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/USD: Headwinds galore

Jason wong -

’s fair to say that economics has been turned on its head over recent years, some glaring examples including lenders willing to pay for the privilege of handing over their money (negative interest rates) and folk willing to spend millions of dollars on digital pictures of rocks or apes.

Currency markets are similar in this regard, with relationships broken and movements not entirely making sense. The USD, which started the year as the most expensive currency against the majors we closely follow, has been one of the best performers this year, despite US CPI inflation at over 5%, the highest of any other major developed country.

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

NZD Corporate FX Update

Jason Wong -

After a mid-August dip, the NZD has recovered nicely and is back trading near the middle of its range seen so far this year.

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

NZD/AUD: Tread carefully from here

Jason Wong -

Last week the NZD/AUD cross touched 0.9660, a 19-month high before settling back down to the 0.96 mark. This is well into the top end of its 3-year trading range, a period over which the cross has averaged 0.9410 and spent very little time above 0.97. It did spike above parity at the height of the COVID19 scare in March 2020 during a liquidity vacuum, but the current rally is starting to look stretched by recent historical standards. Could we see a another run for parity or is it time to call a turning point?

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 NZD/USD has tracked sideways since mid-June centred around 0.70, with positive domestic forces up against a pause in the global reflation trade against which the NZD has struggled to perform. Last month we nudged down our short-term NZD/USD and NZD/JPY projections – the two most exposed to this global backdrop – but revised higher the other key crosses.

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

NZD: Headwinds and tailwinds

Jason Wong -

The key theme that has driven our positive NZD outlook for more than a year now has been the global recovery story. However, that narrative has hit a bump in the road over the past couple of months as the more contagious delta variant of COVID19 has spread from India across the rest of the world.

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

Economy Watch

Challenging times

BNZ / BusinessNZ -

New Zealand’s services sector remained in contraction during September, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for September was 46.9 (A PSI reading above 50.0 indicates that the service sector is generally expanding; Below 50.0 that it is declining). This was up 11.5 points from August as the country moved down alert levels during September, freeing up some businesses for increased activity.

BusinessNZ chief executive Kirk Hope said that despite the improvement in the overall result for September, current restrictions still mean business as usual for most of the country is still a ways off yet.

“COVID-19 and its associated lockdown/restrictions still completely dominate comments from respondents, while the key sub-indexes of Activity/Sales (45.3) and New Orders/Business (47.5) remain in contraction. At what point the PSI returns to expansion will largely depend on any upcoming changes to alert levels in the weeks ahead.”

BNZ Senior Economist Doug Steel said that “subdued new orders warn against expecting too much of a bounce in coming months. Of course, the spread of COVID, vaccination rates, and any restriction changes will have a very large bearing on that.”

North vs South

Craig Ebert -

New Zealand’s manufacturing sector saw an overall return to expansion for September, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for September was 51.4 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 11.7 points higher than August, but still someway off levels of expansion typically seen pre-lockdown.

BusinessNZ’s executive director for manufacturing Catherine Beard said that while the positive national result for September was encouraging, it masked a few underlying issues.

“Prior to the lockdown, the PMI averaged close to 60 since the start of 2021, which means expansion has some way to go before getting back to what was seen during the first half of the year. Also, there is currently a clear difference between the two islands with the North Island still in contraction, while the South Island has swiftly returned to levels of expansion seen pre-August.”

“In addition, the proportion of negative comments from respondents remains high at 71%, although slightly down from the 78% recorded in August.”

BNZ Senior Economist, Craig Ebert stated that “the rebound the PMI experienced in September was encouraging, although the survey is not without some still‐frayed parts. Credit where it’s due though, as the NZ PMI traced much less of a contraction, and quicker stabilisation, compared to what it went through during the initial outbreak of COVID-19.”

More to Suggest Surging Inflation

Doug Steel -

Today’s preliminary ANZ business survey for October was robust in its activity indicators and even more so for its pricing gauges.

Firms’ own activity expectations rose to 26.2 in early October from 18.2 in September. This likely overstates the sense of improvement, in that it represents a broadly flat movement when seasonally adjusted, around the 22/23 mark. However, in being close to its long-term average it’s a very solid result given the circumstances of uncertainty and changeable nature of alert level restrictions over recent months. Positive investment and employment intentions only add to the feeling of resilience across the survey.

Inflation spikes

Stephen Toplis -

New Zealand’s annual consumer price inflation will burst through 4.0% in the September quarter 2021. Moreover, it will stay above 4.0% into 2022. That’s long enough to feed into adaptively-formed inflation expectations.

Growth funds COVID offset

Stephen Toplis -

As expected, the audited fiscal accounts for the year ended June 2021 proved to be much healthier than they were projected to be when the Government published its Budget back in May.

Employment Report: Stable but mixed

Craig Ebert -

The significance of September’s job ads was not so much that they increased 0.3% but that, in doing so, they managed to stop falling. This was good to see, after August registered a drop of 12.2%. The other encouraging perspective is that job ads have, so far at least, remained comfortably above where they were at their pre-COVID peak, around mid-2019.

RBNZ Unfazed By COVID

-

The key news in today’s RBNZ Monetary Policy Review is that the Reserve Bank is currently relatively comfortable the spread of COVID throughout New Zealand will unlikely prevent it delivering the tighter monetary conditions that the economy requires to keep in balance.

QSBO Simply Bizarre

Stephen Toplis -

Today’s NZIER Quarterly Survey of Business Opinion produced a set of results that can be best described as bizarre. On the one hand the survey tells us capacity constraints are extreme and the labour market is stretched to breaking, demanding an immediate response from the RBNZ. On the other hand, it would appear businesses have no intent to raise prices, cost pressures are under control and inflation threatens to drop to the lower end of the RBNZ’s target band. The response to this would be diametrically opposite to the labour market reaction. Put all this together and one can only conclude the survey will not be categorical enough to change the minds of the decision makers at the Reserve Bank before they release their decision tomorrow.

