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 Corporate FX Update

Jason Wong -

In late March the NZD got whacked after the surprise housing policy announcement by the NZ government which coincided with a period of increased support for the USD. Since then the currency has been attempting to regain that lost ground. Meanwhile, our short-term fair value model estimate has been creeping higher (now about 0.7250) against a backdrop of higher risk appetite and NZ commodity prices.

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

NZD: Stay the course

Jason Wong -

The NZD is probing new lows for the year below 0.70. The currency has been the worst of the “G10” majors over the month to date, falling over 3½% and on the “Expanded Majors” (Bloomberg definition), the NZD is the third worst performer over that period, only being outdone by the Turkish Lira (down 6½%) and Polish Zloty (down 4½%). Turkey is a basket case, with the President sacking its central bank Governor last weekend, while Poland has experienced a new surge in COVID19 cases – one of the worst across Europe, driven by the more-contagious UK variant – triggering fresh lockdown restrictions.

NZD Corporate FX Update

Jason Wong -

After tracking sideways through Q1, we expect NZD/USD to push higher through the rest of the year. We still conservatively target 0.76 by year-end, with a path towards 0.80 not particularly onerous.

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

Economy Watch

Following international trends

Doug Steel -

Like its sister survey the month before, activity in New Zealand’s services sector reached its highest level since the survey began in 2007, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for April was 61.2, which was up 8.3 points from March (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). It was the first time since June 2007 that the sector recorded a post-60 result.

BusinessNZ chief executive Kirk Hope said that the strong April result matches what is occurring across many countries we typically compare ourselves with.

“Australia, the UK and the USA are also posting post-60 results at present, which is indicative of the global economy slowly but surely getting back to some form of normality through increased business activity”.

BNZ Senior Economist Doug Steel said that “the Achilles heel of the PSI remains supplier deliveries. Given supply issues obviously remain a significant issue for many, especially when viewed alongside very strong demand side indicators at present, it points to significant upwards pressure on prices”.

Wheels keep turning

Craig Ebert -

New Zealand’s manufacturing sector continued in expansion mode during April, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for April was 58.4 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). While this was 5.2 points down from March, it was still the second highest result since July 2020 when New Zealand came out of lockdown.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the April result was another positive outcome for the sector. Despite the lower level of expansion in comparison with March, it would have been surprising if the April result had shown even higher expansion levels.

“The two major sub-index values of Production (64.5) and New Orders (60.9) continued to be the main drivers of the April result, with the latter coming off its historic level of expansion. Both Employment (52.7) and Finished Stocks (55.2) remained at similar levels to March, while Deliveries of Raw Materials (52.4) decreased 10.6 points”.

“Given the lower level of expansion for the current month, the proportion of those outlining positive comments decreased from 58% in March to 53.2% in April. Comments continued to outline demand side influences, with increased enquiries and orders”.

Milk Price Drivers Positive

Doug Steel -

Global dairy prices have lifted strongly through 2021 to date. Prices are at high levels. The GDT Price Index is some 44% above year earlier levels and 29% above its five-year average.

Big back-to-back gains

Craig Ebert -

Annual growth in job advertising this April – 355% as it turned out – was always going to be enormous; April last year was hit by the harshest phase of New Zealand’s COVID-19 lockdowns. Still, looking at the latest month to month results, a genuinely strong pulse can’t be denied. The 12% monthly increase in April’s total repeated the 12% gain registered for March. This sent the level of job ads more obviously to a record high.

Approaching Maximum Sustainable Employment

Stephen Toplis -

We have been saying for some time that the labour market would likely prove to be tighter than the RBNZ had anticipated. In part because of this, CPI inflation should also end up higher than expected. The combination of these factors would thus indicate the RBNZ might need to tighten monetary conditions sooner (though not soon) than it has so far suggested might be the case. There was nothing in today’s labour market data to disavow us of that view. Nor for that matter in the outcome of this morning’s dairy auction or Barfoot’s housing data.

Core Inflation’s Upward Trek Loses Footing in Q1

Craig Ebert -

New Zealand’s Q1 CPI increased 0.8%, in line with market expectations. This delivered an annual result of 1.5%, also in line with expectations. All a bit of a yawn? Not so fast. There was news, in the fact the core measures of inflation slowed. But, bigger picture, it doesn’t change our view of material upside to CPI inflation ahead and, in time, pressure on the RBNZ to reduce its degree of monetary stimulus.

Over the line

Craig Ebert -

Activity in New Zealand’s services sector climbed into expansion during March for the first time in five months, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for March was 52.4, which was up 2.7 points from February (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was the highest result since July 2020, although still below the long term average of 53.8.

BusinessNZ chief executive Kirk Hope said that a lift in the key sub-index of New Orders/Business (56.9) led the way towards expansion in March, followed by Activity/Sales (54.5). The other three sub-indices continue to show either lacklustre expansion or remain in contraction.

