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 -

The NZD remains stuck in a 0.6650-0.6950 trading range, which is expected to continue over coming months. As the year progresses, we expect a more positive tone to the global economic backdrop to prevail – a factor which the NZD is sensitive to – supporting a move to 0.70 by year-end.

NZD: Conflicting Forces

Jason Wong -

The run of global economic data has been softer, the US yield curve turned negative adding to fears of economic recession, the Fed has done a U-turn on its policy outlook, and other central banks have raised concern about the external outlook. Meanwhile, credit spreads remain tight, commodity prices trend higher and the NZD seems to have good support. These are conflicting forces. In this note we try to summarise what’s going on, with implications for the NZD.

NZD/AUD How much more upside?

Jason Wong -

• NZD/AUD has been tracking higher this year, as expected, and reached a fresh closing high mid last week above 0.97.
• The cross rate is in an overshooting phase relative to current economic fundamentals, based on concern that the Australian economy is on a much weaker trajectory, driven by the housing market. This is reflected in short positioning in AUD, with the market anticipating that bad news for Australia relative to NZ will continue.
• At this juncture the risk is that the top of our suggested trading range for 1H19 (0.98) is breached. The best chance for this to happen would be the run of data continuing to be on the soft side for Australia, alongside a building political risk premium closer to the Federal election. The opposing view is that a shift in data momentum occurs – stronger Australian data imposing some doubt on RBA rate cuts and encouraging a closing of short AUD positions; or weaker NZ data fuelling RBNZ cut expectations.

NZD/EUR Chartpack

Jason Wong -

This is the last in our series of chartpacks on the NZD cross rates following previous notes on NZD vs AUD, CAD, GBP and JPY over the past two months.

Economy Watch

Retail Spending Effectively Solid

Craig Ebert -

If the New Zealand economy is suffering a lack of demand, consumers clearly haven’t received the memo. March quarter retail trade rose a seasonally adjusted 0.7%, in real terms. This was effectively a strong result, following the (unrevised) jump of 1.7% reported for Q4. The overall strength was evident in annual growth running at 3.3%.

Keeping head above water

BNZ - BusinessNZ -

New Zealand’s manufacturing sector experienced an increase in expansion for April, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

RBNZ Spooked By Growth

Stephen Toplis -

The RBNZ (and its new committee) has firmly nailed its colours to its mast. While we thought the balance of economic data would rail against a rate cut today, the RBNZ instead chose to focus on the economy’s downside risks in pushing through what is, effectively, a pre-emptive cut in rates. But not only did the Bank cut the cash rate today to 1.5% it also intimated a clear desire to give it another nudge lower.

Labour Softness Not A Rate Cut Portent

Stephen Toplis -

On balance then, we do not see overall labour market settings deviating substantially from full employment. Accordingly, while the pressure to raise interest rates is dissipating and the potential for a prospective rate cut is rising, we do not see sufficient softening in the labour market that, in and of itself, would demand the Reserve Bank provide any further stimulus any time soon.

Cost Pressure Remains

Doug Steel -

Business confidence remains mired in negative territory, as cost pressures remain intense. Growth is slowing, but the balance of inflation and employment indicators don’t look out of line with RBNZ targets.

Preview of Q1 Labour Market Data

Craig Ebert -

With the financial markets still vacillating on an OCR cut for next week, this Wednesday’s labour market data could yet be a swing factor. Base case, we expect them to retain a decent degree of robustness. However, the risks seem tilted to the data appearing a bit mixed this quarter, even if just in a statistical sense. We saw from the Q1 CPI how markets react to this sort of thing. That is to say, aggressively.

CPI Slow But Firm Enough At Core

Craig Ebert -

Just when the market was going off the idea of OCR cuts, along comes today’s March quarter CPI to excite the notion anew. To be sure, this latest CPI was slow. But its core measures arguably weren’t. All up, it leaves us on the fence regarding odds of an OCR cut at the 8 May Monetary Policy Statement (MPS), awaiting more direction from the data, and, more to the point, looking at the forward indicators. As of now, we still think the Bank will defer.

Slipping Service

BNZ Research/ Business NZ -

Activity in New Zealand’s services sector slipped to its lowest level since 2012, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: Food prices (m/m%), Mar: 0.5 vs. 0.4 prev.
CH: CPI (y/y%), Mar: 2.3 vs. 2.3 exp.
CH: PPI (y/y%), Mar: 0.4 vs. 0.4 exp.
US: PPI ex food and energy (y/y%), Mar: 2.4 vs. 2.4 exp.
US: Initial jobless claims (k), 1st Apr: 196 vs. 210 exp.

Good Morning
After the passing of a number of significant event risks yesterday, markets have returned to calm, with volatility subdued. The USD has strengthened across the board, taking the NZD down to its recent lows in the process. RBNZ Governor Adrian Orr gave an interview with Bloomberg late yesterday in which he said the May OCR decision would be a difficult one.