In the zone

Craig Ebert -

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

The PSI for August was 35.6 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was the second lowest level of activity since the survey began, with the April 2020 result still the lowest during the national lockdown last year.

BusinessNZ chief executive Kirk Hope said that like its sister survey the PMI, the national lockdown was the sole influencing factor causing service sector activity levels to plunge into contraction. Even for those outside Auckland moving down alert levels to resume business activity, there will be residual effects at least through September with both uncertainty and lower alert level restrictions playing their part.

BNZ Senior Economist Craig Ebert said that “while the August result wasn’t quite as bad as the 26.0 it plunged to in April 2020, the September 2021 result might be the better marker as the first half of August’s trading would have been solid, if July’s PSI result of 55.9 was any lead.”

Back to the future

Doug Steel -

New Zealand’s manufacturing sector returned to contraction on the back of another nationwide lockdown, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for August was 40.1 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 22.1 points lower than July, and similar to the result recorded in May 2020.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the August value came as no surprise given what we had seen during the previous national lockdown.

“Employment (54.5) managed to keep its head above water, but all other sub-index values were in contraction with Production (27.7) the hardest hit. Although manufacturers outside of Auckland have returned to alert levels that allow business operations to restart, any moves towards the sector getting back into expansion will ultimately depend on how soon Auckland can also return to lower alert levels”.

BNZ Senior Economist, Doug Steel stated that “while many anticipate a bounce in activity as the country progresses down alert levels (all going well on the Covid front), today’s PMI clearly demonstrates the economic pain being felt. This should not be underestimated, even if there is hope for the future. GDP and manufacturing output are expected to fall heavily in Q3. It is something of a reality check in the afterglow of yesterday’s very strong Q2 GDP outcome.”

Boom!!

Stephen Toplis -

The New Zealand economy grew a staggering 2.8% in the second quarter of 2021 to take activity 17.4% ahead of where it was in the June quarter of 2020. Sure, the annual reading is savagely distorted by the shocking base it is compared with but let’s not forget that if we were in the United States we would be reporting this quarter’s increase as 11.7% annualised!

External Deficit Bigger, Liability Position Shrinks

Doug Steel -

The current account deficit stood at 3.3% of GDP for the year to June 2021. This matched market (and our) expectations. But just because there was no surprise here on the day, we think there is still plenty to consider regards the external accounts going forward. The external deficit is widening, and we think it will widen further.

Job ads fall but resilience remains

Craig Ebert -

Unsurprisingly, August’s job ads began to reflect the renewed COVID-19 level 4 restrictions that came into effect mid-month. Note: the 12% reported drop, compared to July, would have included a solid first half to the August numbers, inferring a more material drop occurred over the latter half, as businesses took stock of the abruptly changed situation.

Milk Price Outlook Strong

Doug Steel -

The balance of risks around domestic milk price forecasts has swung upwards. We have been detecting signs of such over recent weeks, with today’s solid GDT auction result providing the latest evidence.

Expectations were positive going into the GDT event overnight and it didn’t disappoint. The GDT Price Index rose 4.0%, with solid price gains across all major products. Indeed, the overall outcome was even a bit stronger than anticipated on the day and raises hopes for the rest of the season.

Confidence collapse invisible so far

Stephen Toplis -

So far, not so bad was the key message from today’s ANZ Business survey. All eyes were on the split between the responses of those who were surveyed prior to the current lockdown (75% as it turns out) and those after (25%). The post-lockdown results were always going to be more miserable than pre. The question was, by how much? As it turns out, not too much at all.

Consumers Taking Excess into Hibernation

Craig Ebert -

Consumer spending between now and the end of the year is, for obvious reasons, very difficult to predict. What we can say, with reasonable confidence, is that spending will largely bounce back from whatever restraint it encounters near term. We learnt this from prior “lockdowns”. The all-important fiscal support is certainly here again, swiftly, to help support incomes through the latest turbulence.

COVID Clobbers Rate Hike

Stephen Toplis -

The biggest surprise, for many, in today’s MPS will have been the Reserve Bank’s strength in conviction that it needs to get interest rates above neutral, and relatively quickly. As we had anticipated, the RBNZ formally recognised it is meeting its inflation and employment objectives and so needs to see the removal of the emergency stimulus it put in place when New Zealand entered its first COVID lockdown.

In the zone

Doug Steel -

New Zealand’s services sector remained in expansion mode for the fifth consecutive month, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for July was 57.9 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). While this was down from 58.4 in June, it was still well above the overall average of 53.9 for the survey.

BusinessNZ chief executive Kirk Hope said that the sector will continue to show above average results as long as the key sub-indices of Activity/Sales (63.6) and New Orders/Business (63.2) remain strong. The one sub-index that remains in contraction is Supplier Deliveries (47.6), although the July result is at its highest

BNZ Senior Economist Doug Steel said that “combined with last week’s blistering PMI employment reading of 58.3, it all sets up Q3 to be another strong quarter of employment growth and the nation’s unemployment rate continuing to press lower. This is good news if you are looking for a job, not so much if you are trying to find staff.”

Heavy Labour

Craig Ebert -

Expansion in New Zealand’s manufacturing sector lifted again in July to record its second highest result, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for July was 62.6 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 1.7 points higher than June, and only below the 63.6 recorded in March over the history of the survey.

The heat is on

Craig Ebert -

Job advertising levels lifted again in July. Recall, they were already riding very high in June – well clear of the pre-COVID peak that occurred around the middle of 2019. But their 1.7% expansion in July, seasonally adjusted, put them even further north of that mark, to the extent of 27%. That’s far more than “just” a rebound.

