Nick Smyth -

It has been a better session for risk assets overnight, with US and European equities rising by 0.5-1.5%. The USD has strengthened to an almost six week high, despite the recovery in risk appetite, while US rates are little changed. The AUD has underperformed after RBA Deputy Governor Debelle reiterated the possibility of further easing measures. The RBNZ Monetary Policy Review takes place at 2pm, although we’re not expecting any major surprises.

BNZ Markets Today

Jason Wong -

Investors are rolling out the excuses to sell risk assets as the new week begins, with chunky falls across global equities, a shift to the safety of government bonds, and safe-haven currencies outperforming.

BNZ Markets Today

Nick Smyth -

Equity markets in the US and Europe fell again on Friday, on little news, and the USD and JPY benefited from a safe-haven bid. Global bond yields, in contrast, were a touch higher. The NZD outperformed on Friday, and NZ rates ticked up a little, after some positive comments from Finance Minister Robertson. For the week ahead, the RBNZ Monetary Policy Review takes place on Wednesday (no major changes expected) while the government reviews the NZ COVID-19 alert level restrictions today.

BNZ Markets Today

Nick Smyth -

Equity markets have had another big fall overnight, mainly tech stocks, but without much impact on other asset markets. US Treasury yields are marginally lower than yesterday’s close and FX changes against the USD are all within +/-0.2%. The GBP has underperformed, albeit not by much, after the Bank of England flagged that it would consult with the banking regulator on negative rates, as a possible policy tool. Yesterday’s NZ GDP data confirmed that the economy suffered an enormous hit in Q2, but it was close enough to expectations to cause little reaction.

BNZ Markets Today

Jason Wong -

There has been only a small market reaction to the Fed’s updated policy statement, even as it included forward guidance on rates linked to inflation and employment outcomes. US equities have held on to its gains, and US bond yields continue to track sideways. Currency movements have been mostly modest, with the GBP continuing to recover and the NZD adding slightly to gains seen yesterday.

BNZ Markets Today

Jason Wong -

The recovery in global equities this week has seen some follow-through overnight, with stronger than expected Chinese economic data yesterday adding to the positive vibe. Currency movements have been modest, with the NZD and AUD modestly higher for the day, but with no follow-through in overnight price action. GBP has recovered a little further.

BNZ Markets Today

Jason Wong -

The new week has begun with a recovery in risk appetite, seeing a rebound in US equities and providing some support for the NZD, although we suspect that its gains have come at the expense of the AUD on increased speculation that the RBA is set to ease monetary policy further.

BNZ Markets Today

Nick Smyth -

Equity markets were again volatile on Friday. The NASDAQ declined again, capping off a big fall for the week, while the S&P500 was unchanged. Movements in currencies and bonds were more muted. Over the weekend, AstraZeneca and Oxford University said they would resume Phase 3 vaccine trials in the UK, which should provide a welcome boost to risk assets to start the week. The government makes its decision on the COVID-19 alert levels today.

BNZ Markets Today

Nick Smyth -

Equity markets remain volatile. Earlier gains in the S&P500 and NASDAQ have given way to another sizeable sell-off. The risk-off backdrop has driven an appreciation in the USD, falls in commodity currencies and a decline in global rates. The standout mover in currency markets has been the GBP, which has fallen heavily again overnight on mounting concerns around Brexit.

BNZ Markets Today

Jason Wong -

The rout in the tech sector is either finished or paused. In a mirror image of the previous day’s moves, equities and global rates are higher, safe-haven currencies have underperformed and commodity currencies have outperformed. The NZD has maintained a 0.66 handle, moving from the bottom end to the top end.

BNZ Markets Today

Jason Wong -

US investors have come back from holiday in a grumpy mood, extending the tech-led selloff in equities that began late last week. In a shift to safer assets, global rates are lower and safe-haven currencies have outperformed. NZD has extended its losses this week, now trading just above 0.66.

BNZ Markets Today

Jason Wong -

Trading has been quiet with the US public holiday. European equities had a strong session and S&P futures are pointing to a positive open tonight. The USD shows some small broadly-based gains, while GBP has underperformed on negative Brexit talk.

BNZ Markets Today

Nick Smyth -

There was another big sell-off in the S&P500 and NASDAQ on Friday before a sharp recovery late in the session pared losses to about 1%. US Treasury yields ignored the weakness in equities and focused on a strong US employment report, which pulled rates up by 8-10bps at the long-end of the curve. The USD initially appreciated after the payrolls report but gave back those gains as equity markets recovered – currency changes, including for the NZD, were minimal. The US bond and stock markets are closed tonight for Labor Day.

BNZ Markets Today

Jason Wong -

Well, it had to happen sooner or later, but a slump in big tech names is dragging global equity markets lower, seeing the S&P500 down about 4%. The flight to safety sees slightly lower US Treasury yields and stronger safe-haven currencies, while commodity currencies are weaker.

Rural Wrap

La Nina Far From Only Influence On Lamb Pricing Ahead

Doug Steel -

Making predictions for any new season is fraught with difficulty. This is true in the best of times, but the task is only made more problematic during a global pandemic as it interacts with a host of demand and supply side factors. We take a look a the major macroeconomic factors with the potential to influence the lamb market over the year ahead.