Meandering March

BNZ – BusinessNZ -

New Zealand’s manufacturing sector experienced decreased levels of expansion for March, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

QSBO Confirms RBNZ On Target

Stephen Toplis -

As much as our central view on activity and inflation remains unchanged we concede that we are millimetres away from formally moving our rate call to a cut. Not because we think it is justified by economic fundamentals but because it is hard to stand in the way of the freight train that is market pricing with the RBNZ guiding the locomotive from the cab. For now, though, we will stand fast and await the upcoming announcements on the Q1 CPI and labour market before finalizing our call for the Bank’s May response.

NZ Businesses Growing Tired of It

Craig Ebert -

While we take on board today’s weak-looking business survey, we still think it’s important to understand what’s behind it. To the extent that it’s still capacity limits being encountered, next week’s NZIER Quarterly Survey for Business Opinion (QSBO) will give key insight.

RBNZ Doves Fly

Stephen Toplis -

While the door to a May rate cut may have been opened, we do not believe the evidence will be sufficient at that time to actually take the plunge. Unless we see weakness in the labour market or falling inflation we will rail against a May cut view albeit ever mindful that we do not see justification for the Bank’s current stance either.

NZ GDP Growth Near Trend

Stephen Toplis -

For some the data signals that the RBNZ should be rushing to lower interest rates. But the RBNZ does not target growth. It targets maximum sustainable employment and CPI inflation. Only if slower growth forebodes lower inflation and a higher unemployment rate would a cut be demanded. As things stand, there is no evidence of this.

Dairy Outlook Improving But Risks Remain

Doug Steel -

Dairy prices continue their ascent. Today’s 1.9% gain the GDT Price Index is the eighth consecutive increase and takes the cumulative gain to 26.2% since November last year. It is a material move higher as solid demand has bumped up against tightening global milk supply. We lift our milk price forecast for this season and next.

Upward Pressure On External Deficit Easing

Doug Steel -

New Zealand’s current account deficit widened to 3.7% of GDP for the year to December 2018 from 3.6% in the year to September 2018. This was not as big a deficit as the 3.9% expected by the market and us, although not a major surprise. Stabilising oil prices and higher dairy prices will help bring a smaller deficit in 2019.

Standard services resumes

Doug Steel -

New Zealand’s services sector returned to expansion levels experienced in recent months, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

RBNZ Not a RBA Disciple

Stephen Toplis -

As the market becomes increasingly dovish about Australia, investors seem very keen to assume that wherever Australia goes New Zealand will follow. While it is true there are close links between the two countries, monetary policy will only be replicated when economic conditions demand. Right here and now that is not the case.

Business Confidence Survey Unequivocally Soft

Stephen Toplis -

Over the last few months there have been numerous data releases that have delivered bob-each-way results for both doves and hawks alike. The same cannot be said of today’s data. While we are skeptical that the report accurately reflects the momentum and inflationary pressure in the economy, we have to concede that there’s a lot in it for those of a dovish disposition and very little for those of an opposite standing.

Financial Markets Wrap

NZD Underperforms in April

Jason Wong -

Risk appetite, equities and global commodity prices push higher through April...

NZD Flat Amidst Plunging Global Rates

Jason Wong -

• Interest rates around the world plunged as central banks surprised with dovish tilts
• Plunging rates supported risk appetite, seeing rising equity markets
• Low currency vol continues, with NZD well supported

NZD Broadly Tracks Sideways in February

Jason Wong -

• Risk appetite improves further, supporting global equity markets and commodities
• NZD performance underwhelming in the face of those positive forces
• Some drag in NZD evident from lower NZ rates and a weaker AUD

Interest Rate Strategy

NZGB Bond Programme – What We’ll Be Watching Out For

Nick Smyth -

The NZ Budget is on 30th May and this will accompanied by NZDM releasing an updated bond programme. At the last bond programme update, at the Half-year Economic and Fiscal Update (HYEFU) in December, NZDM forecast $8b of gross NZGB issuance in the upcoming fiscal year (the same level as the current fiscal year – see Table 1).

NZ Rates Outlook - Valuations Stretched

Nick Smyth -

RBNZ cuts to 1.5%, signals a soft easing bias – NZ short-end getting closer to fully-priced

Outlook for Borrowers: Post-May Monetary Policy Statement

Nick Smyth -

The RBNZ reduced the OCR at the May MPS, to 1.5%. The market was pricing around a 33% chance of a rate cut immediately prior to the decision, although a strong majority of economists expected a move. The decision was the first made by the newly-formed Monetary Policy Committee.

