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 1H18 Review and Outlook

Jason Wong -
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With the first half of the year over it’s an appropriate time to reflect on what’s gone on and the outlook for the rest of the year and beyond. The chart below shows the performance of the NZD on all the key crosses over the first half of the year. The NZD saw a broadly based fall, with the largest falls against the USD and JPY and little change against other commodity currencies like the AUD and CAD.

NZD Corporate FX Update

Jason Wong -
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We have become a bit more cautious about the near term outlook for the NZD. The USD recovery that began mid-April might have more legs, with the US economy showing more growth momentum, and we have increased conviction that the Fed will continue along its path of gradually raising the Fed Funds rate.

USD Outlook: It’s Complicated

Jason Wong -
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After trending down from early 2017, the USD staged a
decent counter-trend rally from mid-April through to late
May, worth about 5% on the USD TWI-majors index and
6% on the DXY. It was a broadly based rally, accentuated
by prior heavy short speculative positioning in the USD,
emerging Italian political risk that weighed on EUR, poor
data and negative Brexit headlines that weighed on GBP,
and the lack of a renegotiated NAFTA deal that weighed
on CAD. The counter-trend rally in the USD was
instrumental in seeing the NZD fall from over 0.73 to
below 0.69, itself accentuated by prior heavy long
speculative positioning that has now been cleaned out.

NZD: Enough Weakness For Now?

Jason Wong -
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Market sentiment for the NZD has been poor, evidenced by the near-7% plunge since recently peaking on 12-April, from around USD 0.74 to below USD 0.69. Unjustified net long positioning near the peak has exaggerated the move, alongside the broadly based recovery in the USD.

NZD Corporate FX Update

Jason Wong -
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In the near term we see the NZD sustaining the recent move lower and doing a bit of work in the 0.70-0.72 area. We’ve already seen dips below 0.70 and they should become more frequent as the year progresses alongside the continuing gradual rise in NZD headwinds.

NZD Back Down To Reality

Jason Wong -
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The NZD has finally broken out of its well-established and fairly tight range held (roughly 0.72-0.74) since the first week of 2018. It has been a broadly based sell-off with the NZD down all on the major crosses. It has been a steady fall, with NZD/USD and NZD/EUR down for 9 consecutive days (on NY closes). From its peak on 12-April, the NZD has fallen by 2-4% on the various crosses.

Economy Watch

Can We Really Be Headed To Negative Rates?

Craig Ebert -
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Something about recent Reserve Bank forecasts continues to niggle us. That is, their inference of a near-zero Official Cash Rate (OCR) in real terms, right the way out to 2021. Yet the Bank has also inferred, by way of other material, that New Zealand’s neutral real cash rate is in the vicinity of 1.50%*. We are having trouble reconciling these two things, especially as the Bank is forecasting a positive output gap.

Inflation Provides No Drama

Doug Steel -
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There was more than usual interest in this morning’s Q2 CPI figures. Markets were cagey, sensing the possibility of a downside shock. In the event, there was no such drama. Sure, the 0.4% q/q and 1.5% y/y inflation rates were a tick under market expectations but not materially so given the general fear of something softer. Meanwhile, core measures of inflation generally edged higher. On balance, nothing to change the RBNZ outlook.

Seasonal Adjustment

BNZ Research/ Business NZ -

New Zealand’s services sector experienced a decrease in expansion levels during June, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

Autumn Tinge

BNZ - BusinessNZ -
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New Zealand’s level of manufacturing expansion experienced a dip in June, according to the BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

Dairy Prices Drop

Doug Steel -
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Dairy prices slumped at the GDT auction overnight. There are many factors in play including a usual downward seasonal influence as GDT volumes rise. It is still early days in the dairy season, but there is now downside risk on prevailing milk price forecasts. There are some clear negatives circulating, but not all indicators are pointing downward with a lower NZD and recently underwhelming world milk supply growth chief among those on the price supportive side.

Outlook for Borrowers: Post-June OCR Review

Doug Steel -
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At the June OCR Review, the RBNZ kept the OCR on hold at 1.75%, as universally expected. There were some subtle changes in language however. The RBNZ said the OCR will remain at 1.75% “for now”, in the May MPS the wording used was “for some time”. The RBNZ also said the next move could be a rate cut or rate hike, but removed the previous reference to the risks being equally balanced.

RBNZ Will Move Rates Sooner

Stephen Toplis -
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The RBNZ is closer to moving interest rates. That is the key message from today’s OCR review. What is less clear is in what direction. Be that as it may, we stick with our view that the cash rate is more likely to rise than fall and that the Reserve Bank will be bringing forward that rate hike, from its previously published early - 2020, in due course.

