BNZ Research

NZD Corporate FX Update

Our (unchanged) projections are consistent with a 0.60-0.64 trading range over Q4. The November US election remains a key risk event that could get in the way of our 2025 projections for further NZD appreciation.

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Should we be upgrading the NZD outlook?

The NZD has appreciated to a fresh high for the year above 0.6350. In recent weekly updates we have noted the NZD tracking slightly ahead of our projections. Our projections haven’t been updated since April – an unusually long period between revisions, given the nature of currency forecasting. We have been projecting a year-end target of 0.62, consistent with a 0.60-0.64 trading range in Q4, and an end-2025 target of 0.67, consistent with the trading range gradually climbing to 0.65-0.69 about a year from now. Current spot is already near the top end of our suggested trading range for next quarter, although still short of where we see it heading next year. The question is should we be upgrading?

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NZD Corporate FX Update

After a strong recovery through August, the NZD is due for a breather although our (unchanged) projections maintain a constructive medium-term outlook.

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NZD/AUD: Risks still skewed to downside

• We haven’t changed our bearish view on NZD/AUD for some time. The thesis for a sustained weaker exchange rate is that NZ’s economy is significantly underperforming Australia’s. The history has been one of similar economic performance over the past decade, and this being reflected in a steady, mean-reverting exchange rate. This cycle is different.
• There is currently a large difference in output gaps between NZ and Australia, and this will ultimately be reflected in NZ’s unemployment rate extending its rise above Australia’s, NZ’s inflation outlook improving relative to Australia and further contraction in NZ-Australia rate differentials. Relative net migration, terms of trade, current account and fiscal considerations are also in Australia’s favour, arguing for a weaker exchange rate.

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NZD Corporate FX Update

Near-term headwinds for the NZD have re-emerged and volatility could rise into year-end.

Following the strong rally in the NZD in May, from an oversold level, headwinds have re-emerged over the past couple of weeks. At the end of last week, our global risk appetite index had fallen to just over 60%, quite a tumble from the risk-loving 85% peak in May. To explain this, we might point to weaker US economic data, renewed concerns about China’s growth outlook and geopolitical factors, following Trump’s rise in the polls and becoming a clear favourite to become the next US President. Adding to the NZD’s pullback was the surprising dovish pivot by the RBNZ at its July policy review.

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RBNZ accelerates easing cycle

The Reserve Bank of New Zealand today slashed its cash rate by 50 basis points to 4.75%. We think this is exactly the right thing to do and stick with our view that there is much more to come. As we have said before, the RBNZ will not relax until monetary conditions are no longer restraining the economy. We are still some way from this.

RBNZ to accelerate rate cuts

We have been increasingly pointing to the fact that October’s Monetary Policy Review could be a line ball call between a 50 basis point cut and a 25. Not cutting at all has never entered our minds. And a line ball call it is. We’d hoped that the ANZ Business Opinion Survey and today’s QSBO would deliver the same message, and in so doing settle the argument. But they haven’t, with the ANZ survey delivering a hawkish message and the QSBO a starkly dovish tilt.

Business survey questions RBNZ acceleration

If you were looking for a reason why the RBNZ should cut rates 50 basis points at its October meeting, this wasn’t it.

The September ANZ Survey of Business Opinion was unequivocally strong.

A net 45% of businesses now expect their activity to increase over the next 12 months. On a seasonally adjusted basis this was the strongest reading since August 2017 and is consistent with GDP growth approaching 4.0%.

Comparing Across the Ditch

While Australia’s economy faces headwinds, they pale in comparison to New Zealand’s. In Q2, NZ annual GDP contracted 0.5%, much weaker than annual growth of 1.0% across the ditch. While NZ is in the midst of a rolling recession, Australia’s economy has remained relatively more resilient. But, given the extent of the downturn, there is at least a lower hurdle rate for NZ to achieve positive growth as we head into 2025.

Return to Trend-Decline

Job ads in August are down 28.2% on a year earlier, and excluding Covid, are at their lowest level since 2013. They fell 1.3% in August, unwinding some of their 3.5% lift in July. The August outturn continues the general downwards trend of the last two years.

External deficit reduction stalls

The current account deficit stood at the equivalent of 6.7% of GDP in the year to June 2024. This is of a size that is likely to keep the external accounts on rating agency radars.
Today’s result was a larger annual deficit than the market (6.5%) or we (6.3%) expected, although a touch smaller than the 6.9% seasonally adjusted figure the RBNZ projected in its August MPS. For us, the known revisions to exports of services were offset by other factors and revisions.

Slow Crawl

Activity in New Zealand’s services sector inched its way higher during August, although still firmly in contraction territory, according to the BNZ –BusinessNZ Performance of Services Index (PSI).

The PSI for August was 45.5 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 0.3 points from July, but still well below the average of 53.2 over the history of the survey.

BusinessNZ’s Director, Advocacy Catherine Beard said despite two consecutive months showing a lift in activity levels, the key index value for Activity/Sales (43.9) remains lackluster, while New Orders/Business (46.6) dipped slightly from July. On a more positive note, Employment (49.2) lifted to its highest result since March.

The proportion of negative comments for August stood at 60.8%, which was down from 67.0% in both July and June. Respondents continued to note the high cost of living and general economic conditions as reasons for ongoing tough times.

BNZ's Senior Economist Doug Steel said that "smoothing through monthly volatility, the PSI’s 3-month average remains deep in contractionary territory at 43.9. The PSI has been in contraction for six consecutive months which is the longest continuous period of decline since the GFC”.

Incremental improvement

New Zealand’s manufacturing sector showed further signs of improvement during August, although still in contraction, according to the latest BNZ –BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for August was 45.8 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 44.4 in July, but still significantly below the long term average of 52.6. The sector has now been in contraction for 18 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that the PMI is heading back in the right direction, but the pathway to eventual expansion after a year and a half being firmly in contraction mode means there is still some way to go.