A Stock-Take on NZ BEIs – Positive Catalysts Ahead

Nick Smyth -

We have been highlighting the value case for NZ BEI wideners for some time. The interpolated 10 year NZ BEI is barely above 1%, well below headline CPI inflation, the range of core measures of 1.5% to 2.2%, and the RBNZ’s 2% target midpoint..

BNZ Interest Rate Strategy: NZ swap spreads getting stretched – buy NZGB 2027 v swap

Nick Smyth -

NZGBs have underperformed swaps significantly since the start of the month.

Outlook for Borrowers: Post-March OCR Review

Nick Smyth -

At the March OCR Review, the RBNZ surprised the market, and us, by moving to an explicit easing bias. The Bank said the “more likely direction of our next OCR move is down”, citing a weaker global outlook and less momentum in the domestic economy.

RBNZ OCR Review Uber-Dovish; Enter 2s5s Steepeners

Nick Smyth -

The RBNZ surprised the market, and us, by moving to an explicit easing bias at yesterday’s OCR Review. This has generated a significant move lower in NZ rates, with the front-end of the curve leading the charge (see Chart 1). The softer global outlook, and the more pronounced downside risks attached to it, appeared to be the main driver of the RBNZ’s change in policy stance. Readers can see our economics team’s summary of the OCR Review for more detail.

LGFA update: More bond supply but still value in the long-end

Nick Smyth -

Earlier this month, the New Zealand Local Government Funding Agency (LGFA) announced a significant increase to its funding targets for future years. Based on LGFA forecasts, we estimate it will have almost $9.5b in bonds outstanding by Jun-20, almost $1.5b more than previously forecast. LGFA’s revisions to its borrowing forecasts were the largest since its inception in 2012 (see Chart 1).

Have NZ rates gone too far? Pay NZ 5 Year Swap Tactically

Nick Smyth -

After a brief sell-off after the February MPS, NZ rates have returned to near record low levels over the past month.

Markets Outlook

Back(bone) Niggles

BNZ Markets Research -

The services sector has been the backbone to New Zealand’s economic growth since the 2008/09 recession. So, even with the rebound recorded in April’s Performance of Manufacturing Index, to an ”almost normal” level of 53.0, GDP growth looks prone to toil on the basis of the latest PSI. This, in turn, is starting to challenge the view that NZ GDP growth will do relatively well through the course of 2019 – albeit after a relatively mild Q1.

An Early Peek At Q2 Inflation

BNZ Research -

April’s food and rental prices released today come in close to our expectations, but there is still plenty to watch and consider regards the influences on inflation. This includes signs of price pressure following the recent lift in the minimum wage and higher rents feeding into the CPI. Meanwhile, there are a few activity indicators due this week that will allow us to gauge the current growth pulse and assess against RBNZ forecasts.

RBNZ Should Buy Itself Time

BNZ Research Team -

We believe the best approach the Reserve Bank could take this week is to keep interest rates on hold while formally building in an easing bias into its rate track. For all intents and purposes, this would be a time-buying exercise which would: limit the chances of the RBNZ making a policy mistake; increase the chances of a rate cut being impactive if it was eventually utilized; minimize future market volatility. From an investor perspective, the risks around this week’s meeting are huge. On this basis it may well be that a relatively neutral approach to the likely outcome is the most appropriate stance.

Beyond Sustainable Employment

BNZ Research Team -

This week has a couple of local economic reports that could yet swing opinion on a May OCR cut. With the market still reluctant to price it far from 50/50, it’s coming down to the wire. The slow headline Q1 CPI jerked pricing back to that area, while Adrian Orr’s interview with the NBR late last week (including talk of on fiscal stimulus) didn’t exactly encourage the idea of an immediate rate cut.

Trading Days

BNZ Markets Research -

As we see it, Friday’s March figures will be consistent with solid growth in merchandise export and import volumes as per the Q1 GDP accounts (albeit with growth in exports overtaking that of slowing imports on an annual basis). This, in turn, is integral to the trend-like 0.5% expansion we currently estimate for Q1 GDP.

Inflation Likely Firmer Than RBNZ Foresaw

BNZ Research Team -

To be sure, some of the upside we see for the Q1 CPI relates to the rebound in fuel prices. However, also note we are picking that non-tradables inflation firmed to an annual pace of 3.0% in Q1, from 2.7% in Q4, whereas the Bank is looking for 2.8%. This gives a sense of where we see the directional bias to the core inflation measures for Q1.

Perspective Pleas

BNZ Research Team -

As a sounding board for New Zealand, we think news, and rhetoric, out of Australia will bear monitoring. That economy has arguably been coming off the boil more than New Zealand’s has – and in key respects. Yet the RBA is sounding less committed to easing even further, compared to the RBNZ’s latest missive. There is certainly a lot of RBA-speak due before the next RBNZ announcement, starting this week.

