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.

NZD/JPY Chartpack

Jason Wong -

We continue our series on the NZD crosses, this time looking at NZD/JPY.

Summary:

- The cross is currently close to its average of the past year and near the middle of the 72-79 trading range.
- Our projections this year suggest more of the same – around the mid-70s – but this cross is apt to swing around due to its sensitivity to risk appetite.
- BoJ policy is suppressing the yen and this is likely to continue, but policy easing has reached practical limits.
- Given the yen’s cheapness, on a medium-term view our forecasts are biased to the downside.

NZD Corporate FX Update

Jason Wong -

The NZD is currently fairly priced at 0.68 and we still see the NZD anchored about 0.67-0.70 this year, with brief excursions outside that range. Downside risks include weaker than expected global growth, led by China and Europe. An assumed thawing of US-China trade tensions and strong NZ terms of trade are supporting factors.

NZD/GBP Chartpack

Jason Wong -

This is the third chart-pack in our series looking at NZD cross rates. NZD/AUD and NZD/CAD chartpacks were published 29 January.

NZD/CAD Chartpack

Jason Wong -

NZD/CAD Summary:

• The cross is currently near the middle of its 5-year trading range.
• On a multi-year view, we see more downside than upside pressure.
• We don’t have strong conviction on the near-term outlook, with oil prices likely to be a key swing factor. Relative commodity prices are a much more important driver than interest rate differentials.
• Our forecasts show the cross spending more time in a 0.85-0.90 range than 0.90-0.95 range this year.

NZD/AUD Chartpack

Jason Wong -

NZD/AUD Summary:

• NZD/AUD trades near the top end of its 5-year trading range, slightly above our LT and ST fair value estimates.
• We see this as justified, given some of the current negative forces that weigh on Australia, such as concerns about its housing market and closer ties to a slowing Chinese economy.
• We see the higher trading range for the cross being sustained through 1H19, with projections consistent with a 0.93-0.98 trading range, before the cross reverses course later in the year.

Economy Watch

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.

Holiday Lull

BNZ - BusinessNZ -

New Zealand’s manufacturing sector experienced a lower level of expansion for the first month of 2019, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

RBNZ Holds Fast

Stephen Toplis -

The reaction to today’s Monetary Policy Statement indicates that financial markets saw the missive as being more hawkish than anticipated. The NZD is up over 1.0% and the chance of a near term cut in interest rates has been significantly reduced. From our perspective, we simply could not understand why the Reserve Bank would adopt a dovish bias when inflation was broadly at target, employment was at or above its maximum sustainable level and the outlook was for growth to continue at near- trend. And so it came to be. It is only when forecasts can reveal both inflation and employment deviating from target (in the same direction) that one can be confident that interest rates are about to move. In our forecasts there is no sign of this happening, in a sustainable fashion, any time soon.

RBNZ Fully Employed

Stephen Toplis -

Financial markets clearly want to price in a cut in New Zealand’s cash rate. Today’s labour market data unequivocally came in weaker than market expectations but participants seem to have completely overlooked the fact that the overall picture remains relatively indifferent to what the RBNZ had assumed when it put together its November 2018 Monetary Policy Statement (MPS).

Inflation Grinding Higher, At Heart

Craig Ebert -

Imaginings that New Zealand’s inflation was losing its way were put to bed by this morning’s December quarter CPI report. Sure, it registered an increase of just 0.1%. But that was suppressed by seasonality. More instructively, the annual rate of CPI inflation stayed at 1.9% in Q4. And the core measures that Statistics NZ published were running at least as strongly as this.

BNZ PSI - Holiday Mode

Doug Steel -

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

Financial Markets Wrap

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

Strong recovery in risk appetite supports NZD

Jason Wong -

• Emerging market and commodity currencies like the NZD outperformed in January.
• Change in Fed guidance and positive US-China trade talk vibe supported a strong recovery in risk assets.
• NZ and global rates head lower.