“The key sub-index results for Production (46.3) and New Orders (46.8) were both the strongest they have been in a few months, with the former improving significantly from June. Employment (46.6) recovered somewhat from its June/July dip, while Finished Stocks (46.2) was all but unchanged from July".

Given the ongoing improvement in activity for August, the proportion of negative comments stood at 64.2% for the current month, compared with 71.1% in July and 76.3% in June. Negative comments typically focused on the general economic recession, including lack of demand and cost of living.

BNZ’s Senior Economist Doug Steel said that “while business confidence and building consent indicators have ticked up from their very low levels offering potential for improvement over the coming 12 months, the PMI is an indicator of outcomes and continues to show that current conditions remain challenging”.

Monthly Prices Affirm Q3 CPI View

Today’s selected prices data for August gives us no cause to alter our general thinking for Q3 CPI. There was a range of ups and downs in the details, which is usually the case for these wobbly monthly indicators, but the overall net result was close to our priors.

Relief

We thought there would be a bounce in economic confidence following the dovish tones, subsequent interest rate reduction and projection of more from the RBNZ. Today’s ANZ business confidence survey confirmed a bounce. It was sizeable.

Business confidence lifted to a 10-year high, punching up to 50.6 in August, from the 27.1 in July which was already up from a low 6.1 in June. It is interesting that the August business survey details suggest a bounce was well under way before the RBNZ cut the OCR at its August meeting. This suggests the confidence swing was well underway following the dovish pivot in July, as we suggested last month. In any case, it just goes to show what a difference a few months and some relaxation in tight monetary conditions can do following a period of tightness.

Retail Retreat Near Its End?

Today’s retail sales figures essentially confirmed our suspicions – that sales are very weak and continued to decline in Q2. We thought when sales volumes bounced a touch in Q1 that it was more noise than any indication of change in trend at the time. Sales volumes fell 1.2% in Q2, taking sales 3.5% below on a year ago, and completing the third successive annual decline. Core (ex auto) sales volumes fell 1.0%.

Milk Price Outlook Improves

This morning’s GDT dairy auction was positive. Dairy prices posted a strong lift, with the GDT price index gaining 5.5%. It is the largest gain in a single auction since March 2021, although should be seen in the context of a large drop early last month. The price index is not far from recovering all that decline.

July Jump

Job ads rose 3.4% in July. It is the first monthly increase in job ads since a marginal increase back in January. But July’s gain needs to be seen in the context of an 8.0% slump the month before and a 4.8% decline the month before that. Gains have been few and far between in a very strong downtrend that started back in late 2022. The trend in job ads remains firmly downward. Jobs ads in July are down 28.6% on a year earlier.

Relative progress

Activity in New Zealand’s services sector for July showed some improvement after a horrendous June result, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for July was 44.6 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 3.9 points from June and the highest result since May. However, the PSI has only averaged 46.5 so far for 2024, compared with 53.2 over the history of the survey.

BusinessNZ chief executive Kirk Hope said that while the relative improvement in activity for July was a welcome sight, there's still a lot of work to go before the sector is back on track. The key index values for Activity/Sales (39.1) still remains under the 40-point mark, although New Orders/Business (45.3) did show a marked improvement compared with June, albeit off a very low base.

Stopping the Rot

Activity in New Zealand’s manufacturing sector showed some small signs of improvement, although still in contraction, according to the latest BNZ –BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for July was 44.0 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 41.2 in June, but still significantly below the long term average of 52.6. The sector has now been in contraction for 17 consecutive months.
BusinessNZ’s Director, Advocacy Catherine Beard said that while the July result showed some improvement from June, the numbers still told the story of a sector continuing to struggle.
“The key sub-index results for Production (43.4) and New Orders (42.5) both returned to figures above the 40-point activity level, although both still showing significant contraction. In contrast, Employment (43.1) continued to plunge further, as did Finished Stocks (46.5)".
Given the relative improvement in activity for July, the proportion of negative comments stood at 71.1% in July, compared with 76.3% in June. Negative comments outlined a lack of orders, customers and sales continuing recent trends.
BNZ’s Senior Economist Doug Steel said that “manufacturing activity will turn when the broader economy turns. Easing monetary conditions will help in this regard, but it will take time for the likes of a lower OCR to generate a general pick up in sales”.

Disinflating

This morning’s Selected Price Indexes support the notion of firm disinflation. It’s only one month, and a lot of components are volatile, but the direction of travel is clear.

RBNZ declares victory against inflation

After 15 long months of extremely tight monetary policy, the RBNZ has given the green light to progressively lower interest rates. Not only did it cut the cash rate 25 basis points to 5.25% today but it also published a rate track which implies a further three 25 point cuts by February next year on its way to an eventual low of 3.0%.

Labour Market Weakening

Today’s Q2 data shows the labour market continues to loosen, and we think it will loosen further. The unemployment rate rose to 4.6% in Q2 from the 4.3% initially published for Q1 (although the latter was revised up to 4.4% in today’s figures). The unemployment rate is now a full percentage point above its 3.6% level a year ago and we think a similar sized lift is likely over the coming 12 months or so.

August MPS Preview

The New Zealand economy is buckling under the pressure of extremely tight monetary conditions, slumping net migration, government cutbacks, rising unemployment, reduced investment activity and weak confidence.

Challenges remain amid relief

We wondered if today’s July ANZ business survey might show some signs of relief, perhaps from the recent change of tone from the RBNZ and recent sizeable fall in wholesale interest rates. Of course, it is always difficult to know precisely what drives confidence month to month but some easing in monetary conditions can’t have hurt.

CPI inflation to be within target range next quarter

There was considerable market focus on today’s Q2 CPI figures following the change of tone from the RBNZ in last week’s MPR. The market was looking for confirmation that interest rate cuts are imminent. In the event, there were mixed signals in that regard.