“Any sustained shift towards the services sector exhibiting ongoing expansion will need to see activity/ sales and new orders remaining near or above their long term average results to continue momentum”.

BNZ Senior Economist Craig Ebert said that “as decent as New Zealand’s PSI was for March, with its 52.4, it was shy of where the global PSI got to for the month, namely 54.7. Of course, it’s all relative to recent history, which for many countries abroad has meant a lift out of a hole rather than onto a podium”.

RBNZ Unmoved

Stephen Toplis -

In our Monetary Policy Review (MPR) preview we surmised the RBNZ would try to produce a statement that would leave market pricing unchanged in so doing buying itself time to make sense out of the current evolution of the economy. If this was its objective, as we had supposed, then it can most certainly claim success. For all intents and purposes, today’s Monetary Policy Review was about as same as the February Monetary Policy Statement as one could possibly expect.

QSBO Reveals Inflationary Pulse

Stephen Toplis -

For us, the primary foci of interest in today’s NZIER Quarterly Survey of Business Opinion were the findings of the state of the labour market and inflationary pressures. It is our view the Reserve Bank is very close to meeting both its inflation and employment objectives and, hence, its need to maintain the current level of stimulus will dissipate. There was nothing in today’s report to dissuade us from that view.

Employment Report: Better by far

Craig Ebert -

The 55.3% annual growth in March’s job advertising reflected a weakened base period, when COVID-induced shutdowns were starting to bite. However, this is not to belittle the latest result. As perspective, March 2021 ads proved 5.8% higher than they were back in March 2019 (in seasonally adjusted form). This sense of solidity was shored up by the fact advertising lifted 10.6% in the month of March. This was the strongest monthly gain since July, and came after a period where monthly growth trended down to almost naught by February.

Government on Housing Market War Footing

Stephen Toplis -

The New Zealand government is dead set on curtailing soaring house prices. It has been saying so for some time now and prices have just kept soaring. So, it should come as no surprise that their patience has now been exhausted and a full attack on prices is now underway.

Market Right to Be Tolerant of “Weak” Q4 GDP

Craig Ebert -

In barely moving, the financial markets have given today’s “weak” Q4 GDP outturn a break. And fair enough. Not because the reported 1.0% decline – which was worse than market expectations for a 0.2% increase – was dodgy in the way it was measured. It wasn’t. Rather, there was always likely to be tolerance of any slight pull-back in GDP, after the massive 13.9% catch-up in Q3, which snuck annual growth up to 0.2%.

External Deficit To Widen From Current Low

Doug Steel -

New Zealand’s external accounts have been off the market’s radar for some time – and for good reason. The nation’s annual current account deficit stood at 0.8% of GDP in calendar year 2020. This matched the annual result from a quarter earlier but was a material reduction from a 3.3% of GDP deficit in 2019 and 4.2% in 2018. Indeed, New Zealand has its lowest annual deficit since 2001 (and the late 1980s before that). We think this is as low as it will get for now, as we anticipate a bigger annual deficit ahead (more on that later).

Struggle Street

Craig Ebert -

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

The PSI for February was 49.1, which was up 1.1 points from January (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). However, it was still well below the long term average of 3.8 for the survey.

BusinessNZ chief executive Kirk Hope said that while the slight pick-up in activity to levels seen in December was obviously a positive step, the sector remains below the critical 50.0 mark. The last time the sector was in contraction for four consecutive months was the first half of 2009.

“The slower return to business as usual post holidays was compounded by the two separate lockdown periods in mid and late February, with Auckland hit hardest. This has meant the key sub-indices of Activity/Sales (50.8) and New Orders/Business (50.3) were both lethargic over February.”

BNZ Senior Economist Craig Ebert said that “when simply averaging across all responses to the PSI and PMI surveys gives a composite reading of 51.6 for February. But re-weighting for the fact services comprise around 70% of the economy and the composite index yields 49.7. With this, we remain decidedly cautious on GDP growth for Q1.”

Easing back

Craig Ebert -

New Zealand’s manufacturing sector saw a slower rate of expansion during February, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for February was 53.4 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down 4.6 points from January.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the February result was more in line with the long term average of the PMI (53.0).

“The major sub-index values were all down from January, with Production (57.3) leading the way, followed by New Orders (56.2). Both Employment (49.8) and Deliveries (47.6) remained in contraction, with the former reverting back to levels seen in December.”

“Despite the PMI remaining in expansion, the proportion of those outlining negative comments stood at 54%, compared with 46% in January. Given the second recent partial lockdown, it remains to be seen what impact this will have on the sector over the next few months.”