Interest Rate Strategy

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.

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.

Outlook for Borrowers: Post-February MPS

Nick Smyth -

At the February Monetary Policy Statement (MPS), the RBNZ reiterated that it expects to keep the OCR on hold for the foreseeable future. It pushed back its expected timing of the first rate hike by six months, to mid-2021.

Trade Idea: Sell NZGB 23s against 21s and 29s

Nick Smyth -

• The belly of the NZ curve has significantly outperformed over the past few months, with 2s5s10s in swaps reaching post-GFC lows at -25bps.
• We see an opportunity to position for a reversal in NZGBs, selling 23s against 21s and 29s. Unlike swaps, the NZGB fly is positive carry and roll.
• We think the fly offers an asymmetric risk-reward profile from here and can perform in both bullish and bearish scenarios.
• With 2023s trading below the OCR we expect offshore investors to extend down the curve in search for yield.
• Investor holdings data suggests that NZ banks are reasonably well positioned for the upcoming Q1 high-grade maturities, meaning domestic demand for the belly of the curve may be more restrained going forward.
• We appreciate a NZGB fly isn’t for everyone. Investors may want to consider a 23s29s flattener, which should work in a ‘rolling flattening’ environment. Investors looking to position for a reversal in NZ rates may want to consider selling 2023s outright.

Outlook for Borrowers: January Interim Update

Nick Smyth -

Since the November Borrowers Update, there have been substantial declines in wholesale fixed rates. Short-term wholesale fixed rates declined to their lowest levels on record a few weeks back, while longer-term fixed rates have fallen to within vicinity of record lows. The market has reverted to pricing an almost 50% chance of an OCR cut by the end of 2019.

NZ Breakevens – Reiterating The Value Case After NZ CPI

Nick Smyth -

NZ breakevens (BEIs) reached multi-year lows earlier this year, with the 10 year NZ BEI hitting 1%. The narrowing in NZ BEIs has occurred amidst the rally in nominal bond yields over the past few months. BEIs remain highly directional with broader moves in rates.

Markets Outlook

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.

The Electorate Will Dictate the Tax Agenda

BNZ Research Team -

Regarding Thursday’s Tax Working Group final report, none of the changes mooted by it are supposed to be coming in any time soon, if at all. The government has made it clear that it will legislate for any (major) tax changes to come into effect after the next election. This means the electorate will be the ultimate decision maker, and will have a long time to debate the issues, especially around the taxing of capital.

RBNZ One Of The Crowd

BNZ Research Team -

Wednesday’s RBNZ Monetary Policy Statement (MPS) is front and centre for the market this week. The Official Cash Rate is unanimously expected to be held steady at 1.75%. But the market has become increasingly aggressive in pricing the chance of a cut later this year. The Bank’s commentary will give important direction, after a virtual 3-month vacuum from the Bank in this regard.

Labour Market Still Trending Tighter

BNZ Research Team -

Thursday’s Household Labour Force Survey (HLFS) is prone to look slower. But only in a statistical sense, after outsized gains in its employment measure in Q3, and plunge in unemployment, to 3.9%. The Q4 HLFS should not give any respite to nominal wage and salary inflation, therefore, which we believe remains firmly biased northward.

Statistics NZ Slashes Migration

BNZ Research Team -

Statistics New Zealand’s new way of measuring migration should trim population growth estimates over the last few years. Our back of the envelope suggests 0.3% less over each of the last couple of years, and a cumulate reduction of about 45,000 over the last four years. This should boost macro-based measures of productivity, by definition. It also takes a lot of pressure off the supposed housing shortage, in the stroke of a pen. These are just a taste of the many things we’ll have to think through and monitor, with respect to the NZ economy, as a consequence of the new way Statistics NZ is measuring migration.