Firms’ Inflationary Messages Too Big to Ignore

Craig Ebert -

Sure, net confidence in this afternoon’s ANZ business survey dipped to -3.8 in July, from -0.6 in June. But there was nothing new in that. It’s averaged around zero all year.

Own-activity expectations, meanwhile, slowed to +26.3, from +31.6. However, as such, they were still a bit above their long-term average of 25.3. Most interesting about that is how the economy can be expanding anywhere close to a normal rate, when supply constraints are as severe as they are.

Financial Markets Wrap

NZD struggles in September as USD strength broadens

Jason Wong -

The USD showed broad gains on weaker risk appetite and another hawkish tilt by the Fed, sending NZD down 2%
Backdrop for NZD not helped by new global growth potholes, including China growth risks and surging energy prices
Global rates universally higher; NZ rates market well-priced for a series of 25bps hikes over coming months

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

Domestic tailwinds help NZD rise to the top in August

Jason Wong -

NZD/USD rose by just over 1% in August, supported by strong data and the RBNZ’s clear intention to raise the OCR.
Crosswinds from global and local spread of delta variant, US data and Fed outlook were secondary factors.
NZD higher on all the crosses; NZ-global rate spreads higher on RBNZ guidance.

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

NZD flat in July, with opposing forces

Jason Wong -

Global reflation trade on hold in July.
Weak global factors offset strong domestic factors to keep the NZD flat through July.
NZ short rates higher on RBNZ tightening expectations; long end held down by global forces.

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

Interest Rate Strategy

Outlook for Borrowers: Post-October MPR

Nick Smyth -

The RBNZ raised the OCR by 25bps, to 0.5%, at the MPR yesterday. This was the RBNZ’s first interest rate hike since 2014. The OCR hike had been well-flagged in previous RBNZ communications, including in interviews by Governor Orr and his deputies after the August MPS, and it was universally expected by economists and priced by the market.

NZGBs Likely To Be Included In The WGBI In Late 2022

Nick Smyth -

The World Government Bond Index (WGBI) is the primary global government bond benchmark for offshore investors. NZGBs have historically not met the WGBI’s eligibility criteria based on (the lack of) market size. NZGBs are already included in the Bloomberg Barclays Global Aggregate index which is the main benchmark for the broader global fixed income market, including investment-grade corporate and agency bonds and securitised assets.

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

RBNZ LSAP – are bond sales possible in the future?

Nick Smyth -

At its August MPS, the RBNZ mentioned that staff had been directed to develop an “operational strategy” around its LSAP portfolio.
Some have asked whether the RBNZ might follow the Bank of England’s lead, which recently laid out a plan to start selling UK gilts after Bank Rate reaches 1%.

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

NZGB supply update – 30y syndication due in September, linker issuance suspended for a month

Nick Smyth -

New Zealand Debt Management (NZDM) released its bond tender schedule this morning. The weekly volume of nominal bond issuance is unchanged from the past two months, at $500m per week. The two key announcements were:
• NZDM plans to syndicate a May-2051 NZGB in the month of September.
• Linker issuance has been suspended for a month and NZDM will consult with the market on an appropriate issuance model.

Outlook for Borrowers: Post-August MPS

Nick Smyth -

At the MPS this week, the RBNZ decided to keep the OCR on hold, at 0.25%. The RBNZ had been all set to raise the OCR for the first time since 2014, and its statement made it clear this was the plan. But news of a Covid-19 community case (the Delta variant) in the community and the government’s subsequent decision to take the country straight into a Level 4 lockdown meant the RBNZ decided to keep the OCR on hold instead.

An early look at RV on the NZGB May 2051

Nick Smyth -

At the Budget in May, New Zealand Debt Management (NZDM) said it intended to syndicate a new May-2051 maturity NZGB before the end of the calendar year. The May-2051 will be the first 30-year government bond in New Zealand, extending the curve from the May-2041.

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

What to make of NZ short-end pricing?

Nick Smyth -

NZ short-end rates have had a big move higher over the past few months, with the market aggressively bringing forward the expected timing of the first RBNZ rate hike. A hike in two weeks’ time, at the August meeting, is almost 80% priced.

Markets Outlook

Another Test of Transitional Fortitude

BNZ Research -

here are numerous monthly-type economic reports to discuss. However, this week’s news effectively begins with this afternoon’s government decision on COVID alert levels. The trend in raw case numbers over the last week or so doesn’t look all that encouraging. Having said that, the government has much more than that to consider (including the case details), as it judges Auckland’s stepwise transition out of level 3 lockdown.

NZ In Transition

BNZ Research -

On Wednesday, the RBNZ will be announcing what it will do with New Zealand’s cash rate. Its decision is to be made on a “least regrets” basis. While financial markets will be fixated on this outcome, today’s post-cabinet announcement on how the government is going to approach Delta’s current stronghold in New Zealand will be based on a least regrets analysis a hundred-fold more complex and life-changing for every citizen of New Zealand than is the Bank’s.

A least regretful rate rise

BNZ Research -

“In the end . . . We only regret the chances we didn’t take, the relationships we were afraid to have, and the decisions we waited too long to make” Lewis Carroll.

When the RBNZ delivers its Monetary Policy Review on October 6, its decision will be based on “a least regrets approach to uncertainty”. Well that’s what we were told when Assistant Governor Hawkesby released his “speech” of the same title on Tuesday September 21. On this basis, we can only conclude that the RBNZ will raise its cash rate by 25 basis points on the day and will signal, to the extent that it can in a Monetary Policy Review, ongoing gradual rate increases from there on in, until the cash rate returns to the apocryphal neutral.