Markets Gagging For A Rate Cut

BNZ Research Team -

The RBNZ has moved to a formal easing bias and, one can only assume, has given the markets a clear message that a rate cut is its central agenda. But we can’t help but think that key employment and inflation data still don’t support such a move. Consequently, while you never want to bet against what a central bank is telling you, we still can’t rule out tighter conditions than currently priced by markets.

RBNZ to Resist Snapping at Dovish Lure

BNZ Research -

We expect the Reserve Bank to remain reasonably balanced in its policy announcement this Wednesday, while keeping its cash rate at 1.75%. This is not to ignore the downside risks that are accruing – principally global, and notably in manufacturing. More to the point, the NZ economy is (more than?) fully employed, while inflation is middling and not without upside risk.

Economy Muddling to Middling

BNZ Research Team -

We anticipate Q4 GDP expanded 0.5% in volume, which would slow annual growth to 2.4%, from 2.6%. While this might appear disappointing, it is arguably close to the economy’s growth potential at present. As such, GDP growth is consistent with inflation running near enough to the 2% per annum mark, and employment rates remaining relatively high. Couched this way, we struggle to see any mandate for the Reserve Bank to cut its cash rate even further.

The Reality of Slower Growth

BNZ Research Team -

GDP growth is slowing, the world over. But labour markets remain relatively tight and, for the most part, are starting to generate some inflation. Such things make it important to understand what’s actually driving the slower growth – supply limits, or weaker demand – but also to appreciate lags between economic growth and hiring.

A Testing Week for Q4 GDP

BNZ Research Team -

Last week’s ANZ business survey did not exactly inspire confidence in this year’s rate of economic expansion. But that’s not to overlook vulnerabilities to growth of late last year either. While we expect Q4 2018 GDP to increase a respectable 0.7% (2.6% y/y), there are three key indicators this week which, on balance, threaten to peg it back.

Q4 Retail Silences the Doubters

BNZ Research -

The Q4 2018 retail trade figures support our view that New Zealand’s economic growth still has some substance to it. As for how well, and how long, this will last, Thursday’s ANZ business survey will give insight. But even if it remains a bit lacklustre with regard to GDP growth, this is no guarantee that its inflation pointers will fade…given the role of diminishing supply potential in all of this.

Markets Today

BNZ Markets Today

Nick Smyth -

Global rates and equities moved sharply lower overnight, with heightened trade tensions continuing to weigh on sentiment and a much weaker than expected US business survey raising concerns about the US growth outlook. The disappointing US data sparked a turnaround in the USD, which has weakened across the board. The NZD has bounced back above 0.65. NZ rates continued fall yesterday amidst growing global risks and the 10 year swap will break 2% today for the first time on record.

BNZ Markets Today

Nick Smyth -

Equities and global rates have moved lower overnight after reports the US would extend restrictions to more Chinese technology firms. There hasn’t been much change since the FOMC minutes were released a short while ago, with the Fed reiterating its pledge to be patient. The NZD has continued to grind lower amid building OCR rate cut expectations.

BNZ Markets Today

Nick Smyth -

Equity markets have rebounded over the past 24 hours after the US granted a temporary reprieve to Huawei. Brexit also continues to linger as a risk for markets, with Labour leader Corbyn saying his party will vote against Theresa May’s withdrawal agreement bill. Meanwhile, Governor Lowe indicated that the RBA would consider cutting rates next month, leading to a sharp fall in the AUD. The NZD made a fresh year-to-date low.

BNZ Markets Today

Nick Smyth -

Equity markets have remained under pressure overnight, with US decision to place restrictions on Huawei continuing to weigh on sentiment. Moves in other markets have generally been contained, although the AUD benefited from the Liberal-National coalition’s unexpected election victory over the weekend.

BNZ Markets Today

Nick Smyth -

Equity markets ended last week on a soft note amid reports that plans for fresh US-China trade talks had been put on hold. The big news over the weekend was the surprise victory for the Liberal-National coalition in the Australian election, which will likely see the AUD open higher this morning. There may be some positive knock-on effect to the NZD, which closed at its lowest level of the year on Friday.

BNZ Markets Today

Nick Smyth -

Risk sentiment has continued to improve overnight, with equities making further gains and Treasury yields moving higher. The moves came despite confirmation of US restrictions on Huawei. The USD has strengthened, helped by better economic data. The NZD and AUD have continued to drift to new lows, with a surprise rise in the Australian unemployment rate yesterday leading the market to price a better than even chance of an RBA rate cut next month.

BNZ Markets Today

Nick Smyth -

Equity markets have moved higher overnight after reports that Trump would delay a decision on auto tariffs by up to six months. In contrast, weaker Chinese and US economic data pulled bond yields lower, with Treasury yields trading close to their year-to-date lows and German bund yields falling to their lowest since 2016. The NZD has continued to grind lower overnight, although FX market moves have been contained.