BNZ Markets Outlook - Headline CPI Inflation to Belie Core Pressure

Craig Ebert -

• CPI prone to undershoot RBNZ expectations
• But core inflation pressures remain in full force
• Which should keep the Reserve Bank thinking
• Slower PSI (53.0) counters stronger PMI (55.1)
• Migration/tourism data due (separately) Friday

The headline CPI is prone to undershoot recent RBNZ expectations. And not just in Q4 figures due to be published tomorrow, but running into calendar 2019 as well. However, as last week’s Quarterly Survey of Business Opinion (QSBO) highlighted, the underlying drivers of inflation remain firmly in force. This should have the Bank thinking twice before acting on its dovish signals.

Markets Today

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.

BNZ Markets Today

Jason Wong -

Good Morning
A couple of blows to the AUD has seen it tumble and drag down the NZD in its wake. Weaker global economic data haven’t helped which have seen weaker European and US equity markets. Despite the risk-off tone, global rates have pushed higher.

BNZ Markets Today

Jason Wong -

Markets are quiet ahead of the FOMC minutes to be released at 8am NZ time and with little newsflow. Currency movements have been modest, the S&P500 is barely positive, while global rates are little changed.

BNZ Markets Today

Jason Wong -

After its long weekend, US equities are modestly higher while US Treasury yields have nudged lower. The USD has a soft underbelly, which sees the NZD and AUD push higher, both supported by talk of yuan stability as part of the US-China trade deal. GBP has been the strongest of the majors.

BNZ Markets Today

Jason Wong -

Trading has been light with US markets closed. There has been little change in global rates or futures for US Treasuries and US equities. NZD has peeled off after a rally during local trading hours. GBP has outperformed despite more political shenanigans.

BNZ Markets Today

Jason Wong -

Risk assets performed well at the end of last week, with another US government shutdown averted and more positive vibes on US-China trade developments. Commodity currencies outperformed alongside GBP, while US and European equities made decent gains. Global rates were flat on Friday.

BNZ Markets Today

Nick Smyth -

Global rates fell overnight after a much weaker than expected US retail sales release raised concern about the extent of slowing in the US economy. The retail sales release also hit equity markets, which had initially been supported by reports that the US was considering a 60 day extension to the trade war ceasefire. The S&P500 has recovered to be flat on the day however. The NZD has outperformed amidst further short-covering in the wake of Wednesday’s RBNZ MPS while NZ swap rates rose again yesterday.

BNZ Markets Today

Nick Smyth -

The positive sentiment of the past few trading sessions, on hopes of an extension to the US-China trade war ceasefire and an agreement to fund the US government, continues to linger. Global equity markets have moved higher again, although US indices are now only slightly up on the day. The NZD is the top performing currency over the past 24 hours, after the RBNZ MPS was seen as less dovish than expected, although it has eased back overnight from the highs reached yesterday. NZ rates were higher across the curve yesterday as the market pared back OCR rate cut expectations.

BNZ Markets Today

Nick Smyth -

Markets are trading with a risk-on tone as hopes grow for an extension to the trade war ceasefire between the US and China. Democratic and Republican negotiators also came to an agreement in principle to avert another US government shutdown, although Trump still needs to sign it off. Global equities and bond yields have moved higher. The USD has fallen back from its year-to-date highs overnight amidst the improvement in risk sentiment. The NZD is unchanged ahead of the RBNZ today.

BNZ Markets Today

Nick Smyth -

Equity markets moved higher across Asia and Europe overnight, and are slightly up in US, ahead of the resumption of US-China trade talks this week. The USD has again strengthened overnight, with the various USD indices at, or close to, their highest levels this year. The NZD is down slightly on the day against the USD, but is up on all the crosses, on short-covering ahead of the RBNZ meeting tomorrow. Similarly, NZ rates bounced modestly yesterday on profit-taking ahead of the RBNZ meeting.

BNZ Markets Today

Nick Smyth -

Global markets traded with a risk-off tone for most of Friday after Trump said he wasn’t planning to meet President Xi before US tariffs on China are due to step-up on March 1st. Equity markets fell across Asia and Europe, although a late bounce in US equities left them marginally higher on the day. The NZD was little changed on the day, but NZ rates experienced another sizable fall, with the 10 year NZ government bond yield hitting a record low level.