Easing Talk Premature As Confidence Slumps

Stephen Toplis -
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A number of the indicators in today’s ANZ Survey have slipped to levels not seen since the global financial crisis. Unsurprisingly, this has got a number of folk talking about the prospect of near–term rate cuts in New Zealand. But we still think that such talk is premature, as CPI inflation is set to move back to the mid-point of the RBNZ’s target range within six months.

GDP Underdone and Understated

Stephen Toplis -
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We see these figures as being ”the first leg of the double”. For some time now we have been pushing the view that GDP would surprise the RBNZ to the downside while CPI inflation would surprise to the up. GDP was lower than both RBNZ and Treasury assumptions. But we still forecast Q2 CPI inflation of 0.6% compared with the central bank’s 0.4% pick. On this basis, we caution market participants against getting too dovish on future RBNZ actions based on misses in real economy outcomes.

Not So Positive

Craig Ebert -
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This morning’s Balance of Payments (BOP) headlines were about as non-threatening as they were anticipated to be. The year to March 2018 current account deficit printed at $7.9b, or 2.8% of GDP – exactly in line with market expectations (and ours). But the undercurrents suggest an expanding deficit is in train – the degree to which is worth keeping a tab on.

Order Up

Business NZ/ BNZ -

A lift in new orders/business contributed to New Zealand’s services sector experiencing a lift in expansion levels in May, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

Q1 GDP Preview – Downside Risks

Craig Ebert -
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For a good while now, we have been wary about how this year’s Q1 GDP will go. We remain so. The reasons for this still stick out. And moribund business confidence and cooled consumer sentiment, since the change in government, obviously haven’t helped.

When Further Below Par Is Not Good

Craig Ebert -
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Moving further below par is great if you’re a golfer. But not if you’re a business survey of expectations, like the one updated by the ANZ bank this afternoon. Its net confidence measure slipped back to -27 in May, from -23 in April. Of course, these ongoing struggles in confidence don’t mean the economy is going to underperform. But the survey’s own-activity expectations do. They have a far better correlation to GDP growth. And in May they slipped to +14, from +19. This was further south of the norm, of +28. Fore!

Macroeconomic Risks From NZ Cattle Disease

Doug Steel -
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The economic risks associated with cow-disease Mycoplasma bovis are rising. The Government plans to cull 152,000 cows to try and eradicate the disease, equivalent to around 1.5% of NZ’s total cattle population. This will affect production. Costs are rising and much uncertainty remains. Restricted movement of animals will dent industry efficiency and productivity. Downside economic risks need monitoring.

Fiscally Sound But Risks Building

Stephen Toplis -
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The New Zealand fiscal situation still looks very sound. But the Government is being blessed with good fortune as tax revenues continue to push ahead of expectations. While we see no reason for significant criticism of what is being delivered we, equally, warn that things will get much harder for Government from here on in.

What Will Fonterra Forecast?

Doug Steel -
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Today’s dairy auction result was a solid one ahead of Fonterra’s first forecast for the 2018/19 season. Dairy prices look that much better in the context of a falling NZD over recent weeks that has boosted NZ dollar denominated dairy prices. It sets the scene for a firm opening forecast for the 2018/19 season from Fonterra. We suspect financial markets would take a mid-$6 to $7 figure in its stride.

Returning To Norm

Business NZ/BNZ Research -

New Zealand’s services sector returned to expansion levels seen during the start of the year, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

BNZ PMI - Boom!

Doug Steel -
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Boom!
The Performance of Manufacturing Index (PMI) looked a bit weak early in 2018, especially in comparison to its hearty pulse through 2017. We thought, at the time, the early-2018 slowdown may prove temporary – a view strongly supported by April’s hefty result. April’s PMI punched up to 58.9 from (an upwardly revised) 53.1 in March. It’s a move from so-so to outright strong. Of course, we wouldn’t want to over interpret one month’s result especially as it may have been, in part, artificially boosted by the timing of Easter. But, in the least, April’s result suggests the economy has not fallen off the rails (despite negative business confidence as measured in other surveys). And there’s a positive future signal in the PMI new orders index being back above 60 and well in excess of the inventory index. It all points to decent growth in Q2, after a soft Q1 for the manufacturing sector.

Clarity Defines Orr Debut

Stephen Toplis -
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The defining feature of Adrian Orr’s first Monetary Policy Statement (MPS) is the clarity of the message. Instead of having to flounder through screeds of mumblings to find out what the Bank really thinks, the message is up front. Symptomatic of this is the very first paragraph in the policy assessment which states: “The Official Cash Rate (OCR) will remain at 1.75 percent for some time to come. The direction of our next move is equally balanced, up or down”.