BNZ Senior Economist, Craig Ebert said that “supply issues were to the fore from respondents’ comments to February’s PMI survey. Of those citing negative factors, supply rather than demand problems dominated, with frequent references to supply chains, shipping, freight, costs, and difficulties in finding suitable staff.”

Trade Triumphs and Tribulations

Doug Steel -

There are some momentous changes occurring across various components of NZ’s international trade activities. Some are strongly positive for the nation’s income like the ramping up of global prices for primary products, while others are deeply negative like the lack of international visitors. They all have implications for activity, inflation, and the balance of trade.

Retailers Suffer Old Mother Hubbard

Craig Ebert -

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

Financial Markets Wrap

Global reflation trade supported NZD in April

Jason Wong -

• The NZD was one of the best performing majors in April, recovering from oversold conditions in late-March
• The global reflation trade was a supporting factor, with a backdrop of rising equity markets and commodity prices
• USD showed broadly based falls

NZD underperforms in March

Jason Wong -

• Global reflation thematic drove global equities and US rates to fresh highs
• Nevertheless, a USD recovery and negative domestic forces drove the NZD down 3½% in March
• NZ (and many other country) rates lower against a backdrop of higher US Treasury yields

NZD hits 3-yr high in February before late-month plunge

Jason Wong -

• Global reflation trade and domestic forces drive NZD to a three-year high in February
• Increased bond market volatility near month-end sees a sharp reversal
• Massive increase in NZ rates during the month

Interest Rate Strategy

Bond issuance likely to be reduced next fiscal year

Nick Smyth -

NZDM will update the bond programme next Thursday, alongside the Budget. The last update came in December, at the time of the Half-Year Economic and Fiscal Update (HYEFU). At that December update, NZDM reduced forecast bond issuance by $5b for each year from the 2020/21 to 2023/24 fiscal years. Gross bond issuance was forecast to be $45b for the current 2020/21 fiscal year and $30b for the 2021/22 fiscal year.

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

Value returning to NZ linkers

Nick Smyth -

Breakeven inflation (BEI) has had a very strong run over the past twelve months, both in NZ and offshore. The RBNZ’s decision to include linkers within its QE programme at the May 2020 MPS and the shift higher in global BEIs catalysed a big repricing in NZ BEIs, albeit from what were admittedly very depressed levels in mid-2020. The NZ 10-year BEI came within a whisker of touching 2% in late March, which would have been the first time since 2014.

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

The RBNZ’s balance sheet – Where it’s at and where it’s going

Nick Smyth -

Like other central banks, the RBNZ’s balance sheet has increased significantly since the crisis last year. Initially, this took the form of the RBNZ increasing its liquidity provision via larger FX swaps (see the jump in the yellow bar in March 2020 in Chart 1). Then, in late March, the RBNZ began its inaugural QE programme. As the RBNZ has bought bonds under its QE programme, it has gradually let its FX swaps roll-off. The RBNZ’s bond holdings under its QE programme currently stand at just over $50b.

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

NZGB Market Implications From May Bond Maturities

Nick Smyth -

There are significant New Zealand bond maturities in May. This includes $11b of the 15-May-2021 government bond, $1.5b of the 15-May-2021 LGFA bond and $1.1b of Kauri SSA bonds (see Chart 1). The RBNZ has bought back around $4.4b of the May-2021 NZGB, so private sector investors will receive just over $6.5b on its maturity.

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

Where to now for NZ wholesale rates?

Nick Smyth -

NZ wholesale rates have had a decent correction lower over the past few weeks. This owes, in part, to some retracement in global rates. But the main driver has been the NZ government’s announcement on housing and the market’s subsequent paring back of OCR rate hike expectations.

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

NZGB supply outlook; Biding our time to enter NZGB 10s20s flatteners

Nick Smyth -

NZDM is well placed from a funding perspective. By the end of this month, it will have raised $38b towards its $45b bond programme for the current 2020/21 fiscal year (ending Jun-2020). That will leave $7b to be raised between April and June.

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

Markets Outlook

RBNZ MPS and Budget Preview

BNZ Research -

It’s hard to see how the RBNZ’s May MPS could be more dovish than its February equivalent. It could, however, display a distinct tilt to the less dovish side. In our opinion, the labour market is turning out to be tighter than the RBNZ had expected and the outlook for CPI inflation higher. If the Reserve Bank has come to the same conclusion then it would also be consistent to conclude monetary conditions don’t need to be as easy as previously assumed.

Expectations Firming for More Than Just CPI Inflation

BNZ Research -

Expectations are firming for CPI inflation, along with numerous other things about the NZ economy. Wages, economic activity, investment, employment – they are all now anticipated to be stronger in their rate of expansion. Fiscal policy options too, are getting latitude, from the rapidly repairing fiscal accounts, based off strong growth in tax revenue. There is also a certain resilience in the housing data of late, which is interesting.