Sinking

Activity in New Zealand’s services sector sunk even further during June, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for June was 40.2 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 2.4 points from May and for the second month in a row the lowest level of activity for the sector for a non-COVID lockdown month since the survey began in 2007.

BusinessNZ chief executive Kirk Hope said that after a bad May result, the June figures simply got worse. The key index values for Activity/Sales (35.6) and New Orders/Business (38.3) were both the lowest for a non-COVID lockdown month. Employment (45.6) was at its lowest point since February 2022, while Supplier Deliveries (41.6) was the lowest since March 2022

The proportion of negative comments for June (67.0%), which was up on May (65.4%) and April (66.3%). Respondents continued to note recessionary aspects of the current economic downturn.

BNZ's Senior Economist Doug Steel said that "the Performance of Services Index has been well below average for more than a year. Moreover, the weakness appears to be accelerating”.

NZD rises to a fresh 2024 high in September

• The Fed opted to kick-start its easing cycle with a 50bps cut; China ramped up policy stimulus to drive an economic recovery
• High risk appetite and lower US rates drove a broadly weaker USD; most FX majors made fresh 2024 highs against the USD
• Rates curves steepened as the global easing cycle gained traction; global equities pushed up to a fresh record high

August ascent after July Jolt for NZD

• After a volatile start, calm was restored to markets in August; by month-end the episode was long-forgotten.
• Despite the RBNZ significantly bringing forward the rate cutting cycle, the NZD outperformed, rising 5% against the USD.
• NZD crosses were all stronger, making up for the poor performance over July; NZD/JPY traded a range of over 8 big figures.

July Jolt

• Commodity currencies underperformed on weaker risk appetite and lower commodity prices; NZD/USD fell 2.3% to 0.5950.
• The RBNZ’s dovish pivot provided an added NZD headwind, with a sharp narrowing in NZ-global rate spreads.
• Short yen positions unwound resulting in a sharp recovery in the JPY; NZD/JPY plunged nearly 9%.

Rates Strategist: NZGB swap spreads near historic low

• Despite the positive price and cyclical signals from our objective duration framework, the extent of central bank easing already embedded in the curve makes us cautious about extrapolating recent moves lower, particularly at the longer end of the curve. We have a neutral view on duration and expect 10-year NZGBs to consolidate near 4%.
• NZGBs have continued to underperform relative to swaps and are approaching historic lows. Swap spreads represent medium term value, but a durable reversal will likely require a decrease in the government’s funding requirements. A pause or slowing of the pace of RBNZ QT could alter the trajectory for swap spreads.
• The 10y/30y NZGB curve steepening above 60bps appears to be an overshoot, relative to comparison markets and 10-year NZGB yield levels, with market technical indicators pointing towards a lack of investor demand for the ultras.

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Rates Strategist: Pricing the RBNZ easing cycle

• The rally in NZ front end rates has continued, aligned with the beginning of the RBNZ easing cycle, and further evidence the central bank’s view on the economy has evolved. 2-year swap rates have overshot relative to our baseline OCR forecasts. Even a more aggressive cutting cycle looks fully discounted for now.
• Although economic and price momentum signals are positive for duration, we a cautious with rolling returns looking stretched from a historical standpoint. We have a neutral view on duration and expect 10-year NZGBs to consolidate above 4%.
• 10-year swap spreads have broken below the well-established -25/-10bps range and reached multi-year lows. Bonds have underperformed in the rally since July amid heavy receiving in swaps by speculative accounts. Tactically, we look for bond outperformance aided by the completion of the nominal May-2036 syndication.
• The 100bp of RBA cuts priced by late 2025 is slightly faster than our central case for a pause until May 2025 and gradually easing toward neutral. Weak domestic data could see those cuts pulled forward, but the 3Y rate trading below the RBA’s neutral rate still looks rich.

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New May 2036 nominal NZGB to be issued

At the Budget Economic and Fiscal Update (BEFU) in May, New Zealand Debt Management (NZDM) announced it expected three nominal bond syndications will be undertaken in 2024/25, one of which will be the establishment of a new bond line. The August tender schedule revealed the new line would be a 15 May 2036 maturity and it would be launched before September 30.

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

OCR Down But How Much?

The RBNZ is expected to lower the OCR on Wednesday. We favour a 50bp move, but it is a close call between that and a 25bp reduction. The latest incremental information has provided no more clarity. The Government’s full year accounts will reveal the exact size of the FY2024 deficit. Friday’s selected prices for September will add guidance to Q3 CPI, while the PMI will provide its usual guide to conditions in the manufacturing sector.

All Eyes On The QSBO

NZIER’s Quarterly Survey of Business Opinion (QSBO) tomorrow is the final major domestic data release scheduled ahead of the RBNZ’s October rate decision next week. It has the potential to change views. There are no polls for the QSBO, but it will be closely followed. Inflation and employment indicators will be among those of most interest to us.

Trade Subdued

Today’s August trade figures looked a lot like the economy overall, weak. Both exports and imports were marginally lower than a year ago. The annual trade deficit continues to narrow, despite an aircraft import boost and export dent from energy sector issues appearing. A strong dairy season outlook will support exports ahead. Job ads continue to trend lower. Consumer confidence update due.

GDP to confirm economic struggle

This week’s GDP figures are expected to confirm economic weakness in Q2. It seems probable that the economy contracted in the quarter, and seems likely the contraction is no more than the -0.5% q/q built into the RBNZ’s August MPS. Something along these lines would support the case for further easing in monetary restraint but no reason for the Bank to see the need to quicken the pace of easing restraint beyond what it has already outlined. Of course, other factors may yet do so. We see the annual current account deficit narrowing to 6.3% of GDP from Q1’s 6.8%.