BNZ Markets Today

Nick Smyth -

Markets have recovered over the past 24 hours after some more optimistic-sounding comments from President Trump on the prospect of a trade deal with China. Equities and bond yields moved higher while the NZD and AUD increased modestly.

BNZ Markets Today

Nick Smyth -

Markets moved into risk-off mode overnight after China retaliated by increasing tariffs on $60b of US imports by up to 25%. US equities plunged, bond yields fell and the AUD and NZD depreciated.

BNZ Markets Today

Nick Smyth -

Markets have been resilient, so far, to confirmation that the US would increase tariffs on around $200b worth of Chinese imports to 25%. After initially falling, US and Chinese equities and US Treasury yields ended higher on the day on Friday. Currency movements, including the NZD, have been contained.

BNZ Markets Today

Jason Wong -

Another risk-off session is the order of the day, with the market nervous about US-China trade talks that kick off within the next couple of hours. Equities and bond yields are lower but the USD is also under a little bit of pressure and shows broadly based losses. This sees the NZD recovering towards 0.66 and the AUD towards 0.70.

BNZ Markets Today

Jason Wong -

US-China trade war news has dominated headlines overnight, with the market overall taking a complacent view of proceedings, seeing US equities modestly positive and US rates slightly higher. The NZD has only sustained a small fall after the RBNZ cut rates yesterday. GBP remains soft as hopes for a Brexit deal fade.

BNZ Markets Today

Jason Wong -

Events Round-Up
AU: Trade balance ($b), Mar: 4949 vs. 4480 exp.
AU: Retail sales (m/m%), Mar: 0.3 vs. 0.2 exp.
AU: Real retail sales (q/q%), Q1: -0.1 vs. 0.3 exp.
NZ: RBNZ 2Yy inflation expects., Q2: 2.01 vs. 2.02 prev.
AU: RBA cash rate target (%), May: 1.50 vs. 1.25 exp.
GE: Factory orders (m/m%), Mar: 0.6 vs. 1.4 exp.
NZ: GDT dairy auction price index: +0.4%

Good Morning
The escalation of US-China trade tensions is in focus, driving a risk-off session, with a belated slump in US equities, while US Treasury rates are pushing lower. JPY and the USD are well supported in this environment. NZD slipped below 0.66 overnight while the AUD shredded its post-RBA gains.

BNZ Markets Today

Jason Wong -

Events Round-Up
CH: Caixin PMI services, Apr: 54.5 vs. 54.4 prev.

Good Morning
After a risk-off session during the NZ time zone yesterday following Trump’s tweet that threw US-China trade negotiations into disarray, markets have settled as we await further developments, and we’ve see a recovery in most risk assets overnight. The NZD is an exception, weakening a touch overnight but holding up just above 0.66.

BNZ Markets Today

Jason Wong -

On Friday, US rates pushed lower and the USD showed broadly based weakness after the US employment report, while US equities powered on up. GBP was the best performer after local elections sent a warning message to the Conservatives and Labour to get on with a Brexit deal.

BNZ Markets Today

Jason Wong -

Yesterday’s fall in US equities, and rise in US rates and USD after Fed Chair Powell uttered the words low inflation may be “transitory” has carried through into another trading session, although on the currency side, changes have been fairly small.

BNZ Markets Today

Jason Wong -

The NZD has solidified the loss seen post the NZ labour market data yesterday. It has been a bit of a whippy session overnight, with a weaker US ISM manufacturing report and the Fed Chair sounding upbeat in the opening statement to his press conference, after a no-surprise FOMC statement. US rates were lower but have bounced back up.

BNZ Markets Today

Jason Wong -

There has been a lot of economic data to digest and US earnings results, while month-end flows are also a factor. The net result is a flat US equity market and softer USD across the board, with GBP outperforming. US rates have pushed lower.

BNZ Markets Today

Jason Wong -

It has been a quiet start to a busy week, with modest price action in currency markets, while US rates have pushed higher.

BNZ Markets Today

Jason Wong -

The NZD ended the week on a positive note, alongside other commodity currencies, helped along by an underwhelming US GDP report that also saw US treasury yields retreat.

BNZ Markets Today

Jason Wong -

The USD remains well bid, although the NZD is trying to recover after reaching a fresh year-to date low on ANZAC Day. US 10-year Treasury yields have nudged higher overnight but are still lower than when we left the office on Wednesday.

BNZ Markets Today

Jason Wong -

There has been little newsflow, and it is one of those weird days where nothing much makes sense. The USD has shown broadly based gains, seeing it make a fresh high for the year, while the NZD makes a low. That’s against a backdrop of stronger equity markets. Meanwhile in bond markets, European rates are higher, while US Treasury rates are slightly lower.

BNZ Markets Today

Jason Wong -

Volatility remains suppressed, with the Easter break not helping. The NZD and AUD fell late on Thursday and have sustained those losses. The main price action to speak of is a strong gain in crude oil prices.