Labour Market to Get Tighter Than RBNZ Expects

BNZ Research -

xpectations for Wednesday’s Q1 labour market data, while decent, are broadly margin of error material. The real test is what one projects for the unemployment rate over calendar 2021, and into 2022. On this, we see a clear drop, to around 4%, as above-trend demand for staff clashes the available pool of labour expanding at well below normal rates. The Reserve Bank’s last set of forecasts, by comparison, had the jobless rate drifting a bit above 5% over 2021 and not getting below 5% until 2023.

Power Ranges

BNZ Research -

The government’s plans to have more say in financial regulation will be important for the markets to monitor. However, judgement will have to wait until the details are, firstly, revealed and then confirmed in legislation. This could take at least a couple of years, going by currently proposed timelines.

Core Inflation Nudging Above 2%?

BNZ Research -

This week not only marks the start of a two-way travel bubble between New Zealand and Australia but also provides key data on inflation. Is there inflation coursing through the local economy? We believe we are not alone in thinking there is. Will this be obvious in Wednesday’s Q1 Consumers Price Index? Probably not.

The Framing of Stagflation

BNZ Research -

We expect the RBNZ to maintain its dovish settings and rhetoric at Wednesday afternoon’s Monetary Policy Review. This entails a cash rate stuck down at 0.25% and the Bank’s LSAP envelope kept at $100b. However, this is right as the economy is encountering stagflationary aspects, which will be real a test for the RBNZ this year.

Previewing the April Monetary Policy Review

BNZ Research -

RBNZ will stand fast
Should be happy with current market pricing
May 5 Financial Stability Report probably of greater interest
Commodity prices continue to boost NZ economy
Population growth slump continues to slow it

Construction Inflation as a Leading Light

BNZ Research -

Those who continue to fret over “too-low” CPI inflation should be greatly encouraged by trends in New Zealand’s construction industry. There, pricing is definitely ramping up. This is as strong demand clashes with supply constraints that are being exacerbated by global supply-chain problems. This is another reason for us to wonder if we have quite enough housing-related inflation in our CPI forecasts.

Trans-Tasman Bubbles and Comparisons

BNZ Research -

Ultimately, any trans-Tasman travel bubble must be logistically safe and secure. But it’s also important the border is re-opened to people, to the extent safely possible, for the sake of the screeds of businesses currently suffering its virtual closure. This is a pointer that the economic impacts of a travel bubble are potentially more significant from a compositional perspective than for respective net-GDP gains overall.

GDP Signals Full of Static

BNZ Research -

Our +0.4% expectation for Q4 GDP is, to be sure, for the “official” production-based measure and would establish annual growth of 0.6%. Our expenditure-based GDP estimate, it’s worth noting, is -0.4% for the quarter. Yet this would make for annual growth of 3.3%. This is further illustration that the messages on NZ economic growth are extremely mixed.

GDP’s Choppy Waters

BNZ Research -

We have long thought that GDP, after a big bounce in Q3, would be choppy to flat across Q4 and Q1 combined. We remain of that view. Only by the middle part of this year will a reliable picture start to form from the data, as to the economy’s underlying performance and trajectory. This week, there are numerous quarterly activity indicators on show, which will test our view on Q4 GDP, which, just for the record, currently sits at +0.7% (+0.9% y/y).

Covid-19 Reiterates Its Economic Control

BNZ Research -

There’s a bucket load of economics news coming out over the coming week covering housing data, core statistics, a fiscal update and keynote speeches from both the RBNZ Governor and the Minister of Finance. But all of these pale into insignificance as Auckland goes back into Level 3 Covid status and the rest of the country Level 2.

RBNZ Anchored to the Rising Inflationary Tide

BNZ Research -

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

Markets Today

BNZ Markets Today

Jason Wong -

Markets have begun the new week trading with a more cautious tone after the rollercoaster ride last week. The S&P500 is currently down ½%, led by weakness in the tech sector, with the Nasdaq index down about 1%.

BNZ Markets Today

Jason Wong -

Even with a run of softer than expected US economic data, risk appetite ended last week on a positive note, with a second day of solid gains after the losses seen earlier in the week. The S&P500 rose 1.5%, the USD showed broadly-based losses and the NZD gained some 1% in Friday night trading to close the week near 0.7250. The US 10-year rate drifted lower, falling 3bps on the day to 1.63%.

BNZ Markets Today

Nick Smyth -

US Treasury yields retraced some of their sharp post-CPI moves overnight, with the US 10-year rate falling back to 1.66%. Equity markets have also partially recovered after their heavy losses yesterday. Currency movements have been relatively muted, although the NZD has outperformed, albeit modestly. Yesterday, global forces dragged the NZ 10-year swap rate back above 2% for the first time since March.