Partial Indicators To Guide On GDP

Forward-looking and timely high frequency data have tended to be ‘less bad’ of late and some have even turned outright positive. But this week’s backward-looking Q2 figures for manufacturing, wholesale trade, and services are expected to back our view that GDP contracted in that quarter. The PMI and ECT will give guidance on activity in August, while Selected Prices for that month will further shape thoughts on Q3 CPI.

GDP looking sick

It comes as no surprise to us that both business and consumer confidence were reported to have risen in August. The drop, and expected further falls, in the OCR were undoubtedly going to engender a widespread sigh of relief. Rate cuts are almost always a harbinger of better times ahead. The problem, of course, is that the set of circumstances that allows rates to be cut in the first place is usually an indication of economic malaise. And it will take some time for that malaise to be assuaged by easing monetary conditions.

A confidence bounce?

With interest rates falling it’s likely confidence, both consumer and business, will start to move higher. In the first instance just removing the fear of higher rates from those who are under the pump will be a huge weight off the shoulders of many. For others it will not be long before there are genuine cash flow impacts as their mortgages reset at lower levels. For corporates this will be a while longer but future rate relief will still be greeted with open arms.

Turning point

In the three working days since the RBNZ decided to cut its cash rate the data flow has fully vindicated its decision. In short, it has provided further evidence the economy is going backwards, that job losses will mount and that inflation is falling rapidly.

OCR cuts to be confirmed

The New Zealand economy is contracting, spare capacity is rising rapidly, and the unemployment rate is some way from its peak. This is alleviating pressure on inflation and, importantly, lower wage growth will help bring down stubborn non-tradables inflation. We believe all the boxes have been ticked to allow the Reserve Bank to lower its cash rate now.

Labour Market Softening

Q2 labour market data this week looks all but assured to confirm a softening in conditions. The unemployment rate is expected to rise as an expanding labour supply meets weak employment. Wage inflation is forecast to continue to moderate. Inflation expectations are seen behaving.

Fewer Jobs

We think the consensus is over-estimating near term activity given the recent run of poor data and its flow through to the labour market. Today’s lower filled jobs figures for June – and downward revisions – supports the case that the labour market is softening aggressively. Eyes turn to next week’s official Q2 labour market figures for confirmation. This week’s business survey will be monitored for its pricing indicators, employment intentions, and any general reaction to easing monetary conditions.

Vulnerabilities

Global IT issue highlights vulnerability and risk. NZ’s falling hydro lake storage levels is another risk to watch. Wholesale electricity prices have already lifted appreciably, adding to costs for those exposed and a drag on growth. Much weaker imports in today’s June trade data reflects ongoing weakness in domestic demand. Along with some softer export volume figures, it supports our view GDP retreated in Q2.

Crumbling

If there was a surprise in the Reserve Bank’s greenlighting of earlier rate cuts last week it was only in the timing. We’ve long been of the view the economy is buckling, inflation is beaten, and rate cuts would ultimately be delivered much earlier than RBNZ projections.

BNZ Markets Today

US equity markets remained well underpinned ahead of key inflation data with the S&P increasing 0.5% to a fresh record high. European equities also gained with the Euro Stoxx closing 0.7% higher. There was limited economic data to provide direction and Fed officials continued with the recent narrative of a gradual easing cycle. Treasury yields moved higher supporting the US dollar. The NZD remained heavy after the sharp fall following the RBNZ rate decision yesterday. Brent crude extended lower towards US$76 per barrel.

BNZ Markets Today

US equities have rebounded from the previous session with the S&P up 0.8% in afternoon trade, despite falls in Asia and Europe, after Chinese officials held off announcing more stimulus. The Euro Stoxx closed 0.4% lower. Global bond markets are little changed in the absence of first-tier economic data to provide direction. The US dollar was generally stable, and oil prices retraced from recent highs. Brent crude fell toward US$77 per barrel having traded above US$81 earlier this week.

Stuart Ritson

Global bond yields continued to move higher with 10-year US treasuries trading back above 4%. This is the highest level since August, as investors continued to recalibrate the outlook for monetary policy, after the upside surprise to labour market data last week. US equities are marginally lower in afternoon trade while the Euro Stoxx index edged higher despite very weak German factory orders. The US dollar was mixed, and the NZD extended its recent fall.

BNZ Markets Today

Stronger than expected US labour market data contributed to large moves across financial markets into the end of last week. US treasuries led global bond yields higher as investors recalibrated expectations for easing by the Federal Reserve. The US dollar made broad based gains which saw NZD/USD trade below 0.6150. The prospect of a soft landing for the US economy outweighed concerns about escalating tensions in the Middle East and supported equity markets with the S&P advancing close to 1%. Brent crude prices reached US$79 per barrel before pulling back but are still ~9% higher over last week.

BNZ Markets Today

The market continues to trade cautiously, as it awaits Israel’s expected retaliation against Iran and key US employment data tonight. Oil prices are much higher on the fear on Iran’s oil facilities being a target. The combination of higher oil prices and a strong US ISM services survey has driven US Treasury yields higher. The USD is broadly stronger and GBP is the weakest of the majors, following dovish comments by BoE Governor Bailey.

BNZ Markets Today

Following yesterday’s volatile session, after Iran’s missile attack on Israel, markets are calmer as they await the next move. US equities are currently flat and US Treasury yields have pushed higher, a combination of some mean revision and a stronger than expected ADP payrolls figure. The yen is much weaker after dovish comments by Japan’s new PM and the BoJ Governor. The NZD has also underperformed overnight, probing lows near 0.6260.

BNZ Markets Today

Geopolitical factors have outweighed economic data releases in their market impact overnight. Iran launched a missile attack against Israel, resulting in a typical market response, with much higher oil prices, lower equities and lower rates. Safe haven currencies have outperformed. The NZD is down nearly 1½% from this time yesterday, including a 0.6% fall overnight, with underperformance following a soft QSBO, which supports the case for a more front-loaded RBNZ rate cut cycle.