RBNZ Preview: Out with the old, in with the old

Stephen Toplis -
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Currently the market has New Zealand’s first rate hike fully priced in for the June 2019 OCR review. We’ve formally got February in our forecast track but, realistically, we are equivocating between February and May. On this basis, and, given what we think the RBNZ will say next Thursday, we believe minimal market reaction will be the order of the day. The risk is that market players read too much into any small changes in substance, or style, resulting in an unwarranted reaction.

Which Wage Information to Trust?

Craig Ebert -
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At face value, today’s slower Q1 Labour Cost Index (LCI) muddies the water on New Zealand’s inflation pulse – much like the recent slowing in annual headline CPI inflation has done. This feeds the idea of delay in respect to any policy tightening from the RBNZ. Yet we wouldn’t want to be dictated to by recent LCI (and CPI) prints, in this respect. Ultimately, it’s about looking forward. And considering wage measures other than the headline LCI would also present a more robust picture, in our view.

Financial Markets Wrap

NZD Struggles In June

Jason Wong -
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The NZD showed a broadly based fall over June as global and domestic factors weighed...Fresh 2-year low reached for NZD/USD...NZ-US rate differentials continued to fall

NZD Eventually Finds Support During May

Jason Wong -
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May was an eventful month that incorporated some turmoil in emerging markets, swings in oil prices, a meltdown in Italy, and US-China trade tensions. Amidst all that, the record will show the NZD TWI relatively flat for the month, albeit driven by some divergent swings on NZD crosses.

NZD Slumps in April

Jason Wong -
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After a volatile period through February and March, risk appetite improved during the month, reflected in a recovery in global equities and higher global bond yields. Currency markets played to a different tune, with broadly based weakness in the NZD going against that force.

Interest Rate Strategy

Trade Idea: Buy LGFA 2023 vs. NZGB 2023

Nick Smyth -
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Intermediate maturity LGFA-NZGB spreads have widened over the past two months. The constant maturity 5 year LGFA-NZGB spread reached the widest levels since early 2017 last week, although it has since retraced some of that move – see chart 1.

An Update On NZ Funding Pressures (Or Lack Thereof)

Nick Smyth -
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NZ BKBM-OIS has retraced from a peak of 31bps in late April to almost 20bps currently. In contrast, Australian 3m BBSW-OIS is 54bps and remains at historically elevated levels. The divergence between NZ and Australian bills-OIS has raised some questions among market participants around the respective drivers of the two markets.

Trade Idea: Receive November 2018 OIS

Nick Smyth -
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The RBNZ OCR Review contained a less firm commitment to keeping rates on hold. The Statement said that the RBNZ sees the OCR on hold “for now”; in the May MPS the wording used was “for some time”. Additionally, the RBNZ removed the reference to an equal balance between the risk of a rate cut and rate hike.

The Neutral OCR Could Be Below 3.5% - Implications For NZ Rates

Nick Smyth -
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The neutral cash rate can be thought of as the level of the OCR that is neither stimulatory nor contractionary for the economy. In an idealized world, when the OCR is at neutral, growth should be about trend, the output gap zero and inflation stable at target.

Housing New Zealand Limited (HNZL) – A New High Grade Issuer

Nick Smyth -
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Housing New Zealand Corporation (HNZC) is responsible for the provision of state housing in New Zealand. It currently owns or manages 63,000 properties across the country.

Government Bond Supply And The Outlook For Swap Spreads

Nick Smyth -
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The Budget last Thursday sprung a few surprises in terms of the outlook for debt issuance (some of which the team outlined in Fiscally Sound But Risks Building). Some of the key headlines from a debt market perspective were...

The End Of The NZ Yield Premium Over AU?

Nick Smyth -
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RBNZ-RBA policy rate spreads and expectations of policy action are a key driver of NZ-AU swap and bond spreads. Current market pricing is for both the RBA and RBNZ to remain on-hold for an extended period of time before slowly tightening. The AUD OIS curve is not fully priced for the first 25bp hike until August 2019, while the equivalent move isn’t priced into the NZD curve until September 2019.

Post-RBNZ Update: Steepeners And Linkers Look Even Better

Nick Smyth -
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The headlines from the RBNZ were centred around the opening paragraph of the MPS, which stated the OCR “will” be on hold at 1.75% for “some time” – decisive language that reinforces the sense that rates likely aren’t going anywhere this year – and the explicit statement that the risk of the next move being a cut or a hike is equally balanced. See Clarity Defines Orr Debut for the team’s initial reaction to the MPS.