BNZ Markets Today

Jason Wong -

A risk-off tone has enveloped markets, with more reminders of the weaker global growth backdrop. US equities are currently down 1.5% after a similar fall in Europe, while US and Germany 10-year rates are lower. The NZD is little changed from the NZ close but is still the weakest performer after the negative reaction to softer labour market data yesterday.

BNZ Markets Today

Jason Wong -

In light trading conditions, US equities are slightly weaker and US rates are slightly lower. In currency markets, AUD is the clear underperformer, following RBA Governor Lowe’s speech yesterday afternoon, with some negative spillover effect for the NZD, even as dairy prices continue to surge.

BNZ Markets Today

Jason Wong -

On a slow news day, US Treasury yields have extended their rise following the strong US data reports on Friday, supporting a broadly-based, albeit modest, rally in the USD, while the S&P500 shows modest gains.

BNZ Markets Today

Jasn Wong -

Strong US data on Friday saw US Treasury rates move 4-7bps higher across the curve. The rise in rates tempered the lift in US equities, while currency movements were generally modest, apart from some softness in the yen.

BNZ Markets Today

Nick Smyth -

Events Round-Up
US: Fed funds target rate (upper bound): 2.5% vs. 2.5% exp.
CH: Non-manufacturing PMI, Jan: 54.7 vs. 53.8 exp.
CH: Manufacturing PMI, Jan: 49.5 vs. 49.3 exp.
EC: GDP (q/q%), Q4: 0.2 vs. 0.2 exp.
US: Employment cost index (q/q%), Q4: 0.7 vs. 0.8 exp.
CA: GDP (m/m%), Nov: -0.1 vs. -0.1 exp.
US: New home sales (k), Nov: 657 vs. 570 exp.
US: Initial jobless claims (k): 253 vs. 215 exp.
US: Chicago PMI, Jan: 56.7 vs. 61.5 exp.

Good Morning
Markets are trading in risk-on mode. US equities have extended gains made in the aftermath of the dovish FOMC meeting yesterday morning, helped by better corporate earnings results. US Treasury yields have continued to move lower as the market digests the Fed’s switch to a neutral bias, while the USD is trading at a four-month low. The NZD has increased to its highest level since early December amidst broad-based USD weakness.

BNZ Markets Today

Nick Smyth -

US equities have had a good night after Apple’s earnings results weren’t as bad as some feared and Boeing’s earnings beat expectations by a significant margin. Focus now turns to the FOMC meeting at 8am, followed shortly after by Chair Powell’s press conference. The AUD has outperformed after a marginally better than expected CPI release, and this has seen NZD/AUD drift back to 0.95. The NZD is again broadly unchanged against the USD.

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: Trade balance (NZ$m), Dec: 264 vs. 150 exp.
AU: NAB business conditions, Dec: 2 vs. 11 prev.
US: Conference board consumer confidence, Jan: 120.2 vs. 124.6 exp.

Good Morning
Markets are in a holding pattern ahead of the big event risks over the remainder of the week. These include the FOMC meeting tomorrow, US-China trade talks which kick off tonight, payrolls on Friday, and earnings reports from some of the large US tech firms (including Apple later this morning). Currency moves have been reasonably modest, but the NZD/AUD has pushed up to near 18 month highs after a disappointing NAB business survey. The NZD is little changed against the USD.

BNZ Markets Today

Nick Smyth -

Global equities reversed all their gains from Friday after Caterpillar’s earnings missed expectations and chipmaker Nvidia downgraded its revenue guidance for this year. Both firms cited weaker growth in China. There is a risk-off tone to markets more broadly, with Treasury yields falling modestly and the Japanese yen outperforming. The NZD is unchanged this week, and continues to hover close to its year-to-date highs.