BNZ Markets Today

China’s equity market continued to surge in the aftermath of last week’s policy stimulus announcement. The China trade has helped drive the NZD and AUD up to fresh highs for the year. Following last week’s soft euro area PMI data and sub 2% readings for regional inflation measures, ECB President gave a nod to another 25bps rate cut for the October meeting. A stronger ANZ business survey drove a turnaround in domestic rates yesterday and all eyes will be on the QSBO today.

BNZ Markets Today

Weaker CPI figures for France and Spain, following weak euro area PMI data earlier in the week, drove the market to price in higher odds of the ECB cutting rates at its next meeting. US PCE inflation metrics were also market-friendly, and added to the support seen for US Treasuries, with lower rates on Friday in the order of 5-7bps. The yen strengthened after an LDP candidate sympathetic to the BoJ’s tightening cycle got the nod to become the next PM. The NZD traded at a fresh high for the year in the afterglow of China’s smorgasbord of policy stimulus measures, while NZD/JPY fell over 1½% towards 90.

BNZ Markets Today

A pledge by China to provide further stimulus to promote growth has supported risk appetite and Asia-Pacific currencies. The NZD is up 1%, driving back up through 0.63. US and European equities have increased to fresh record highs. Stronger US economic data drove higher US Treasury yields, led by the short end, resulting in the curve flattening, a reversal of the pressure seen over the past week or so. Oil prices fell 3% after a report that Saudi Arabia is looking to raise production and accept lower oil prices.

BNZ Markets Today

Global equity markets are little changed in the absence of first-tier economic data or other catalysts. The S&P is marginally lower in afternoon trade while stocks in Europe also closed modestly lower. Global bond yields moved higher, and the US dollar bounced strongly off the recent lows. NZD/USD, which traded above 0.6350 yesterday, has fallen back below 0.6270.

BNZ Markets Today

Risk appetite has been supported by a smorgasbord of Chinese easing measures to support the economy, while the RBA update was seen as dovish and weaker US consumer confidence was also a market moving event. Equity markets are higher and global rates are lower as markets price in more Fed and ECB easing. Curves are steeper. Broad-based fall in USD evident, with NZD leading the charge, up to its highest level this year, above 0.6330 and NZD/AUD up to 0.92.

BNZ Markets Today

Weaker euro area PMI data drove down rates in the region and dragged down the euro. UK PMI data weren’t as soft, while the US services PMI remained robust and inflation indicators were stronger. A move higher in US Treasury yields proved temporary and rates are now slightly lower across the curve. Commodity currencies have outperformed, with the NZD up to 0.6280 and NZD/EUR up 1% towards 0.5650. Equity markets show modest gains.

BNZ Markets Today

Global equities couldn’t extend the previous Fed-inspired rally on Friday night with the S&P closing modestly lower while European stocks made larger declines. The Euro Stoxx index fell 1.5%. There was limited first-tier economic data to provide the market with direction. Global bonds ended the session marginally higher in yield while the dollar was generally firmer against G10 currencies. Gold hit a fresh record high above US$2600 per ounce.

BNZ Markets Today

In the afterglow of the Fed’s jumbo 50bps rate cut, US equities show a strong lift to fresh record highs while the US Treasuries curve has steepened further, with longer term yields pushing higher, not helped by jobless claims falling and higher oil prices. The USD is broadly weaker. Against a backdrop of higher risk appetite, the NZD has recovered to 0.6250. GBP outperformed after the market pared rate cut expectations following the BoE’s on-hold decision.

BNZ Markets Today

Global asset markets were generally stable overnight ahead of the widely anticipated US Federal Reserve’s (Fed) interest rate decision. The Fed began its easing cycle with a 50bps cut in the Fed Funds Rate. This was larger than the economists’ estimates for a 25bps reduction, but market pricing implied around a 70% chance of a larger 50bps cut. It was not a unanimous decision with Governor Michelle Bowman dissenting in favour of a 25bps reduction. The US dollar fell alongside treasury yields while equity markets gained immediately following the decision.

BNZ Markets Today

The S&P reached a new record high intra-day, before paring its gains to be little changed in afternoon trade, as investors look ahead to the September FOMC. US retail sales for August was broadly in line with expectations and didn’t provide the market with additional guidance for the size of the Fed’s first rate cut in the easing cycle. Stocks in Europe gained with the Euro Stoxx advancing 0.7%. Global bond yields are modestly higher, and the US dollar is generally stronger against G10 currencies.

BNZ Markets Today

US rates are lower across the board on rising bets that the Fed will front-load the easing cycle, starting with a 50bps rate cut later this week. Lower rates have supported US equities but have worked against the USD, which is broadly weaker. The NZD has recovered to 0.6190 and USD/JPY made a brief foray below 140. Domestic rates continue to follow the lead of the US market, with substantial easing priced in over coming meetings, much closer to a run of 50bps rather than 25bps cuts.

BNZ Markets Today

Markets closed on Friday with the pricing for the Fed’s first easing for the cycle this week at a toss up between 25bps and 50bps, with media reports adding to the “confusion”. The US Treasuries curve steepened further, with a short end-led rally in bonds. Lower rates supported US equities, adding to the strong gains for the week. Commodity currencies slightly underperformed, seeing the NZD close the week just below 0.6160.

BNZ Markets Today

US equities traded higher despite data which showed US wholesale inflation picked up in August. The S&P is up 0.7% while the Euro Stoxx closed more than 1% higher following a 25bp rate cut by the European Central Bank (ECB). Treasuries moved higher in yield and the US dollar was generally weaker. Oil prices gained almost 2% after a storm disrupted production in the Gulf of Mexico. Brent crude has rebounded above US$72 per barrel. Gold prices hit an all-time high above US$2550 per troy ounce.