Outlook for Borrowers: Post May Monetary Policy Statement

Nick Smyth -
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RBNZ Monetary Policy Outlook
The May Monetary Policy Statement, the first under new Governor Adrian Orr, delivered a similar message to previous statements. The key message was that the
OCR “will remain at 1.75 percent for some time to come”. The apparent decisiveness of the statement – “will remain” – suggests the hurdle for a move in either direction this year is very high. The RBNZ’s projections incorporate the full first rate rise in early-2020.

NZ Linkers Are Cheap; 2035 BEI Widener

Nick Smyth -
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New Zealand inflation-indexed bonds, or linkers, offer the highest real yields in developed markets. The interpolated 10 year NZ real yield stands at around 1.55%, compared to around 0.8% on 10y US TIPS and Australian linkers, and negative real yields in Japan, Europe and the UK.

Markets Outlook

Shoe-Gazing on Inflation

BNZ Research -
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With nervousness about tomorrow’s June quarter CPI inflation not proving robust, there is even more reason to consult the various core measures. Amongst these, the Reserve Bank’s sectoral-factor version for non-tradables will be worth checking out. It ticked up to 2.6 y/y in Q1.

Pique Performance

BNZ Research Team -
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There will be no prizes for guessing that tomorrow’s NZIER Quarterly Survey of Business Opinion (QSBO) will offer a shakier view on the economy than it did three months ago. The question is; how much worse? But also bear in mind that a good deal of the angst relates to policies, and capacity constraints, which are bound to inflate costs.

RBNZ OCR Preview: Where There’s A Will

BNZ Research Team -
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“The Official Cash Rate will remain at 1.75 percent for some time to come”. That’s not our emphasis, but the opening policy line from May’s Monetary Policy Statement (MPS). Yes, it was followed by the Bank stating that the direction of its next move “is equally balanced, up or down.” But, practically, the “will” was strong, and indicates the way. It will take a lot to budge the Reserve Bank from its on-hold mentality.

GDP Riding the Clutch

BNZ Research -

Any underperformance in Q1 GDP growth is likely to reflect identifiable drags of a transitory nature, which, in turn, should support the idea of stronger growth in Q2. Acceleration post Q1 is certainly the message from the latest Performance of Manufacturing and Services Indices.

Manufacturing Survives Slings and Arrows

BNZ Research Team -
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Our worst fears around Q1 GDP look to have been allayed. Still, it’s looking relatively slow. In particular, manufacturing activity appears to have dodged a number of bullets during the March quarter.

A Sapping Start to 2018

BNZ Research -
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Our production-GDP growth estimate for Q1 has edged down to 0.5%. And even this is sweating on the three remaining key partials – any one of which could yet print a clanger. But as nervous as we are on this, we still believe GDP growth in Q2 will largely make up for any perceived deficiencies in Q1. Providing consumer spending holds up OK, that is – with spiking fuel prices arguably more than offsetting the (selected) government hand-outs due to the household wallets from 1 July.

Cattle Disease Adds To Business Angst

BNZ Research -
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Thursday’s ANZ business survey will arguably be the market’s focal point. However, the immediate attention will be this afternoon’s government announcement on how it plans to tackle the cattle disease Mycoplasma bovis – a factor in the agriculture sector’s current pessimism, despite strong commodity prices. We will monitor this process intently, including for any significant impacts it might have on our macro-economic views.

Filling Holes

BNZ Research -
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The near-stalling in March quarter retail volume growth flattens one of the few backbones we expected for Q1 GDP growth. However, we believe the economy will expand solidly in Q2, and will accelerate over the second half of 2018. This is partly on the back of the fiscal stimulus that is scheduled to hit household wallets from 1 July.

Budget Will Have an Accounting Focus (More’s The Pity)

BNZ Research Team -
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Appeasing the accountants is one thing. But any Budget should also be judged on the economic and social good it is doing. It’s usually easy for a government to spend money (especially when the books are in great shape, as New Zealand’s are). The question is whether the money is being spent in the most efficient and equitable manner. This is where the real debate should be, not simply on the accounting targets being met.

Either Or

BNZ Research Team -
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We are not anticipating any material changes in Thursday’s Monetary Policy Statement (MPS). If there are any, they are likely to be more of style than substance, given the new Governor and Policy Targets Agreement (PTA). Nonetheless, this could cause markets to read more into any nuances, and change of language, than is warranted. This may or may not be aggravated by what the new Governor, Adrian Orr, says.