Feeling It

BNZ Research -

Of this week’s local news, Tuesday’s speech (notes) from RBNZ Assistant Governor, Christian Hawkesby, will be firmly in the market’s crosshairs. Who knows, for sure, what the speech means to convey. But the Bank’s description does give us the impression that it is a planned, big picture, affair, rather than something impromptu designed to address current market expectations of OCR increase. So more about neutral policy rates, than near-term market pricing. Still, the Bank is open to use the occasion to say whatever it likes, about a range of things, conscious that its Monetary Policy Review (MPR) is still just over two weeks away.

A Stronger Basis for GDP (and Inflation)

BNZ Research -

With New Zealand under COVID-induced restrictions, there is understandable focus on today’s ANZ business survey, and government alert-level decisions later this afternoon, as being real-time relevant for the economy. However, this is no reason to discount Thursday’s GDP report as old hat. And not just because its Q2 expansion will likely far exceed RBNZ expectations. Stats NZ’s annual revisions will probably boost the historical level of GDP to boot. All of this will emphasise just how much of an inflationary head of steam the economy had, which the latest lockdowns has interrupted, but are unlikely to stop at its core.

Vaccinations No Panacea

BNZ Research -

It seems highly likely that by early next year New Zealand will be progressively easing its border restrictions. Moreover, with the great majority of New Zealanders fully vaccinated by then, it will become increasingly less likely that people will again experience, or even accept, lockdowns of the current intensity. This is all great news, and is a very real cause for optimism about the future. However, we are concerned that many are starting to assume life will be a lot more rosy post vaccination than will actually be the case. A post lockdown world will come with its own set of challenges, many of which will stay with us for months/years to come. A lot of the issues that currently confront us will not magically disappear with the vaccine roll out, and there is certainly no going back to a pre-COVID world.

Our Work-In-Progress Macro Forecasts

BNZ Research -

Today we throw some updated economic forecasts out there, for people to think about. Not because we feel at all sure about how COVID-19, and the associated restriction-level prognosis, is going. But because waiting for clarity on these things could take a while. We prefer to put a set of numbers out now, but with the strong health warnings of it being a work in progress.

What a difference a day makes!

BNZ Research -

There is no doubt the current lockdown will thump New Zealand’s GDP. But history shows us that the economy can bounce back quickly. Moreover, the vaccine roll out provides more certainty about the medium term outlook than we’ve ever had before. No matter what the near term brings us, we think it likely that activity will be back at pre-shock levels by the end of the year, at the latest. Given this, and the economy’s starting point, the RBNZ will continue to feel the pressure to raise its cash rate.

Why Load Inflation onto COVID Concerns?

Craig Ebert -

It’s bad enough that New Zealand is living under the biological threat of COVID-19. But central banks fuelling inflation (not to mention financial imbalances) would only make matters worse. The good news is that the RBNZ can do something about the latter, by starting to take its foot off the cash rate accelerator at Wednesday’s Monetary Policy Statement (MPS).

RBNZ August MPS Preview

BNZ Research -

There is little doubt interest rates are on the way up. It’s just a question of when and by how much? The economy is stretched to bursting, we are at or through maximum sustainable employment, and inflationary pressures are rising almost exponentially.

Labour Market Stretched to Breaking

BNZ Research -

Every leading indicator we monitor tells us we are being too conservative in our expectations for the tightness in the labour market that will be revealed by Statistics New Zealand on Wednesday morning. And, yet, we are already forecasting plummeting unemployment such that the unemployment rate is expected to be sub 4.0% within twelve months. Whichever way you look at it, it is almost certain the Reserve Bank has already achieved its maximum sustainable employment target. In fact, so tight is the market that its current and prospective state seems far from sustainable to us.

Inflation Bubble Suspended?

BNZ Research -

Will the confirmed suspension of the trans-Tasman travel bubble, on COVID-19 grounds, forestall New Zealand’s rising tide of inflation? This is not an idle question. After all, one of the abiding messages from the pandemic to date is that it can just as much aggravate inflation as dent it. And, ultimately, it is not economic growth targets that central banks have, but inflation targets.

Markets Today

BNZ Markets Today

Nick Smyth -

For all the recent talk of stagflation, last week’s price movements suggest that the reflation trade might be making a comeback. Equities and commodities were again higher on Friday with the NZD outperforming, closing the week around 0.7070. The US 10-year rate rebounded to near its recent high with the market continuing to bring forward the expected timing of the Fed’s first hike, with June 2022 now almost 50% priced. Last week saw an almost 20bps increase in the key NZ 2-year swap rate ahead of this morning’s CPI release, which we expect to be a whopper.

BNZ Markets Today

Nick Smyth -

It has been a good session for risk assets overnight, with equity markets up strongly on better than expected earnings, commodity indices hitting fresh highs and commodity currencies appreciating, the NZD breaking back above the 0.70 mark. The bond market has brushed off yesterday’s strong US CPI number, with the US 10-year rate falling towards 1.50%. In the local rates market, the 2-year swap rate keeps pushing higher, up another 3bps yesterday, to 1.60%.

BNZ Markets Today

Nick Smyth -

It has been a good session for risk assets overnight, with equity markets up strongly on better than expected earnings, commodity indices hitting fresh highs and commodity currencies appreciating, the NZD breaking back above the 0.70 mark. The bond market has brushed off yesterday’s strong US CPI number, with the US 10-year rate falling towards 1.50%. In the local rates market, the 2-year swap rate keeps pushing higher, up another 3bps yesterday, to 1.60%.

BNZ Markets Today

Nick Smyth -

Market movements have been subdued overnight. Equities are flat-to-slightly lower, the US 10-year rate has stabilised, while the USD continues to push higher. The market awaits the US CPI release tonight amidst growing global inflation concerns and increased recognition amongst central bankers around upside inflation risks. Yesterday saw fresh multi-year highs in NZ swap rates across the curve, with the key 2-year rate pushing above 1.50%.