BNZ Markets Today

There has been some volatility in markets overnight. US equities recovered early losses to now show a decent gain. US CPI data drove a swing in US Treasury yields and slightly higher core inflation sees the curve flatter and slightly higher. Trading in the yen has been choppy but less so for the NZD, which shows some modest underperformance, with NZD/USD down to 0.6135 and NZD/AUD falling below 0.92.

BNZ Markets Today

The key market move has been a further chunky fall in oil prices, down in the order of 3½-4%, taking Brent crude below USD69 per barrel. Lower oil prices have supported lower interest rates, with US Treasury yields probing fresh lows. US equities are modestly higher while in currency markets JPY has outperformed, against the backdrop of lower global rates. The NZD is up slightly around 0.6155 and higher on the key major crosses apart from a fall in NZD/JPY.

BNZ Markets Today

Newsflow has been light to start the week. US equities have rebounded after last week’s hefty loss but otherwise market movements have been well contained. US Treasury rates show net movements of 3bps or less from last week’s close, while the USD shows a modest broadly based gain. The NZD trades around 0.6150 this morning.

BNZ Markets Today

Weaker than expected US labour market data contributed to volatility across financial markets on Friday night. Growth sensitive assets traded lower with large falls across global equities. The S&P fell 1.7%, extending its weekly decline to 4.3%, the largest since March last year. US treasury yields whipsawed but ultimately ended lower in yield. The US dollar index made modest gains. Oil remained soft – Brent crude traded below US$71 per barrel – which is the lowest level in eighteen months.

BNZ Markets Today

Global equity markets remain soft with the S&P modestly lower in afternoon trade, and facing its third consecutive daily loss, as investors look ahead to the key US payrolls data later this evening. European equities fell – the Euro Stoxx declined 0.7%. Treasury yields are modestly lower in choppy trade and the US dollar is weaker against G10 currencies.

BNZ Markets Today

Further signs of cooling in the US labour market contributed to lower yields across bond markets and global equities remained soft after the sharp decline in the previous session. The S&P opened lower and is currently close to flat. Equities fell in Europe – the Euro Stoxx closed 1.3% lower – and Asian stocks also declined with the Nikkei falling 4%. The US dollar fell with the move concentrated against the yen. Brent crude traded below US$73 per barrel to fresh lows for the year. It was reported that OPEC+ members are close to agreement to delay a planned production increase amid weak global demand and increased supply.

BNZ Markets Today

Global equity markets came under pressure as US investors returned from the long weekend. The S&P fell more than 1.5%, the largest fall since the volatile period at the beginning of August. US equities extended their decline after a soft manufacturing ISM report. Equities in Europe also fell declined amid the rising risk aversion with the Euro Stoxx falling more than 1%. Global bond markets rallied, and the US dollar was broadly stronger.

BNZ Markets Today

Asset markets were confined to narrow ranges with limited economic data and the Labor Day holiday in the US weighing on market activity. European equities made modest gains with the Euro Stoxx index advancing 0.3%. US S&P futures are little changed since the open yesterday and have maintained the gains from the sharp rally into month end at the end of last week. Asian stocks declined reacting to the lacklustre Chinese PMIs released in the weekend with the Hang Seng losing 1.7%. European bonds moved higher in yield while the US dollar was mixed against G10 currencies.

BNZ Markets Today

After a volatile beginning to the month, the S&P gained 2% in August. The index rebounded from an earlier dip on Friday, to close 1% higher, supported by benign US inflation data. The Euro Stoxx was little changed while Asian equities ended higher. Chinese property stocks were underpinned by news that policy makers are considering allowing homeowners to refinance as much as US$5.4 trillion in mortgages. Global bonds ended higher in yield and the US dollar advanced. Oil prices fell sharply after it was reported that OPEC+ plans to proceed with previously announced output hikes in coming months.

BNZ Markets Today

US Treasury yields are slightly higher after an upward revision to US GDP, driven by consumer spending, and this has helped support the USD, with added support as EUR weakened following weaker German CPI inflation. Most US equities are higher, with a fall of 6% for Nvidia a drag on the S&P500. A stronger ANZ business outlook survey supported the NZD yesterday although it has slipped modestly overnight to 0.6260.

BNZ Markets Today

Newsflow remains light. US equities have edged higher, US Treasury yields show small movements but a clear curve steepening bias, and the US is broadly weaker. The NZD is probing a fresh seven-month high just over 0.6250 and is up for the day on the key crosses.

BNZ Markets Today

Markets are consolidating following the initial excitement following Chair Powell’s Jackson Hole speech at the end of last week. US equities are down modestly, US Treasuries show small changes, and the USD is slightly stronger. The NZD has given up some of its big gain last week and has settled just over the 0.62 mark. Oil prices surged 3% due to Libya domestic issues rather than rising geopolitical risk.

BNZ Markets Today

Fed Chair Powell’s Jackson Hole speech on Friday was much anticipated and his nod to commencing interest rate cuts from September and protecting the labour market were music to the ears of investors. Risk appetite increased, with US equities up over 1%, Treasury yields fell led by the short end, the USD was broadly weaker and commodity currencies outperformed as commodity prices rose. The NZD ended the week just over 0.6230, its highest level since January and it was higher on all the key crosses. The new week begins with increased tension in the Middle East after Israel and Lebanon exchanged missile attacks.

BNZ Markets Today

There has been a reversal of recent price action, with US equities weaker, higher rates and a stronger USD. Behind the moves one could point to data suggesting no need for the Fed to panic, Fed speakers arguing for gradualism, and a return of the Trump trade in anticipation of Robert F. Kennedy dropping out of the race and endorsing Trump. After an overnight high around 0.6170, the NZD is trading near 0.6140 while the DXY index is up 0.5% for the day.