All Eyes On The Labour Market

BNZ Research Team -

Wednesday’s Q1 labour market reports will garner the market’s attention. Perhaps even more so than usual because an employment objective is now part of the RBNZ’s Policy Targets Agreement. This raises the risk of market over-reaction to minor deviations in often volatile data. A broad set of indicators say the labour market was healthy in Q1. But ebbing confidence raises questions around the degree of strength ahead.

Markets Today

BNZ Markets Today

Nick Smyth -
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The US dollar index made a fresh year-to-date high overnight, before reversing sharply as President Trump said he wasn’t happy about the Fed raising rates, which he said put the US at a disadvantage. The CNY made a new low for the year after China took further steps to ease policy. The NZD moved lower overnight, in sympathy with the moves in the CNY.

BNZ Markets Today

Nick Smyth -
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It was another quiet night across markets with volatility remaining very subdued. There wasn’t much new from Fed Chair Powell’s testimony to Congress but US equities and the 10 year US bond yield are slightly higher.

BNZ Markets Today

Nick Smyth -
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In his semi-annual testimony to Senate, Chair Powell said that the Fed intends to stick to its gradual rate rise path “for now”. US equities are higher on the day and the USD stronger but bond yields are little changed. Politics continue to weigh on the GBP, although the Government narrowly avoided defeat on a pro-EU amendment to the
Trade bill. The NZD is the top performing currency over the past 24 hours after a surprise increase in the RBNZ’s Sectoral Factor Model of underlying inflation.

BNZ Markets Today

Nick Smyth -
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It was a reasonably quiet end to the week, with the S&P500 edging out a small gain and closing at its highest level since February. Ahead of the NZ CPI release tomorrow, the NZD was the weakest performing G10 currency. Offshore, there will be focus this week on Fed Chair Powell’s semi-annual testimony, US corporate earnings season and Chinese activity data.

BNZ Markets Today

Nick Smyth -
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Risk markets have recovered overnight as China didn’t
immediately retaliate to the President Trump’s latest
threat to impose tariffs on $200b worth of imports.
Against a backdrop of better risk sentiment, the NZD has
bounced a little, but it remains near multi-year lows.

BNZ Markets Today

Doug Steel -
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A bit of news over the past 24 hours. Shortly after we hit
the send button yesterday morning, President Trump
continued with plans to impose tariffs on an additional
$200b of Chinese goods by releasing a list of targeted
products. The US Trade Representative’s office said the
10% tariffs could take effect after consultations end on 30
August. If these proposed tariffs proceed, this would see
duties implemented by the Trump administration on China
cover about half of all US imports from that country. It is
another escalation in trade tensions. China condemned
the move and late yesterday afternoon said it would be
‘forced to retaliate to new US tariffs’. These developments
punctured the previously prevailing positive risk
sentiment.

BNZ Markets Today

Jason Wong -
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The new week has begun with a further recovery in risk appetite amidst light trading conditions. The AUD has modestly outperformed, while trading in GBP has been whippy, driven by political forces.

BNZ Markets Today

Jason Wong -
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The USD was broadly softer after the White House went
ahead with further tariffs on Chinese imports and it
weakened further after the US employment report. Risk
appetite was higher, with the market unperturbed by the
tariffs and China’s retaliatory response, which were well
anticipated. The NZD closed the week on a strong note
and modestly higher on all key crosses.

BNZ Markets Today

Jason Wong -
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Trading conditions remain lighter than usual following the
US holiday, with only modest movements in currency and
bond markets against a backdrop of stronger equity
markets.

BNZ Markets Today

Jason Wong -
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The US Independence Day holiday has meant quiet trading conditions and small movements in asset prices. The NZD has consolidated around the 0.6760 mark.

BNZ Markets Today

Jason Wong -
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The NZD has recovered, helped by a verbal intervention by
the PBoC to help support the yuan, on a day where US
equities and bond yields have moved lower.

BNZ Markets Today

Jason Wong -
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The beginning of the third quarter has got off to a rough start, with falling risk appetite seeing weaker equity markets and the NZD and AUD diving to fresh lows. Despite the negative risk tone, global bond yields remain steady.

BNZ Markets Today

Jason Wong -
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The USD was broadly weak on Friday, reflecting a mixture of news and position covering ahead of month-end. This saw the NZD recover a little from a fresh 2-year low, although much of the action was in local trading hours. There remained little action in global bond markets, while NZ rates fell further.

BNZ Markets Today

Jason Wong -
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The NZD has nudged down further in overnight trading,
sustaining further losses since the RBNZ’s OCR Review
yesterday, while CAD is a notable outperformer. US
equities and US 10-year yields are higher.