BNZ Markets Today

Jason Wong -

A monstrous US CPI print for April shocked the market, driving down US equities, lifting US Treasury yields and supporting the USD. The fall in risk appetite has seen the NZD and AUD hit the hardest, overnight extending the losses during NZ trading hours and both down 1.4% from this time yesterday.

BNZ Markets Today

Jason Wong -

US equities have been hit again overnight but this time the sell-off has been broader, while European equities are also much lower. Currency markets haven’t reacted to the sell-off and show only modest moves. The US 10-year Treasury yield has pushed a little higher.

BNZ Markets Today

Jason Wong -

Another notable rotation out of tech stocks has dragged down the S&P500 against the backdrop of inflation fears, as some key industrial commodity prices stretch higher and the US 10-year break-even rate prints a fresh eight-year high. Currency markets show only modest movements apart from a strong gain in GBP, following the Scottish elections over the weekend. NZD temporarily broke above 0.73.

BNZ Markets Today

Nick Smyth -

The ‘reflation trade’ gathered momentum on Friday, with a disappointing nonfarm payrolls report seen as providing further ammunition for the Fed to keep monetary policy ultra-accommodative. The S&P500 made a fresh record high, US 10-year breakeven inflation rose above 2.5%, copper prices made an all-time high, and the USD weakened sharply. The NZD appreciated to a two-month high amidst a weaker USD backdrop, ending the week around 0.7280.

BNZ Markets Today

Nick Smyth -

It’s been a quiet overnight session for markets, with equities and bond yields treading water ahead of the nonfarm payrolls report tonight. The USD is weaker overnight, and the NZD has consolidated above 0.72. Commodity prices remain strong.

BNZ Markets Today

Nick Smyth -

US equities and rates markets have tracked broadly sideways overnight, as the market moves into a holding pattern ahead of the nonfarm payrolls report tomorrow night. Commodity prices remain firm, driving gains in commodity currencies and inflation expectations. The NZD has outperformed after a strong HLFS labour market report yesterday.

BNZ Markets Today

Jason Wong -

Risk sentiment has weakened, with a chunky fall in US equities, slightly lower US 10-year rates, and support for safe-haven currencies. The NZD and AUD have been two of the worst performing over the past 24 hours. While it might just be a case of US equities being overdue for a correction, comments on rates by Treasury Secretary Yellen also got the market’s attention.

BNZ Markets Today

Jason Wong -

The week has begun with a reversal of some of the price action seen on Friday night, with US equities higher and the USD lower. A softer than expected ISM manufacturing index has supported a slight fall in the US 10-year rate and weaker USD dynamic. The NZD is back with a 0.72 handle.

BNZ Markets Today

Jason Wong -

Risk sentiment soured on the last day of April, with US equities lower, the US 10-year rate down a touch and a broadly based increase in the USD. The NZD gave up all its gains for the week, and more, falling a chunky 1.2% on Friday night to about 0.7160.

BNZ Markets Today

Jason Wong -

Another day, another high for the S&P500, against a backdrop of strong economic data and a good earnings season. US Treasury yields are slightly higher, with a fresh eight-year high in the 10-year break-even inflation rate. The USD is a touch stronger, so the NZD shows a small fall to the 0.7245 mark.

BNZ Markets Today

Jason Wong -

US and European equity markets are broadly flat and there has only been a small reaction to the Fed’s policy update this morning. The 10-year Treasury rate has been range-trading. The USD was broadly weaker ahead of the FOMC announcement and pushed down further after Powell’s dovish comments. The NZD has been one of the better performers, up 0.7% to 0.7260.

BNZ Markets Today

Jason Wong -

Ahead of the FOMC meeting in less than 24 hours the S&P500 is trading flat while the US 10-year rate has trended higher, up 5bps for the day. This move has driven weakness in JPY and commodity currencies have underperformed despite further gains in commodity prices. The NZD has held the 0.72 handle.

BNZ Markets Today

Jason Wong -

Since locals left the office Friday for the long weekend, risk sentiment has improved, supported by strong PMI data. The S&P500 is tracking close to its record high, while the NZD and AUD have been the top major currency performers. Bond markets have tracked sideways, with the US 10-year rate and Australian 10-year bond future little changed.

BNZ Markets Today

Nick Smyth -

Equity markets are lower overnight after reports that Biden will propose to almost double the US capital gains tax on wealthy individuals, as part of the next fiscal package. The S&P500 is down just less than 1% while US Treasury yields reversed their earlier move higher. There was only a modest reaction to the ECB meeting at which President Lagarde pushed back against tapering talk as “premature”. Amidst a pickup in risk aversion, the USD is stronger across the board and the NZD is trading back down at 0.7160.