BNZ Markets Today

Global equity markets are generally higher with limited economic data or other catalysts to provide direction. The S&P is up 0.3% consolidating its recent strong gains, as market looks ahead to speech by Fed chair Jay Powell at Jackson Hole on Friday night, when he is expected to provide guidance on the path for US interest rates. Bond yields fell following a large downward annual revision to US payrolls. The US dollar continued its recent decline and is broadly weaker against G10 currencies. Brent crude prices fell to US$76 per barrel, close to the lows for the year.

BNZ Markets Today

Against of backdrop of little newsflow, US equities are flat. US Treasury yields are down 5-6bps and the USD is again broadly weaker, taking the DXY index down to fresh lows for the year. The yen is the strongest of the majors while the NZD has recovered further to just over 0.6150.

BNZ Markets Today

There has been little newsflow to get in the way of further recovery in global equity markets. The next focus for investors is the Fed’s Jackson Hole symposium at the end of the week. The Treasuries curve has flattened slightly, with the 10-year rate down to 3.86%. The USD is broadly weaker, with the NZD showing a steady climb up through 0.61.

BNZ Markets Today

US equities rebounded from an initial dip, to advance for the seventh consecutive day, as investor sentiment continued to recover from the volatility at the beginning of the month. The S&P closed 0.2% higher extending its gains for the week to 4%. US treasury yields ended the session modestly lower in yield and the US dollar fell against developed market currencies. Gold traded to a fresh all-time high, reaching $2,500 per troy ounce for the first time, as investors look ahead to lower interest rates.

BNZ Markets Today

Stronger than expected US retail sales and jobless claims data helped dispel concerns the economy was entering a deeper slowdown and sent equities, treasury yields and the US dollar higher. The S&P gained 1.5%, extending its weekly advance to almost 4%. There were solid gains in European equities as well with the Euro Stoxx closing 1.7% higher on the day.

BNZ Markets Today

Global asset markets had a muted response to key US inflation data, after a brief spell of volatility, around the release. Equities closed higher in Europe, with the Euro Stoxx advancing 0.7%, but US markets are little changed in afternoon trade. Global currency and bond markets were similarly subdued.

BNZ Markets Today

A benign US PPI print got the market’s attention and helped drive lower US rates, a lower USD and higher US equities. Against broad-based weakness in the USD, the NZD has outperformed, steadily rising to 0.6075 and higher on the crosses. At yesterday’s close, the market was pricing 17bps worth of cuts for today’s RBNZ MPS. Significant rate cuts are likely to be projected by the RBNZ, as in May, the only lingering doubt being whether the Bank is willing to pull the trigger today.

BNZ Markets Today

It has been a quiet start to a busy week, with US equities flat, US Treasury yields slightly lower and modest changes in major currencies. The NZD has outperformed, rising 0.3% to 0.6020 and gaining on all the key crosses.

BNZ Markets Today

It was an uneventful end to the trading week on Friday, with US equity markets recovering further with a modest gain while the US Treasuries curve flattened, driven by a 5bps fall in the 10-year rate to 3.94%. Currency movements were modest, with the NZD and AUD falling into the weekly close, to around 0.60 and 0.6570 respectively.

BNZ Markets Today

A larger than expected fall in US initial jobless claims allayed fears of a pending US recession, sending US equities much higher and US Treasury yields higher, with the 10-year rate returning to a 4% handle. Hawkish RBA comments supported the AUD. NZ inflation expectations data supported the already-strong case for easier monetary policy and the NZD has managed hold 0.60 despite lower short-rates, with the backdrop of higher risk appetite providing some support.

BNZ Markets Today

Risk appetite recovered further, although in the past few hours the VIX index has been tracking higher and early US equities gains have morphed into losses. US Treasury yields have pushed higher and the NZD has outperformed, sustaining most of the gain seen after yesterday’s labour market data.

BNZ Markets Today

Risk appetite returned to the market, with global equities rebounding, US Treasury yields higher, the yen falling and commodity currencies outperforming. There has been no particular trigger other than investors deciding that the sharp moves over previous days were overdone. The NZD has settled around 0.5960 while NZD/AUD weakened after a more hawkish than expected update by the RBA.

BNZ Markets Today

Investor risk aversion continued to rise at the start of the trading week with large falls across global equity markets and other growth sensitive assets which contributed to safe haven flows into US treasuries. Asian stocks plunged with the Nikkei falling a further 12%, taking its decline over the past three trading sessions to almost 20%. Stocks fell across Europe and North America. The S&P, which was down more than 4% at one point managed to pare some of its losses but is still down 2.8% in afternoon trading.

BNZ Markets Today

The risk off tone in the Asian session intensified into the weekly close following soft US labour market data. Global equities remained under pressure with the S&P closing almost 2% lower. The VIX index of expected volatility for the S&P rose to an intraday high of 29.5, just below the levels from March 2023 when the US regional banking stress hit a peak. US treasuries extended the move lower in yield as market participants increased expectations for easing by the Federal Reserve. The US Dollar declined despite weak risk sentiment and oil prices fell sharply.

BNZ Markets Today

Risk appetite fell after weaker than expected US economic data on the labour market and manufacturing sector. US equities have fallen significantly, and the US 10-year Treasury yield has fallen below 4%. The NZD shows little net change around 0.5950 but has fallen from an overnight high near 0.5980. GBP is the weakest of the majors after the BoE kicked off an easing cycle.

BNZ Markets Today

Markets have had a plethora of economic data and risk events to digest in the past 24 hours headlined by the FOMC. The US Federal Reserve left rates on hold, as was unanimously expected, but signalled it is getting closer to lowering policy rates. Global equity markets advanced led by technology stocks. The S&P is up almost 2% with equities in Europe and Asia also registering strong gains.