BNZ Markets Today

Nick Smyth -

While the US bond market has been closed for Columbus Day and no major economic data has been released, there have still been some big price movements overnight. Oil prices continue to head higher, helping to push up global bond yields, as inflation concerns mount. USD/JPY has jumped 1%, to above the 113 mark, while the AUD continues to outperform as NSW starts reopening its economy. The NZD is slightly higher over the past 24 hours, trading this morning around 0.6945.

BNZ Markets Today

Nick Smyth -

Friday’s nonfarm payrolls report was a mixed bag, with employment growth lower than expected but wage growth and the unemployment rate better than expected. The consensus is that the report won’t deter the Fed from announcing tapering in November. Bond yields continue to head higher amidst renewed inflationary concerns, with the US 5-year rate hitting an 18-month high and the NZ 10-year swap rate reaching a fresh 2½-year high. Equity and currency moves were relatively restrained post-payrolls, the NZD closing the week around 0.6930.

BNZ Markets Today

Nick Smyth -

Russian President Putin’s offer to help fix the European gas crisis and a short-term deal to extend the US debt ceiling have bolstered market sentiment. Equity markets have rebounded strongly, the US 10-year rate has pushed up to its recent high, and commodity currencies have rallied, with the AUD leading the way. Markets now await the all-important nonfarm payrolls report tonight.

BNZ Markets Today

Jason Wong -

A risk-off tone is evident, with global equities lower, safe-haven currencies well supported, while global rates markets show little net change. President Putin has saved a bigger market correction, by stepping in and calming the natural gas market, a recent source of angst. The NZD is near the bottom of the leaderboard, with global forces in charge and the much anticipated RBNZ rate hike not offering any support.

BNZ Markets Today

Jason Wong -

US equities have recovered after yesterday’s spat. A range of commodity prices continue to break higher ground, pushing up break-even inflation yields and leading to higher global rates. Overnight, the NZD and AUD have recovered losses during local trading hours, the NZD now little changed over the past 24 hours at 0.6970.

BNZ Markets Today

Jason Wong -

US equities are down 1½-2½% but it looks more like a sector rotation than a big risk off move. US rates are slightly higher while the USD has given up some recent ground and shows a broadly based fall. This sees the NZD on a better footing, up modestly to 0.6965.

BNZ Markets Today

Nick Smyth -

After what was a rocky week, market sentiment improved on Friday, with the S&P500 gaining more than 1% and the USD depreciating. The NZD and AUD finished the week on a positive note, with the NZD closing around 0.6940 and the AUD around 0.7260. It’s a big week ahead with the RBNZ expected to increase the OCR on Wednesday for the first time since 2014, despite most of the Waikato joining Auckland in Covid alert level 3 today, the all-important US nonfarm payrolls report on Friday.

BNZ Markets Today

Nick Smyth -

There has been plenty of news overnight but with no clear theme in asset class movements. Equity markets are generally lower, with the S&P500 set for its worst month since March last year, the US 10-year rate is little changed, while the USD has given back a little of the previous day’s sharp appreciation. The NZD has edged up towards 0.69.

BNZ Markets Today

Jason Wong -

Markets have calmed down after yesterday’s broad sell-off, but the slight fall in global rates and lift in global equities looks unconvincing. There is more turmoil in currency markets, with another broadly-based surge in the USD seeing the NZD and AUD tumble further, alongside other major currencies.

BNZ Markets Today

Jason Wong -

The number and extent of global growth potholes are growing and there’s a whiff of stagflation concerns in the air, with global equity markets tumbling amidst a further incremental lift in global bond yields. Currency traders have flocked to safe-havens, seeing a broadly-based rise in the USD and the NZD and AUD tumbling 1% overnight, although GBP has seen the biggest fall, down 1.4%.

BNZ Markets Today

Jason Wong -

After last week’s more hawkish tilt by some key G10 central banks, the global reflation trade looks to be re-emerging as a theme. US equities show a rotation back into cyclicals, global rates continue to push higher, commodity prices are on the charge, and commodity currencies have outperformed, although the NZD has been flat and lagged the modest gains for AUD and CAD.

BNZ Markets Today

Nick Smyth -

After what was a hectic week, market movements were more restrained on Friday. The US 10-year rate pushed up to its highest level since the start of July, at 1.45%, while the S&P500 was broadly unchanged. The NZD ended the week back near the 0.70 mark amidst a stronger USD.

BNZ Markets Today

Nick Smyth -

Global bond yields have had a sharp move higher overnight, with the US 10-year rate jumping 11bps, to above 1.40%, its highest level in over two months. Driving the moves higher in global rates has been more hawkish messaging from central banks, including the FOMC yesterday and the Bank of England overnight, which opened the door to a rate hike before the end of the year. Equity markets have been unperturbed. The S&P500 is up almost 1.5%, helped by some easing of concerns around the Evergrande situation. Currencies have traded with a risk-on pattern, seeing the USD and JPY lower and the NZD back to 0.7075.

BNZ Markets Today

Jason Wong -

Risk appetite has improved, as Evergrande survives another day, with a negotiated coupon payment, and the market wasn’t spooked by the US FOMC policy update, even as it moved in a more hawkish direction. US equities are up near 1%, the US 10-year rate is little changed, while net currency movements have been modest. The NZD continues to languish around 0.70.

BNZ Markets Today

Jason Wong -

After yesterday’s slump in risk appetite, markets have settled, even if we are still in the dark about the next move on Chinese property developer Evergrande. US equities are flat, global rates have traded sideways and commodity currencies have modestly underperformed, with the NZD finding some support near 0.70.

BNZ Markets Today

Jason Wong -

The new week has begun with a plunge in risk appetite as fears mount of contagion risk from the imminent collapse of Chinese developer Evergrande. Global equity markets have seen some chunky falls, global rates have rallied and commodity prices are weaker. Currency market reaction has been relative contained, with only some modest underperformance by the NZD and AUD and a small gain for the USD.