BNZ Markets Today

Jason Wong -

Market trading remains subdued ahead of the Easter holidays, with little pulse across global equities and bond markets. Currency markets have showed little movement overnight, while the NZD remains at the bottom of the pack after yesterday’s downside miss to the CPI.

BNZ Markets Today

Jason Wong -

Events Round-Up
UK: Unemployment rate (%), Feb: 3.9 vs. 3.9 exp.
UK: Weekly earnings x bonus (y/y%), Feb: 3.4 vs. 3.4%
GE: ZEW survey expectations, Apr: 3.1 vs. 0.5 exp.
NZ: GDT auction dairy price index: +0.5%
US: Industrial production (m/m%), Mar: -0.1 vs. 0.2 exp.
US: NAHB housing market index, Apr: 63 vs. 63 exp.

Good Morning
Market volatility remains suppressed in the lead-up to Easter. Of note though, US Treasury rates continue to trend higher and the 10-year rate is now back to levels preceding the last Fed meeting. AUD has recovered yesterday’s losses to trade flat, while the NZD remains flat.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week in the run-up to Easter with little newsflow to drive markets. US equities have spent much of the session in negative territory and are currently slightly lower, US Treasuries have traded in a narrow range and the NZD and AUD are little changed from where they began the week.

BNZ Markets Today

Jason Wong -

Strong China exports and credit data drove a classic “risk-on” session on Friday, seeing commodity currencies outperform, alongside higher global equities and rates.

BNZ Markets Today

Nick Smyth -

Lower than expected US core CPI data and a downbeat economic assessment from ECB President Draghi pushed global rates lower overnight, although they have recovered marginally over the past hour after the release of the FOMC minutes. Equity markets are unchanged to slightly higher while the USD is weaker. The AUD has outperformed after RBA Deputy Governor Debelle’s speech failed to provide the dovish signals the market was hoping for. Australian and NZ rates rose after the Debelle speech, with NZGB yields, in particular, rising sharply.

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: ANZ Truckometer - heavy (m/m%), Mar: -2 vs. 0.4 prev.
AU: Home loans (m/m%), Feb: 0.8 vs. 0.5 exp.
US: NFIB small business optimism, Mar: 101.8 vs. 102 exp.
US: JOLTS job openings (k), Feb: 7087 vs. 7566 exp.

Good Morning
Market sentiment is a little more cautious, with equities and bond yields falling and the JPY outperforming overnight. Market moves have been reasonably contained however, ahead of a series of key events tonight and tomorrow morning.

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: ANZ Truckometer - heavy (m/m%), Mar: -2 vs. 0.4 prev.
AU: Home loans (m/m%), Feb: 0.8 vs. 0.5 exp.
US: NFIB small business optimism, Mar: 101.8 vs. 102 exp.
US: JOLTS job openings (k), Feb: 7087 vs. 7566 exp.

Good Morning
Market sentiment is a little more cautious, with equities and bond yields falling and the JPY outperforming overnight. Market moves have been reasonably contained however, ahead of a series of key events tonight and tomorrow morning.

BNZ Markets Today

Nick Smyth -

Markets are in a holding pattern ahead of several key event risks later this week . US equities markets are little changed while bond yields have nudged higher, the latter supported by a further rise in oil prices. The USD has weakened across the board, although the NZD has underperformed and is up only modestly.

BNZ Markets Today

Nick Smyth -

A market-friendly payrolls report, which showed a larger than expected jobs gain and softer wage growth, positive comments on US-China trade talks, and President Trump’s call for the Fed to resume QE all helped boost risk assets on Friday. The S&P500 ended the week within touching distance of its all-time highs, while bond yields fell modestly. Currency moves were contained, although the NZD was the worst performer on Friday. The GBP wasn’t far behind, after Theresa May asked for a short extension to Brexit from the EU and negotiations with the Labour party failed to generate a breakthrough.

BNZ Markets Today

Jason Wong -

Market pricing is well contained, as is typical leading up to the US payrolls report tonight. But within the mix of little overall price action, there’s some unexplainable weakness in the NZD following some weird rates activity yesterday, which we’d put down to flows than fundamental forces.

BNZ Markets Today

Jason Wong -

Positive economic and US-China trade talk news sees risk appetite improve, driving equities and global rates higher. NZD and AUD have pushed on higher against a backdrop of a weaker USD.

BNZ Markets Today

Jason Wong -

US equities are flat to lower and US Treasury rates have steadied after the significant sell-off yesterday. NZD, AUD and CAD are all weaker, facing their own issues.

BNZ Markets Today

Jason Wong -

Stronger US ISM data have driven a significant sell-off in US Treasuries, but that hasn’t perturbed equity markets, which show decent gains. The NZD is little changed from last week’s close, while GBP is recovering as a super-soft Brexit comes into play.