BNZ Markets Today

Lower tech stocks have driven US equities down (again) while US Treasury yields are modestly lower, ignoring slightly stronger than expected US JOLTs data and consumer confidence. JPY strengthened after a media report that the BoJ will consider a 15bps hike at today’s meeting. The NZD has outperformed alongside the yen, seeing it return to 0.59.

BNZ Markets Today

Newsflow has been light and market movements have been well contained at the start of a busy week. US equities are flat, global rates are down slightly and the USD is slightly stronger, with the NZD probing fresh multi-month lows below 0.5860.

BNZ Markets Today

Global equities advanced into the end of last week. The S&P closed more than 1% higher providing a contrast with previous trading sessions where weak earnings from tech companies contributed to the largest drawdown since April. European equities also registered solid gains - the Euro Stoxx closed 1% higher. Market sentiment was underpinned by US inflation data, which was in line with consensus expectations and supports the case for the Fed easing cycle to begin in September. US treasuries moved lower in yield and currency markets were subdued.

BNZ Markets Today

Stronger than expected US GDP data supported the soft-landing narrative, and US equities have consolidated after yesterday's tumble. US Treasury yields reversed course, with downward pressure earlier in the session, giving way to higher rates, with the result being small net movement. Currency markets have remained erratic, with the yen swinging around and NZD and AUD continuing to underperform and trading at fresh lows.

BNZ Markets Today

US stocks have tumbled, led by the mega cap and IT stocks, seeing the Nasdaq index down 3½%, and the S&P500 down about 2%. However, it doesn’t seem like a classic risk-off event, with the US 10-year rate up slightly but the curve has steepened significantly, with the 2-year rate down 8bps, supported by a call by ex-FOMC member Dudley for the Fed to cut rates from next week. The yen continues to outperform, while the NZD recovered slightly overnight after falling further through the NZ trading session.

BNZ Markets Today

It has been an uneventful trading day, with little newsflow to drive markets. US equities are flat and US Treasury yields are slightly lower. Of note is that lower commodity prices continue to drag down the NZD and AUD, while the yen remains flavour of the week. The NZD is probing the 0.5950 level.

BNZ Markets Today

been muted, with only small changes in the USD and Treasury yields. US equities have rebounded, recovering from last week’s hiccup, driven by the tech sector. The AUD and NZD have underperformed on China concerns and falling industrial commodity prices. The NZD has made a clear break below 0.60, while NZD/AUD is up slightly, back to 0.90.

BNZ Markets Today

Financial markets ended last week on a soft note, with weaker global equity markets, higher global rates and lower commodity prices. Volumes were light, as trading activity was restricted by the global IT outage that affected Microsoft Windows systems. Against a backdrop of weaker risk appetite, the USD was broadly stronger, and the NZD closed the week at a two-month low around 0.6010.

BNZ Markets Today

Global equity markets dropped for the second consecutive session. There were limited catalysts with only second-tier economic data. The S&P is down 0.6% in early afternoon trading with the Euro Stoxx registering a similar decline. Equities are beginning to price in more political risk – the VIX has climbed to the highest level since April. Global bond markets yields were little changed, and the US dollar traded higher against G10 currencies, partially retracing the decline from the previous day.

BNZ Markets Today

Technology stocks led declines in global equities amid concerns about tighter restrictions from the US government on advanced semiconductor exports to China. The Nasdaq is down almost 2.5% while the S&P has fallen 1.4% in early afternoon trade. Equities also closed lower across Europe. The US dollar fell against developed market currencies while global bond markets are little changed.

BNZ Markets Today

US equities advanced following strong retail sales data. The S&P is up 0.4% in afternoon trading. There has been a significant rotation towards small capitalisation stocks in recent sessions. The Russell 2000 index has increased 10%, easily beating the 1.5% gain in the S&P, as investors look ahead to rate cuts by the Fed, which benefit smaller companies with typically higher debt levels. Treasuries are lower in yield with the curve flattening. The US dollar is little changed, after gains following the data faded.

BNZ Markets Today

US equities remained well underpinned with the S&P gaining 0.3% as investors look ahead to a busy week of corporate earnings. European equities ended lower. Major regional indices fell, and the Euro Stoxx dropped 1.2%. There was only second-tier economic data. Currency markets were generally confined to narrow ranges while US treasury yields are higher.

BNZ Markets Today

Global equities remained well supported into the weekly close. The S&P traded to another intra-day record high, but lost ground late in the session, to close 0.6% higher. Large banking stocks underperformed after reporting disappointing results. A macro factor to note is banks are putting aside additional reserves, to cover deteriorating loans, which points towards pressure on consumers. European stocks had a strong session – the Euro Stoxx gained 1.3%. Treasuries looked past unexpectedly strong PPI data and closed lower in yield while the US dollar fell against developed market currencies.

Outlook for Borrowers: Post October MPR

The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 50bps to 4.75% at the Monetary Policy Review (MPR) on Wednesday. This aligned with consensus expectations where most economists had anticipated a 50bps reduction in the OCR. The overnight index swap (OIS) market was pricing an approximate 90% chance of 50bps cut ahead of the decision.

Outlook for Borrowers: Post August MPS

The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 25bps to 5.25% at the Monetary Policy Statement (MPS) on Wednesday. Although the consensus expected rates to remain steady, a significant minority including the BNZ, forecast a 25bps cut. The overnight index swap (OIS) market was pricing an approximate 70% chance of 25bps cut ahead of the decision.

Signs Of Change in Meat Prices

It is no secret that sheep and beef farmers have been facing very challenging economic conditions. But let’s start with some positive news. Beef and lamb prices have increased over the past four months, with the former up nearly 16% and the latter up 21%.

We say this not to suggest that prices are strong, far from it in lamb’s case, but rather to acknowledge some changing dynamics of late. Rising prices at this time of year is not unusual, but the gains over recent months have been a bit more than normal.