BNZ Markets Today

Nick Smyth -

Markets traded with a risk-off tone on Friday, with equity markets lower again, the USD stronger, and the NZD back down to 0.7040. The US 10-year rate continued to edge higher, trading near a two-month high on Friday, as the market looked ahead to the Fed meeting this week. The key local event this week is RBNZ Assistant Governor Hawkesby’s speech tomorrow morning which, with market pricing finely balanced between a 25bps hike and a 50bps move next month, could be market moving.

BNZ Markets Today

Jason Wong -

Post a much stronger than expected US retail sales print, the USD is stronger across the board and US rates are higher. The NZD has lost the gains seen after the stonker Q2 GDP report, languishing back below 0.71.

BNZ Markets Today

Jason Wong -

US equities have rebounded overnight after a risk-averse trading session during Asian and European time-zones. Following softer US inflation in the previous overnight session, UK and Canadian inflation positively surprised and stronger oil and natural gas prices have added to an inflationary picture, driving global rates higher. Currency markets have been well-contained, with only oil-sensitive CAD and NOK showing much signs of life. The NZD remains stuck around 0.71.

BNZ Markets Today

Nick Smyth -

US CPI inflation data overnight was slightly softer than expected, driving a 5bp fall in the US 10-year rate. The S&P500 is modestly lower again while the USD is little changed. The AUD is the weakest of the majors over the past 24 hours amidst more cautious risk appetite and dovish talk from RBA Governor Lowe. The NZD/AUD cross has pushed up towards the 0.97 mark. Yesterday, New Zealand Debt Management issued the first NZ 30-year government bond, with very strong offshore demand evident.

BNZ Markets Today

Jason Wong -

Market price action has been fairly muted at the start of the new week. US equities are slightly lower, the US 10-year rate has drifted down a couple of basis points and currency movements have been small, with the NZD treading water around the 0.71 mark.

BNZ Markets Today

Nick Smyth -

Equities ended last week on a soft note, with the S&P500 falling almost 1% on Friday, while the USD strengthened against a backdrop of more cautious risk appetite. Global rates rebounded from their falls on Thursday night, helped by a lift in commodity prices. The NZD ended the week just above 0.71 while the NZD/AUD cross continues to grind higher, now up to 0.9670.

BNZ Markets Today

Nick Smyth -

Global rates have dropped overnight, with 10-year US and German rates down by around 4bps. The ECB confirmed it would reduce its bond buying pace from next month, but the market was seemingly braced for more hawkish guidance. The USD has weakened overnight, with the EUR lagging most other currencies after the ECB meeting. The NZD is back above 0.71 with market now pricing a small chance of a 50bp OCR hike at the RBNZ’s October meeting.

BNZ Markets Today

Jason Wong -

Investors remain cautious, with modest weakness in US equities, while the US 10-year rate has reversed yesterday’s increase, tracking lower to 1.33%. There have been a few updates from various central banks, but none of them market moving. Currency moves have been modest, with the NZD continuing to hover around the 0.71 mark.

BNZ Markets Today

Jason Wong -

There hasn’t been much news but risk appetite is weaker overnight, with US and European equity markets on the soft side and the USD recovering further. AUD and CAD are the weakest currencies, while the NZD has gravitated to 0.71. Global bond markets are weaker, with 10-year rates up in the order of 4-5bps across the US and Europe.

BNZ Markets Today

Jason Wong -

With the US on holiday, overnight trading and news has been uneventful. Global equity markets continue their record-breaking run, while the USD has found some support after weakening last week. Both the NZD and AUD are slightly softer to start the new week, after a blistering recovery over the past fortnight.

BNZ Markets Today

Nick Smyth -

Friday’s nonfarm payrolls report was a mixed bag, with much weaker than expected job growth but stronger wage pressure. Markets expect the Fed to focus on the disappointing employment number and to wait until later in the year to taper its bond buying. The US 10-year rate increased after the report in a curve steepening move while equity markets were little changed. The USD continued to push lower, with the NZD and AUD outperforming again. The NZD ended the week above 0.7150 for the first time in almost three months. Also helping the NZD, at the margin, has been the creep higher in OCR expectations, with markets pricing a greater than 90% chance of a 25bp OCR hike at the October meeting.

BNZ Markets Today

Nick Smyth -

Markets have been relatively quiet overnight as investors wait on the US nonfarm payrolls report tonight. The USD has continued to decline, hitting a one-month low overnight. The NZD has outperformed, breaking above 0.71 overnight, to a 2½ month high, while the AUD has reached 0.74. Bond yields and equities are little changed.

BNZ Markets Today

Jason Wong -

Risk appetite is higher at the start of the new month. Bad news is good news, with soft US labour market data providing no smoking gun for an immediate Fed taper of QE, supporting equity markets and driving the USD lower overnight. The AUD has been the best performer, followed by the NZD.

BNZ Markets Today

Jason Wong -

A plethora of generally weaker than expected economic data and higher inflation indicators has seen the blistering run in US equities paused for at least a day, while global rates have pushed higher. Currency markets have swung about due to month-end flows, but the NZD has been the standout performer, sustaining the solid gain seen during local trading hours.

BNZ Markets Today

Jason Wong -

Markets have started the week on an uneventful note, with US equities pushing up to yet another fresh record high (yawn), the US 10-year rate is down slightly within a 3bps range and the NZD has been stuck in a 25pip range around 0.70. If you really have nothing else to do, please read on.

BNZ Markets Today

Nick Smyth -

Markets reacted positively to Fed Chair Powell’s Jackson Hole speech, with the S&P500 hitting a new record, while the USD and US 10-year rate fell. Commodity currencies outperformed, with the NZD and AUD both up around 1%, the NZD ending the week back above the 0.70 mark.