BNZ Markets Today

Nick Smyth -

After two straight down days, equity markets have rebounded overnight, with the market still seemingly in ‘buy the dip’ mode. There has been little change in global rates and the USD. The big outperformer overnight has been the CAD, after the Bank of Canada tapered its bond buying and said it expected the conditions for rate hikes would be met in H2 2022. The CAD is up almost 1%, dragging the NZD and AUD higher. There was no market reaction to the NZ CPI data yesterday which came right in-line with expectations.

BNZ Markets Today

Nick Smyth -

Markets have traded with a risk-off tone overnight. Equities and bond yields have fallen while the USD, after six consecutive down days, has rebounded. The NZD broke above 0.72 yesterday, for the first time in a month, but it has since fallen back to 0.7170, modestly lower than where it was this time yesterday. NZ CPI is in focus today and the Bank of Canada meeting tonight. The BoC is expected to announce it will taper its bond buying.

BNZ Markets Today

Nick Smyth -

Market sentiment has turned a little more cautious overnight, with equity markets pulling back from their recent highs. The USD remains under pressure, with the EUR punching up through 1.20 and the NZD hitting a one-month high. The US 10-year yield has drifted up to 1.60%.

BNZ Markets Today

Nick Smyth -

Equity markets continue to grind higher on economic optimism, with the S&P500 and Dow Jones ending the week at fresh all-time highs. US rates stabilised on Friday after their sharp falls the previous night. The NZD and AUD fell back on Friday despite continued USD weakness.

BNZ Markets Today

Nick Smyth -

Despite further strong economic data, global rates fell sharply overnight. The US 10-year yield is 10bps lower and at its lowest level in a month. Equities continue to power ahead, supported by the lower rates, strong data and robust corporate earnings results. FX moves have been modest, but with a bias towards USD weakness and NZD and AUD strength.

BNZ Markets Today

Jason Wong -

US and European equity markets have hovered near record highs, while other assets are consistent with higher risk appetite, with US Treasury yields drifting higher and the NZD and AUD heading the leaderboard, with gains of more than 1% over the past 24 hours.

Outlook for Borrowers: Post-April Monetary Policy Review

Nick Smyth -

The RBNZ kept its monetary policy settings unchanged at the April Monetary Policy Review. As universally expected, the RBNZ kept the OCR on hold, at 0.25%, and maintained its QE bond buying limit at $100b, with the programme still set to run until June 2022. The RBNZ’s Funding for Lending Programme, which gives banks access to cheap three-year loans, is also set to run through the end of 2022.

BNZ Markets Today

Jason Wong -

The market was unperturbed by news of a pause in the use of the J&J vaccine and stronger than expected US inflation data, with the S&P500 pushing up to a fresh record high. US Treasury yields and the USD actually fell after the inflation report, seeing the NZD and AUD make overnight gains in the order of 0.6%.

BNZ Markets Today

Jason Wong -

As expected, it’s been a slow start to a busy week. After a strong run to new record highs, equity markets are slightly weaker, while bond markets continue to consolidate. Only small changes in currencies are evident, with the NZD flat around 0.7030.

BNZ Markets Today

Nick Smyth -

Friday capped off a positive week for equity markets, with both the S&P500 and Dow making fresh record highs. Bond yields and the USD ticked up on Friday, although both were still lower on the week. The RBNZ Monetary Policy Report takes place this week but we are not expecting any major surprises.

BNZ Markets Today

Nick Smyth -

Recent market trends have continued overnight, with equities pushing higher and bond yields and the USD lower. There hasn’t been much fresh news, with Fed Chair Powell largely reiterating previous messages in a speech overnight. The NZD is back above 0.7050.

BNZ Markets Today

Jason Wong -

In a quiet week, US equities are flat and US 10-year Treasury yields are tracking sideways. Commodity currencies and GBP have underperformed, with the NZD pushing down to 0.7010.

BNZ Markets Today

Jason Wong -

There has been little news overnight, and US equities are consolidating near their recent record high. US Treasury yields have drifted lower. In currency markets, EUR has outperformed, GBP has underperformed and the NZD has also been on the soft side.

BNZ Markets Today

Nick Smyth -

Good Morning
US economic data since last Thursday has been very strong, including payrolls and both ISM surveys. Equities have rocketed higher while the USD has experienced a broad-based decline, with the NZD pushing back to 0.7060. US yields have been volatile but with little net change since Thursday. Some caution needs to be applied to the market moves as liquidity has been thinner than usual over Easter. Ahead today, the NZ government makes its announcement on the Trans-Tasman ‘bubble’ at 4pm.

BNZ Markets Today

Nick Smyth -

Market sentiment remains positive ahead of Biden’s speech on his planned infrastructure package. US equity markets are higher overnight, led by tech stocks, while the USD is broadly weaker. The US 10-year yield has consolidated just above the 1.7% mark. Nonfarm payrolls data is released on Friday night, with the market looking for a big rise in employment in March.