BNZ Markets Today

Jason Wong -

The March quarter ended on a positive note on Friday, with higher risk appetite driving global equities higher while US Treasury yields ended slightly higher. Currency movements weren’t significant, although commodity currencies headed the leaderboard, while Brexit uncertainty continued to weigh on GBP.

BNZ Markets Today

Nick Smyth -

US equities and bond yields are slightly higher overnight, although markets remain cautious. Likewise, most currencies are little changed, with the exception of the GBP, which has remained under pressure ahead of a vote on a modified version of Theresa May’s deal tonight. The NZD is hovering just below 0.68. RBNZ Governor Orr speaks at 9am this morning, and he is likely to be quizzed on the Bank’s decision to move to an easing bias at its OCR Review.

BNZ Markets Today

Jason Wong -

There has been minimal news overnight, but the market remains in an anxious state about the global economic outlook, which sees downward pressure on equity markets and global rates. The NZD has held its ground around 0.68 overnight after yesterday’s 1.6% drop after the shocking RBNZ OCR Review. GBP is bid ahead of a series of indicative votes on Brexit this morning by the UK Parliament, while the AUD is under pressure on the back of weaker risk appetite.

BNZ Markets Today

Nick Smyth -

US equities and bond yields have moved modestly higher over the past 24 hours as recession fears have eased somewhat. The moves came despite weaker than expected US consumer confidence and housing data. Currency market moves have been reasonably subdued, although the GBP has strengthened slightly after key Brexiteer Jacob Rees-Mogg signalled he might support Theresa May’s deal. The NZD is unchanged overnight, ahead of the RBNZ’s OCR Review this afternoon.

BNZ Markets Today

Nick Smyth -

US equity markets have stabilized overnight, after the heavy falls on Friday night, while global rates have moved lower again. The US bond curve has steepened, with growing market expectations for Fed rate cuts driving larger declines in shorter-dated yields. NZ 5 and 10 year rates hit record lows yesterday. Despite the fragile mood in markets, the NZD has risen overnight, and now sits above 0.69.

BNZ Markets Today

Nick Smyth -

Markets moved into risk-off mode on Friday, after a much weaker German PMI survey increased concerns about the global economy. US equities were down sharply, more than reversing the gains seen in wake of the dovish FOMC meeting on Wednesday night. US bond yields moved significantly lower, and the 10 year Treasury yield fell below the 3 month rate for the first time since 2007, in a possible recessionary warning. The NZD was a bystander to the volatility in markets elsewhere, and was unchanged on the day.

BNZ Markets Today

Doug Steel -

Lots of news yesterday with a more dovish than expected Fed statement, a solid NZ GDP report, and a lower AU unemployment rate causing market movements.

BNZ Markets Today

Nick Smyth -

A dovish FOMC statement, which indicated the Fed does not intend to raise rates this year, has seen the USD and rates fall sharply and US equities move higher. The Fed also said it would end its balance sheet reduction at the end of September. The NZD has broken through 0.69 after the FOMC meeting. NZ GDP and the Australian labour market report are in focus today.

BNZ Markets Today

Jason Wong -

Market movements remain well contained ahead of the FOMC meeting tomorrow morning, where the market is primed for a dovish statement. US equity markets continue to drift higher, US yields are steady near recent lows, and the USD is on the soft side.

BNZ Markets Today

Jason Wong -

Good Morning
Financial markets are quiet and prices are largely tracking sideways, with little newsflow. GBP is softer as hope fades for an end to the fog of uncertainty over Brexit.

BNZ Markets Today

Jason Wong -

Good Morning
Financial markets had a quiet end to last week, with modest changes in currencies, modest upside to equity markets and some further downside pressure to global rates.

BNZ Markets Today

Jason Wong -

GBP is choppy but generally well supported as focus is directed towards the UK Parliament as it decides the path towards Brexit. The AUD and NZD are weaker after underwhelming China data yesterday, while JPY is weaker leading up to the BoJ’s announcement today. Bonds and equities show little movement.

BNZ Markets Today

Nick Smyth -

Risk sentiment remains positive, with US equities up again and testing the highs of the year, although bonds have been largely unmoved. The GBP remains very volatile, and has bounced back strongly ahead of the UK parliamentary vote later this morning on whether to rule out leaving the EU without a deal on March 29th – it should easily pass. NZ rates had another sizable decline yesterday, following similar moves in Australia after weak consumer confidence data, and the 10 year swap has reached a record low.

BNZ Markets Today

Nick Smyth -

A slightly weaker than expected US core CPI release overnight has triggered a fall in the USD and US rates. Risk sentiment remains relatively buoyant however, and US equities have pushed modestly higher. The GBP remains volatile and has reversed yesterday’s gains after Attorney General Cox said his legal advice on the backstop agreement was unchanged, meaning PM May’s Brexit deal is almost certain to be voted down in parliament later today. The NZD was again the top performing currency and NZD/AUD is now testing 0.97.