BNZ Markets Today

Jason Wong -
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The NZD has been one of the worst performers over the past 24 hours, although much of the damage was done during local trading hours, with only a small further fall overnight to just below 0.68. Risk appetite is weaker, with US equities slightly lower and UST10s down 5bps.

BNZ Markets Today

Jason Wong -
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US equities are modestly higher after yesterday’s chunky
sell-off, led by the energy sector on higher oil prices.
Against a backdrop of a broadly stronger USD, the NZD
has underperformed, while rates markets have barely
moved.

BNZ Markets Today

Jason Wong -
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Global equity markets have been rattled by focus on
escalating US-China trade tensions but there has been
limited spillover for currencies and bond markets.

BNZ Markets Today

Jason Wong -
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The NZD and AUD ended the week on a positive note on a day where the USD struggled to perform against the majors. Rates were little changed for the day.

BNZ Markets Today

Doug Steel -
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A generally quiet session overnight with a somewhat better mood prevailing in markets. Brushing off central bank concerns around trade tensions, stock markets are marginally higher, interest rates up a touch, while currency movements have been generally limited. Oil prices were mixed ahead of OPEC’s key meeting on Friday. The NZD has been a clear underperformer.

BNZ Markets Today

Nick Smyth -
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It’s been a volatile past 24 hours after President Trump’s
announcement that he was considering tariffs on $200b
worth of Chinese imports, a further escalation in US-China
trade relations. After a generalised flight to safety move
during yesterday’s Asian session, markets have recovered
some ground overnight. The EUR is weaker after a dovish
speech by ECB President Draghi . Meanwhile, the NZD
has fallen to around 0.69.

BNZ Markets Today

Nick Smyth -
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Markets were quiet overnight, with no fresh
developments on the US-China trade front and no major
data released. Oil prices rose over 2%, partially reversing
the falls seen on Friday, on reports that OPEC will agree to
only a small increase in production. The NZD has traded a
narrow range over the past 24 hours and is slightly lower
on the day.

BNZ Markets Today

Nick Smyth -
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After much anticipation, the US administration announced tariffs on $50b of Chinese imports on Friday with the Chinese government responding in-kind later that day. Commodities, commodity currencies and emerging markets reacted negatively to the threat of a “trade war”, although there has been little impact (yet) on US equities or bonds. Against this backdrop, the NZD has fallen to 0.6950, a three-week low.

BNZ Markets Today

Jason Wong -
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The USD is stronger across the board while the EUR has
been hit by a dovish ECB, which has also put downward
pressure on global rates. The NZD has performed okay
under the circumstances, rising on a few of the major
crosses.

BNZ Markets Today

Jason Wong -
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The USD was weaker heading into this morning’s FOMC announcement but has recovered after a more hawkish statement was delivered. UST yields are slightly higher post the announcement.

BNZ Markets Today

Jason Wong -
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Market volatility remains subdued. Currency movements
have been modest although the NZD and AUD have
slightly underperformed in overnight trading. Equity and
bond markets are little changed.

BNZ Markets Today

Jason Wong -
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It has been a quiet start to a huge week on the economic calendar and ahead of the historic US-North Korea leaders’ meeting.

BNZ Markets Today

Jason Wong -
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On Friday, market movements were modest ahead of the weekend’s G7 leaders’ summit. The market didn’t seem to care too much about the lingering US trade tensions with other major countries, even as Trump fired off a salvo of tweets highlighting the unfairness of current trade policy. As if actively seeking to agitate other G7 leaders further ahead of the weekend meeting, Trump suggested that Russia should be brought back into the fold, re-creating the G8 forum before Russia was expelled after Putin annexed Crimea a few years ago.

BNZ Markets Today

Jason Wong -
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There is currently a risk-off feel to markets, with focus on
emerging markets and this time Brazil being under the
pump. Under the circumstances, the NZD has held up
relatively well, against a backdrop of softer equity markets
and lower US Treasury yields.

BNZ Markets Research

Jason Wong -
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The AUD and EUR show the best gains for the day, with safe-havens JPY and CHF dragging the chain, against a backdrop of improved risk appetite, with equity markets up, the VIX index back below 12, and global bond rates higher.

BNZ Markets Today

Jason Wong -
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There has been plenty of news to digest but market
movements have been well-contained, with flat US
equities and global rates down a little. In currency
markets, GBP has outperformed, while the NZD is flat.