BNZ Markets Today

Nick Smyth -

Markets have traded with a slight risk-off tone overnight. Two suicide blasts around Kabul airport prompted a brief flight to safety, although equity markets are off their intraday lows. The USD has strengthened, taking the NZD back down to 0.6945, while bond yields are little changed.

BNZ Markets Today

Jason Wong -

It has been a sleepy day in financial markets with thin trading volumes but overall a continuation of the risk-on theme that investors have embraced so far this week. US equities have pushed up to yet another record high, commodity currencies (excluding CAD) have modestly outperformed, while global rates are higher.

BNZ Markets Today

Jason Wong -

There hasn’t been much news to digest, but the rally in risk assets that began from the get-go this week has extended, seeing US equities rise to another fresh record high, higher commodity prices and commodity currencies leading the charge. The NZD and AUD are up 0.5-0.6% overnight to 0.6950 and 0.7255 respectively. US Treasury yields have nudged higher.

BNZ Markets Today

Jason Wong -

Risk appetite has begun the new week on a positive note, supported by COVID19-related news, sending US equities to a fresh record high and the USD broadly lower from its year-to-date high printed on Friday. Positive sentiment has driven a big lift in commodity prices, including a 5+% gain in oil prices and commodity currencies lead the charge. The AUD has regained the 0.72 handle while the NZD is probing the 0.69 mark. US Treasuries remain little changed.

BNZ Markets Today

Nick Smyth -

Risk asset markets recovered on Friday, after what had been a rocky week. Equity markets were higher in the US and Europe, industrial commodities rebounded, and the US 10-year rate nudged up, to 1.26%. The shift in market sentiment appeared to follow comments by Dallas Fed President Kaplan, one of the ‘hawks’ on the committee to this point, who said he was openminded about delaying tapering if there was evidence the Delta variant was dampening demand. The NZD and AUD stabilised on Friday but were still heavily down on the week. OCR expectations were pared back on Friday, despite further hawkish messages from RBNZ Governor Orr, as the market focused on rising Covid-19 cases numbers and the growing list of high-risk locations of interest.

BNZ Markets Today

Nick Smyth -

It has been another risk-off session over the past 24 hours, with chunky falls in commodity prices, a further appreciation in the USD to a 9-month high, and lower global bond yields. US equities have managed to claw back earlier losses, but the sector breakdown shows rotation away from cyclical stocks and into defensive sectors and tech. Both the AUD and NZD have printed fresh year-to-date lows, with the latter trading around 0.6830 this morning. Local attention remains on Covid case numbers.

BNZ Markets Today

Jason Wong -

The FOMC minutes have been the headline act overnight, but they revealed nothing much new. US equities have traded with a slightly cautious tone and US Treasuries are little changed. USD strength leading up to the minutes faded after their release. Despite a rocky road over the past 24 hours, the NZD shows little net change from this time yesterday after absorbing the RBNZ’s MPS.

BNZ Markets Today

Jason Wong -

Risk sentiment soured overnight after a weak US retail sales print, sending US equities much lower and the USD broadly higher. This added to NZD downside pressure yesterday, following the reporting of a single COVID19 case in the community, triggering a restrictive nationwide lockdown and some reassessment of RBNZ monetary policy. Support for the NZD has so far been found at 0.69. The AUD printed a fresh year-to-date low sub-0.7250.

BNZ Markets Today

Jason Wong -

Markets have kicked off the new week on a cautious note, following weaker economic data in China amidst linger concerns about the spread of the delta variant of COVID19. Equity markets are mostly weaker, the US 10-year rate is down 2bps, oil prices are lower and commodity currencies have underperformed. Throughout, the NZD has managed to keep its head above 0.70.

BNZ Markets Today

Nick Smyth -

The US 10-year rate and USD fell sharply on Friday after a shockingly weak US consumer confidence survey. Market moves were likely exacerbated by thin liquidity and lower-than-usual market participation amidst the Northern Hemisphere summer holidays. Equity markets nudged higher, presumably helped by the fall in bond yields. The NZD finished the week on a high, back around the 0.7040 mark, although it remains stuck within its broader trading range. The RBNZ MPS is the highlight of the week ahead, with the OCR set to be raised for the first time since 2014.

BNZ Markets Today

Nick Smyth -

Markets have been quiet overnight, with little in the way of economic data and the Northern Hemisphere summer holidays now in fully swing. The US 10-year rate has pushed up to near a one-month high while the USD and equity markets are little changed. The NZD and AUD have reversed their post-US CPI moves higher and are down 0.6% over the past 24 hours, with the NZD back below 0.70. There was plenty of second-tier NZ data released yesterday, all pointing in the direction of the RBNZ getting a hurry on with raising the OCR.

BNZ Markets Today

Jason Wong -

For a change, the US CPI report didn’t throw up any nasty surprises, seeing US Treasury yields push lower and with a strong bond auction adding to the downside pressure. The data drove broad-based weakness in the USD and the NZD has been one of the best performers, rising 0.6% overnight to 0.7050.

BNZ Markets Today

Jason Wong -

Against a backdrop of little fresh news, there is a hint of better risk sentiment, as global equity markets stretch to fresh record highs, US Treasury yields nudge up further, and commodity currencies recover overnight from losses during the NZ trading session. The NZD is back with a 0.70 handle.

BNZ Markets Today

Jason Wong -

The new week has begun with only modest changes in asset prices with the most notable movements confined to commodity markets, mainly to the downside. Despite that backdrop, the NZD and AUD show only minor weakness, with the NZD trading around 0.70. US equities are flat while the US 10-year rate has nudged up further, adding to the increase seen Friday night.

BNZ Markets Today

Nick Smyth -

The US 10-year rate moved sharply higher, to 1.30%, and the USD appreciated after a stronger-than-expected US nonfarm payrolls report on Friday night. The S&P500 closed slightly higher, with rotation back into reflation trade favourites and away from tech firms. The NZD closed out the week back down towards 70 cents.