BNZ Markets Today

Doug Steel -

An air of optimism spread through markets on Friday night with a risk on vibe seeing equities, commodities, and bond rates higher. This despite more poor economic news out of Europe. The US dollar weakened.

BNZ Markets Today

Jason Wong -

Events Round-Up
AU: Employment change (k), Dec: 21.6 vs. 18.0 exp.
AU: Unemployment rate (%), Dec: 5.0 vs. 5.1 exp.
GE: Markit manufacturing PMI, Jan: 49.9 vs. 51.5 exp.
GE: Markit services PMI, Jan: 53.1 vs. 52.1 exp.
EC: Markit manufacturing PMI, Jan: 50.5 vs. 51.5 exp.
EC: Markit services PMI, Jan: 50.8 vs. 51.5 exp.
EC: ECB deposit facility rate (%), Jan: -0.4 vs. -0.4 exp.
US: Initial jobless claims (wk to 19 Jan): 199k vs 218k exp.
US: Markit manufacturing PMI, Jan: 54.9 vs. 53.5 exp.
US: Markit services PMI, Jan: 54.2 vs. 54.0 exp.

Good Morning
Soft euro-area PMI data and downside growth risks seen by the ECB have dragged down European rates and the euro, spilling over into lower US Treasury yields. Against that backdrop, the USD is broadly higher, while the AUD has underperformed after NAB raised mortgage rates.

BNZ Markets Today

Jason Wong -

The NZD is stronger after yesterday’s CPI report while GBP is stronger on reducing risks for a no-deal Brexit. Outside those moves, there is little other price action. US equities are retreating after a positive open.

BNZ Markets Today

Jason Wong -

Events Round-Up
NZ: Perform. of services index, Dec: 53.0 vs. 53.4 prev.
UK: Unemployment rate (%), Nov: 4.0 vs. 4.1 exp.
UK: Avg weekly earnings (y/y%), Nov: 3.4 vs. 3.3 exp.
GE: ZEW survey expectations. Jan: -15.0 vs. -18.5 exp.
US: Existing home sales (m), Dec: 4.99 vs. 5.24 exp.

Good Morning
Market sentiment has deteriorated, with global equities and bond yields lower. Most major currencies haven’t showed a lot of movement. Commodity currencies are slightly weaker, except the NZD which has managed to hold its ground, while GBP is the strongest of the majors.

BNZ Markets Today

Jason Wong -

Events Round-Up
CH: Retail sales (y/y%), Dec: 8.2 vs. 8.1 exp.
CH: Industrial production (y/y%), Dec: 5.7 vs. 5.3 exp.
CH: Fixed assets (y/y%), Dec: 5.9 vs. 6.0 exp.
CH: GDP (y/y%), Q4: 6.4 vs. 6.4 exp.
Good Morning
Markets are quiet with the US celebrating the Martin Luther King Jr. public holiday. The NZD has tracked ideways overnight after drifting lower during the Wellington public holiday.

NZ At A Glance

NZ At A Glance

Stephen Toplis -

New Zealand is vulnerable to an offshore shock. Trading partner growth is slowing and inflation indicators are weak. In the event of a serious deterioration New Zealand would suffer the consequences. However, the domestic economy looks well positioned and is only being held back by capacity constraints and slowing population growth. Given that the pace of expansion should be sufficient to maintain near-full employment and inflation at target, there will be no pressure on the RBNZ to move its cash rate any time soon. The NZD will suffer if global activity stumbles but remain well supported if not.

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.

Food Prices In An Uncertain World

Doug Steel -

World economic growth is slowing with concerns that it might turn into a slump. This raises downside risks to NZ’s primary product prices. We expect further deceleration in the world economy, but not a deep downturn. Uncertainty indicators are very high. Oil prices are lower; so too equity markets. But food prices have fared better. If the world economy can hold together well enough, NZ’s product prices are expected to be flat to up this year on average aided by pockets of supply side tightness.