BNZ Markets Today

Jason Wong -

It’s been a messy picture for financial markets, not easy to summarise in a simple soundbite – European equities are higher, US equities are lower; UST10 yields hit a fresh high but are now lower from the NZ close; and the NZD was looking strong yesterday, but has fallen back as the USD has pushed to a fresh high for the year and shows broadly based gains.

BNZ Markets Today

Jason Wong -

Risk appetite began the week on a negative note after fears of some systemic risk arising from a hedge fund getting in trouble. No contagion now looks evident and risk appetite has improved, resulting in a turnaround of equity markets and US Treasuries. After last week’s underperformance of the NZD, some tentative signs of improvement are underway but otherwise it’s a case of “nothing to see here” for currency markets.

BNZ Markets Today

Nick Smyth -

It was a ‘risk-on’ trading session on Friday night, with equities and bond yields higher and the USD broadly weaker. The NZD was back at 0.70 by the end of the week. The RBNZ announced a reduction to its QE bond buying pace on Friday, which drove an increase in NZ government bond yields.

BNZ Markets Today

Nick Smyth -

US bond and equity markets have traded broadly sideways overnight amidst a lack of market-moving news. The USD has pushed higher again, to near its year-to-date highs, while the EUR remains under pressure due to concerns around a Covid-19 ‘third wave’ in the region. The NZD has fallen to around 0.6950, a four-month low. NZ wholesale rates increased 4-8bps yesterday, rebounding after heavy falls the previous two days.

BNZ Markets Today

Jason Wong -

Risk sentiment has improved a little from the previous trading session, with US equities showing gains, US Treasury yields nudging higher and oil prices recovering yesterday’s large losses. Currency movements have been modest. Since the NZ close, the NZD has tracked sideways and is flat after printing a fresh low.

BNZ Markets Today

Jason Wong -

Markets are trading more cautiously, with Europe’s likely delayed recovery not helping. Global equity markets are flat, US Treasury yields have nudged down further and oil prices have plunged around 6%. The USD and JPY have been the strongest. The NZD has been in freefall since the government announced measures to curb runaway house price inflation, tacking on another 1% of loss overnight to yesterday’s significant fall.

BNZ Markets Today

Jason Wong -

Lower US Treasury yields have helped boost risk sentiment, sending US equities higher, led by the tech sector. Currency movements have been modest, with little fallout from a plunge in the Turkish Lira.

BNZ Markets Today

Nick Smyth -

After a hectic week, market moves were more subdued on Friday. The S&P500 was flat, the US 10-year yield continued to hold just below 1.75% and currencies were range-bound.

BNZ Markets Today

Jason Wong -

US equities have pulled back overnight after long-term US Treasury yields extended their upward trend in the afterglow of the uber-dovish FOMC statement some 24 hours ago. The USD has recovered some of its post-FOMC losses. The NZD has been one of the weakest performers overnight, settling back below 0.72.

BNZ Markets Today

Jason Wong -

Markets were trading nervously ahead of the much-anticipated FOMC announcement, with US long-term bond yields shooting higher, boosting the USD and sending equity markets lower, led by the tech sector. Two hours prior to the announcement, the US 10-year rate broke up through 1.685%, the highest level since early 2020, while 10-year inflation break-evens hit an eight-year high of 2.33%. In early trading the S&P500 was down as much as 0.7%, while the Nasdaq was down 1.5%.

BNZ Markets Today

Jason Wong -

Most markets are tracking sideways, ahead of the FOMC announcement due in about 24 hours. US equities are little changed around their record high levels, the US 10-year rate continues to hover around the 1.6% mark and currency movements have been minimal. The NZD currently sits just under the 0.72 mark and AUD around 0.7750.

BNZ Markets Today

Nick Smyth -

Market moves have been modest overnight. Treasury yields have eased back slightly while the S&P500 is broadly flat. News that more European countries had suspended use of AstraZeneca’s Covid-29 vaccine had limited impact. The NZD has outperformed over the past 24 hours and trades this morning just under 72 cents.

BNZ Markets Today

Nick Smyth -

Global bond yields lurched higher again on Friday, with the US 10-year yield reaching 1.64%, its highest level in more than 12 months. Equity markets were reasonably resilient to the sharp rise in bond yields, although tech stocks predictably underperformed (NASDAQ -0.6%). The USD strengthened across the board, except for the CAD which was boosted by a blockbuster employment report. The NZD finished the week back below 72 cents.

BNZ Markets Today

Nick Smyth -

Markets have traded with a risk-on tone overnight, with the S&P500 rising to a new all-time high and the NASDAQ up over 2.5%. The ECB left its policy settings unchanged, as expected, but said it would frontload its bond buying next quarter, driving a fall in peripheral European government bond yields. The EUR briefly dipped after the ECB, but it has reversed that move and now sits higher on the day. The NZD has pushed above 0.72 amidst broad-based USD weakness.