BNZ Markets Today

Nick Smyth -

Equity markets and bond yields are both higher overnight while the USD has drifted lower. Movements across asset classes have been limited though as the market waits on the all-important US nonfarm payrolls report tonight. The GBP has outperformed after the Bank of England suggested that “modest” rate hikes might be needed from later next year although, again, the moves have been small. The NZD has tracked around the 0.7060 level overnight while NZ rates took a breather yesterday after their big moves after the labour market data.

BNZ Markets Today

Jason Wong -

Overnight US economic data and comments by Fed vice-chair Clarida caused a bumpy ride for US Treasuries, with little net change in the 10-year rate overall. Some modest USD strength overnight has been evident, although the NZD has managed to hold onto its gains seen yesterday after the very strong labour market prints and lift in domestic rates across the curve.

BNZ Markets Today

Jason Wong -

There hasn’t been much news overnight, but global equity markets have pushed higher. The US 10-year rate continues to hover near recent lows. The NZD and AUD haven’t made any progress overnight after both rising yesterday following press releases by the RBNZ and RBA.

BNZ Markets Today

Jason Wong -

The key market mover to start the new week has been a tumble in US Treasury yields, with the 10-year rate trading below 1.15%, following a slightly softer than expected US ISM manufacturing index. Oil prices fell by over 3% after the report and gains for the S&P500 were pared. In currency markets, the AUD and JPY have outperformed, a combo not often seen, while the NZD has tracked sideways.

BNZ Markets Today

Nick Smyth -

Equity markets ended lower on Friday, in part due to disappointing earnings from Amazon, while the US 10-year rate fell back towards 1.20%. On the week, equities and bond yields were both modestly lower. The USD bounced back on Friday, although it still experienced one of its largest weekly falls of the year. The NZD and AUD underperformed both on Friday and over the week, with the ongoing lockdowns in Australia seeing consensus shift towards the RBA announcing a reversal of its tapering decision at its meeting this week. The HLFS labour market report is the highlight domestically this week while nonfarm payrolls on Friday is the key offshore data release.

BNZ Markets Today

Nick Smyth -

The market brushed off a weaker-than-expected US Q2 GDP result overnight, with equities higher across the board and US rates nudging up. The USD has continued to weaken amidst ultra-low US real rates and improving risk appetite. The NZD is back above 0.70 and has made gains on all the key crosses.

BNZ Markets Today

Jason Wong -

Market reaction has been fairly well contained both ahead and after the Fed’s policy update, which showed only a modest tweak to its previous Statement. The S&P500 has hovered in and out of positive territory, US Treasury yields are slightly higher and the USD has weakened a little. The NZD ran down towards 0.69 in the immediate aftermath of the Fed statement, but has fully recovered after some dovish words by Fed chair Powell.

BNZ Markets Today

Jason Wong -

China’s regulatory crackdown has spilled over into other markets, driving a fall in risk appetite, with US equities down as much as 1-2%, dragging the US 10-year rate lower. Commodity currencies have underperformed and a much weaker CNY has done no favours to the NZD and AUD on a day in which even the USD has underperformed.

BNZ Markets Today

Jason Wong -

US and European equity markets show modest changes, trading near their record highs set at the end of last week while global rates are also little changed, although real rates have hit a record low. Currency markets show a bit more price action, with a broadly-based fall in the USD that helped the NZD regain the 0.70 handle overnight.

BNZ Markets Today

Nick Smyth -

Markets ended what was a turbulent week on a positive note on Friday, with the S&P500 pushing up to a record high amidst positive corporate earnings. The US 10-year rate tracked sideways, ending the week just below 1.30%, and currency moves were also minimal. The week ahead includes the July FOMC meeting, the first estimate of US Q2 GDP and Australian CPI

BNZ Markets Today

Jason Wong -

Global equity markets show modest gains while the US 10-year rate has traded a wide range again with yields currently down slightly. Currency movements have been modest, with the EUR on the soft side after the ECB reaffirmed its dovish credentials. The NZD and AUD show modest gains overnight.

BNZ Markets Today

Jason Wong -

Equity markets have recovered further overnight, with Monday’s fears now seemingly a distant memory. Unlike yesterday, better risk sentiment is evident across other asset classes as well, with US Treasury yields up towards 1.3%, commodity prices rebounding and commodity currencies recovering nicely.

BNZ Markets Today

Jason Wong -

There has been little news overnight, but US equities have bounced back, recovering yesterday’s losses. Other asset classes aren’t showing the same reversal. The US 10-year rate is barely higher and, while commodity currencies have outperformed overnight, movements have been small.

NZ At A Glance

New Zealand at a Glance

Stephen Toplis -

The New Zealand economy is overheating. Strong domestic demand is being driven by job and wage growth, asset price appreciation, elevated commodity prices, and fiscal and monetary stimulus. At the same time, supply chains are broken and labour supply growth is next-to-nothing. Consequently, the labour market is tightening aggressively, house prices are getting out of control and CPI inflation is bursting through the top end of the RBNZ’s target band. The RBNZ will thus have no option but to attempt to settle things down. This is likely to result in a series of interest rate increases starting this month. While the strength of the economy is centre-stage, COVID remains ever-present as a potential threat. Keeping NZ COVID-free, until sufficiently vaccinated, remains the key to future success.

Rural Research

Inflating Prices…and Costs

Doug steel -

Primary sector prices are generally strong. Not for every product it must be said, but certainly for the major products. Performance has varied by market and by sales channel as numerous factors have come into play. For many major product categories, prices are above their 5-year average and some materially so.

Lamb Prices Leaping

Doug Steel -

Lamb prices have lifted over recent months. Of course, there is nothing unusual in lamb prices rising through autumn and winter given typically lower production at this time of year. But the extent of the price increases this season has been remarkable.