BNZ Markets Today

Jason Wong -
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Markets have brushed off increased US trade tensions and begin the week with positive risk sentiment, helping to support the AUD and NZD, while global bond rates edge higher.

BNZ Markets Today

Nick Smyth -
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Italian risks receded further last night, with the Five Star
and League parties agreeing to form a government with a
new choice of finance minister and two polls overnight
showing Italians overwhelmingly favour the euro. Market
focus has started to shift back to trade tensions, with the
US imposing tariffs on aluminium and steel from the EU,
Canada and Mexico and these countries promising to
respond in kind - equity markets are a moderately lower in
response. The NZD is back above 0.70 for the first time in
almost a month.

BNZ Markets Today

Nick Smyth -

Pressures on the Italian bond market eased overnight, with the 2 year Italian yield falling over 100bps. There have been reports that the League and Five Star might have another attempt at forming a government (presumably with a more mainstream choice of finance minister) while Five Star leader Di Maio has made some more reassuring comments. There has been a broad-based unwind of yesterday’s flight to safety moves, with equities higher, core bond yields higher and the EUR stronger. Against a backdrop of a stronger EUR and improving risk appetite, the NZD has risen close to 0.70.

BNZ Markets Today

Nick Smyth -
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Last night saw an absolute meltdown in the front-end of
the Italian bond curve and serious signs of capitulation.
The 2 year Italy-Germany spread closed around 190bps (!)
wider with the market concerned the upcoming Italian
election will be seen as a de facto vote on the EU/euro.
Signs of contagion have started to emerge with core bond
yields down sharply in other markets, major equity indices
down and the JPY and Swiss Franc strengthening.

BNZ Markets Today

Nick Smyth -
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Italian yields have skyrocketed again and the EUR weakened, as the market prepares for new elections in Italy, likely in Autumn. There remains relatively little contagion from Italy into other markets as yet, with S&P500 futures near unchanged and FX moves reasonably modest. It was a public holiday in the UK and US overnight and there was no major data released.

BNZ Markets Today

Nick Smyth -
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Oil prices fell sharply Friday after Saudi Arabia said it was “likely” OPEC and Russia would boost production. The decline in oil prices in turn pushed down core bond yields and energy stocks. Focus remains on European politics, with both Italy and Spain potentially set for new elections. Italy’s President vetoed the Eurosceptic choice of Finance Minister a short while ago, leading PM-elect Conte to give up on forming a government. The market has taken the news positively, with the EUR moving modestly higher this morning.

BNZ Markets Today

Jason Wong -
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Overnight market moves have been fairly modest, with a
hint of USD weakness, slightly weaker equity markets and
further downside pressure on global rates.

BNZ Markets Today

Jason Wong -
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Market sentiment has soured a little, seeing safe-haven currencies like JPY outperform, softer global equity markets and lower global bond rates, with UST10s dipping below 3%.

BNZ Markets Today

Jason Wong -
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Market movements have been small on a day with no
economic releases and only a few snippets of news.

BNZ Markets Today

Jason Wong -

In an uneventful start to the week, commodity currencies have modestly outperformed following the weekend news of a truce in the US-China trade war. UST10 yields have sustained their move lower seen at the end of last week.

BNZ Markets Today

Jason Wong -
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The NZD finished the week on a good note, rising on all major crosses against a backdrop of little news. UST yields fell steadily, ending the session 7bps lower from the high reached just before the NZ close.

BNZ Markets Today

Jason Wong -
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US bond yields continue to nudge higher, the USD has
been well supported overnight and the NZD is down
slightly on most crosses.

BNZ Markets Today

Jason Wong -
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The NZD is having a much better day after its recent rout, alongside a recovery in other commodity currencies and emerging market currencies. Despite UST yields sustaining yesterday’s upward move, US equities have shown a modest recovery.

BNZ Markets Today

Nick Smyth -
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The big news overnight is that the 10 year Treasury yield has broken above its highs from early 2014, and now sits at 3.08%. The rise in yields has boosted the USD, which reached new highs for this year, and weighed on equities. Amid the strong USD backdrop, the NZD has (again) underperformed and is around 0.6860.

BNZ Markets Today

Nick Smyth -
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US equities have made modest gains overnight, with Trump’s decision to reverse sanctions on China’s ZTE seen as a positive for trade negotiations between the two countries. European bond yields rose after ECB Governing Council member Villeroy implied the ECB was planning on raising rates at some point in 2019. Amid reasonably limited FX market moves, the NZD is the biggest mover overnight, and is back down to 0.6920.