BNZ Markets Today

Nick Smyth -

Markets are trading with a risk-on tone overnight, with global equities markets up strongly. US retail sales bounced back from weakness in December, but US rates have been largely unmoved. Most currencies are little changed to start the week, although the GBP has recovered ahead of Theresa May’s Brexit vote tonight amidst speculation she might have secured some concessions from the EU.

BNZ Markets Today

Nick Smyth -

A mixed US non-farm payroll report, featuring a mere 20k job gain but faster wage growth, had little net impact on markets, with US equities and bond yields close to unchanged on the day. The USD was broadly lower on the day, although the bulk of those losses had occurred pre-payrolls. The NZD was the top-performing currency on Friday.

BNZ Markets Today

Jason Wong -

The ECB’s sobering economic outlook triggered further weakness in global equity markets, lower global bond rates and a lower euro. Other key currency movements have been modest, with the NZD and AUD close to where they were yesterday morning.

BNZ Markets Today

Jason Wong -

US equities and rates are lower this morning as we continue to see a lack of follow-through from last week’s gains. The NZD has performed okay against the backdrop of weaker AUD and CAD currencies, following weak Australian GDP data and a less hawkish Bank of Canada.

BNZ Markets Today

Jason Wong -

Market movements overnight have been modest, with US equities tracking sideways, and US rates up slightly. For the session, the USD shows broadly based gains, supported by stronger data, which has seen the NZD track consistently under the 0.68 mark.

BNZ Markets Today

Nick Smyth -

After initially rising on the back of reports that a US-China trade deal was in the “final stages”, US equity markets have fallen back sharply overnight while global rates have declined. The USD is modestly higher, although the NZD and AUD have outperformed amidst the reports on a possible US-China trade deal.

BNZ Markets Today

Jason Wong -

US equities, US rates and the USD were all higher on Friday, even in the face of disappointing economic data. The stronger USD backdrop saw the NZD slip a little to close the week around 0.68.

BNZ Markets Today

Jason Wong -

The USD is bid and US Treasury rates have pushed higher following stronger than expected US data. Thus, the NZD and AUD have slipped, with the NZD temporarily going sub 0.68 and the AUD going sub-0.71.

BNZ Markets Today

Nick Smyth -

There hasn’t been any particular theme to market moves over the past 24 hours. Equity markets have softened modestly while US and global rates have, in contrast, moved higher. GBP continues to outperform as the probability of a no-deal Brexit scenario recedes while the NZD and AUD have fallen. Fed Chair Powell’s testimony to the House has not been market-moving.

BNZ Markets Today

Nick Smyth -

Market moves have been reasonably modest overnight. The exception has been the GBP, which moved sharply higher after Theresa May said she would give parliament the option of extending Article 50. Fed Chair Powell’s testimony didn’t break any new ground.

BNZ Markets Today

Nick Smyth -

Equity markets have moved higher once again after Trump confirmed yesterday that he was delaying higher tariffs on Chinese imports. Chinese equities moved into a bull market and the CNY reached its highest level since July. Against this backdrop, the NZD and AUD are the top performing currencies overnight.

BNZ Markets Today

Nick Smyth -

Markets finished last week in a positive mood, on growing expectations of a US-China trade deal. Equity markets ended the week higher, while bond yields fell. The USD was weaker across the board, with commodity currencies the top performers. The NZD more-than-fully reversed its earlier losses after RBNZ Deputy Governor Bascand said that the central bank could cut if the OCR if the proposed increase to bank capital requirements tightened monetary conditions, although his statement was heavily caveated. Over the weekend, Theresa May said she was postponing the meaningful vote on her Brexit deal – again – although parliament will still have a vote on extending the Article 50 deadline date this week.

NZ At A Glance

New Zealand At A Glance

Craig Ebert -

New Zealand’s economy is slowing to a trend-like pace, as the international economy has come off the boil. While elements of softer demand are coming into play, New Zealand’s slowdown still fundamentally reflects of a lack of supply – especially with respect to labour. This is reflected in weak business confidence. As is government policy uncertainty/change, along with pervasive cost inflation. CPI inflation is being held back mainly by weak imported inflation but is almost at the 2% “ideal” in any case. Re interest rates, suffice it to say we think the RBNZ is being very pre-emptive with its recent policy easing path. We expect the NZD to be more broadly underpinned by solid fundamentals, including buoyant commodity export prices.

Rural Wrap

Mixed Signals

Doug Steel -

Primary product prices are buoyant and interest rates are low, yet rural property transactions are generally subdued. Rising costs and elevated uncertainty appear to be among the many factors at play. Meanwhile, some other indicators of on-farm investment are strong.