BNZ Markets Today

Jason Wong -

US bond and equity markets overnight have been supported by another soft CPI reading, reducing some fear in the market about inflation risks. The USD has traded weaker post that CPI result. The NZD has recovered some lost ground during local trading hours and sits slightly higher from this time yesterday.

BNZ Markets Today

Jason Wong -

Market sentiment has flipped, with a rotation back into tech stocks leading a surge in US equities, while the US 10-year rate has drifted lower. The USD has shown broadly based weakness, helping the NZD and AUD recover a little overnight.

BNZ Markets Today

Jason Wong -

The risk-off mood during Asian trading hours has given way, with US and European equities showing solid increases, with further evidence of a rotation into value plays and away from tech stocks. The US 10-year rate is consolidating around the 1.6% mark and supporting the USD. This is doing some damage for sentiment towards emerging market currencies and acting as a drag on the NZD, although other currencies like JPY and EUR have underperformed.

BNZ Markets Today

Nick Smyth -

The US nonfarm payrolls report, released on Friday night, was much stronger than expected. After initially spiking higher, the US 10-year yield consolidated around 1.55%. Equity markets rebounded while the USD continued to push higher, with the BBDXY making a three-month high. With wholesale rates pushing higher in NZ, the RBNZ announced an increase to its bond buying for this week, although without much market impact on Friday. Over the weekend, the Senate passed the huge $1.9 trillion US fiscal stimulus bill, albeit with some modest changes.

BNZ Markets Today

Nick Smyth -

The bond market sell-off has resumed, with the US 10-year Treasury yield breaking back above 1.5% in the last hour as Fed Chair Powell was speaking. The market was seemingly looking for Powell to push back harder on the recent increase in yields. Equities turned down and the USD appreciated as US yields rose. The turnaround in the USD has pushed the NZD down below 0.72. Elsewhere, oil prices spiked higher after OPEC+ decided not to raise output next month.

BNZ Markets Today

Jason Wong -

Global bond rates have shown chunky gains overnight, with the market staring in the face of higher than expected UK debt issuance following the Budget and inflationary pressure in the US. This looks to have impacted equity market sentiment, with a modest fall in the S&P500 and the tech sector underperforming. Currency moves have been small overnight, but with the NZD at the bottom of the leaderboard.

BNZ Markets Today

Jason Wong -

Financial markets have been quiet overnight. US equities show modest falls after the strong bounce in the prior session. UST10s have been range bound and the USD has been broadly weaker. The GDT dairy auction was a boomer, but with little impact on the NZD, which sits mid-pack and approaches the 0.73 mark.

BNZ Markets Today

Jason Wong -

Calmer conditions in the US Treasuries market overnight have encouraged equity investors to buy the dip, driving a strong rally, spurred on by a stronger ISM manufacturing print. Better risk sentiment has supported commodity prices, although there has been little follow-through of the recovery seen in the NZD and AUD during local hours. Given recent bond market gyrations, the RBA’s policy update later today will be more closely watched than usual.

BNZ Markets Today

Nick Smyth -

Friday saw more volatility in bond markets, although this time it was yields moving sharply lower. The US 10-year yield fell back to 1.4%, having traded as high as 1.6% on Friday morning. Meanwhile, equity markets weakened (the NASDAQ an exception), commodities fell, and the USD strengthened sharply. The NZD and AUD fell around 2% on Friday. In news over the weekend, Auckland is back in a Level 3 lockdown for a week and the rest of the country Level 2. The snap lockdown may temper the market’s recent shift towards pricing OCR hikes in 2022.

BNZ Markets Today

Nick Smyth -

The bond market sell-off has accelerated over the past 24 hours, seeing big increases in rates across all countries. The NZ 10-year swap rate hit 2% yesterday, the first time since 2019, while the US 10-year rate got to within a whisker of 1.5% overnight. Equities have come under pressure from the rise in bond yields, with tech stocks falling hard, while currency moves have been more modest. The NZD made a new post-2018 high yesterday, above 0.7450, in the wake of the Finance Minister officially announcing a change to the RBNZ’s monetary policy Remit.

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Jason Wong -

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

NZ At A Glance

New Zealand at a Glance

Stephen Toplis -

In aggregate, the NZ economy is currently going nowhere fast as it suffers from the absence of international tourists and, perhaps ironically, domestic capacity constraints. Nonetheless, we still expect momentum to pick up in H2 2021 supported by an improving global economy and ongoing momentum in the domestic construction sector. But with this will come inflation suggesting the RBNZ will need to ponder tightening monetary policy by mid-2022 alongside a more immediate prudential policy response, which will sit alongside the Government’s recent housing policy announcements. Against this backdrop the NZD is currently struggling but we still expect it to strengthen against the USD and JPY in due course.