BNZ Markets Today

Nick Smyth -
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Market movements were very subdued to end the week, with no top-tier economic data released. The S&P500 edged out a small gain to end up over 2% on the week, while the USD was slightly weaker. Overnight, Trump announced on Twitter that he had instructed the Commerce Department to reverse its sanctions on China’s ZTE, which the market will likely see as a key concession in the trade negotiations. The NZ Budget will be a focus for the local market this week.

BNZ Markets Today

Nick Smyth -
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Good Morning
US equities moved up to their highest level since mid-April and the USD fell after a slightly lower than expected US core CPI release. US Treasury yields declined slightly but market expectations of Fed tightening haven’t been materially affected. The BoE revised down its inflation forecasts in its Inflation Report and the market has pushed back rate hikes in the UK. The NZD is the worst performing currency the past 24 hours, with the market taking a dovish interpretation of the RBNZ MPS and Governor Orr’s comments afterwards.

BNZMarkets Today

Nick Smyth -
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President Trump announced a short while ago that he was pulling out of the Iran nuclear deal, although oil prices are unchanged on the day, implying the market had largely factored this in. The USD has extended its recent move higher, with Fed Chair Powell reinforcing the message that more rate hikes are coming. The NZD has made a new low for the year, below 0.70, as commodity currencies have underperformed overnight.

BNZ Markets Today

Nick Smyth -
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Oil prices pushed on to a new post-2014 high overnight ahead of President Trump’s decision tomorrow on whether to re-impose sanctions on Iran. Equity markets are also higher, buoyed unsurprisingly by energy stocks. Elsewhere, markets were very quiet, with no major data released and the UK on public holiday.

BNZ Markets Today

Nick Smyth -
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The US payrolls report on Friday was mixed, but the drop in the unemployment rate to 3.9% was enough to push the USD higher again. Equities also moved higher after the payrolls report even amid reports that US-China trade talks remained deadlocked. Emerging markets have come back into the market’s focus as well, with the Argentinean central bank raising its cash rate to 40%, to combat the decline in the peso. The NZD continues to hover around 0.70 ahead of Adrian Orr’s first RBNZ meeting this Thursday.

BNZ Markets Today

Jason Wong -
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In overnight trading the USD is mainly softer, adding to the initial move lower after the FOMC announcement yesterday, while UST yields have nudged a little lower as well. The NZD is modestly higher across the board.

BNZ Markets Today

Jason Wong -
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There have been only modest changes in currencies since this time yesterday, with the USD slightly weaker since this morning’s FOMC Statement. US equities and UST yields are little changed.

BNZ Markets Today

Jason Wong -
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As a new month begins, the stronger USD theme has continued with increases across the board, sending the NZD below 0.70 and big figures broken for other majors. Inflationary pressures see US rates a touch higher, while US equities are lower.

BNZ Markets Today

Jason Wong -
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The NZD has started the week on a soft note in a fairly quiet end to the month.

BNZ Markets Today

Jason Wong -
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On a historic day, market movements were remarkably modest. The USD lost a little ground after its strength earlier in the week, while the only real standout performer was a weaker GBP after growth missed expectations.

BNZ Markets Today

Nick Smyth -
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US equities have moved higher over the past 24 hours, boosted by stronger earnings (Facebook in particular). The EUR fell to a three month low after Draghi said the Governing Council hadn’t discussed monetary policy “per se” at its meeting. The 10 year Treasury yield has drifted back to a little under 3%.

BNZ Markets Today

Nick Smyth -
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The US 10 year Treasury yield finally breached 3% for the first time since the start of 2014. Higher rates have weighed on equities and probably helped the USD, which is stronger across the board once again. The NZD fell to year-to-date lows against the USD.

NZ At A Glance

New Zealand At A Glance

Craig Ebert -
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The NZ economy continues to perform relatively well. And there is much to sustain momentum. This includes a sizable fiscal stimulus, which kicks in proper from mid-year. From a broader perspective, however, growth still looks inclined to settle a bit lower. That said, inflation is primed to increase, as a consequence of chronic capacity constraints, resurgent commodity prices, and a tiring NZ dollar. This will press the case for the cash rate to rise, although we expect the RBNZ will lag in this process. Risk factors coalesce around currently-stretched asset prices – here and abroad – in the context of ongoing removal of global monetary stimulus, led by the Fed.

Rural Wrap

Monitoring Risks From M. Bovis

Doug Steel -
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The economic risks associated with cow-disease Mycoplasma bovis are rising. The Government, alongside industry, plan to cull around 152,000 cows in an attempt to try and eradicate the disease from NZ. Production will be affected, while costs and disruption will rise. Meanwhile, prices remain generally buoyant across the primary sector.