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 -

We upgrade our NZD forecasts, now seeing it drift higher, rather than lower, and anchored around 0.65 through to the middle of next year.

NZD: The makings of a recovery?

Jason Wong -

The NZD has been in a consolidation zone over the past six weeks, with support/resistance defined by 0.6200-0.6450. That said, since the low on 1 October, the NZD has appreciated by over 3%. Is it safe to say that the low for the year has now been reached?

NZD Corporate FX Update

Jason Wong -

The NZD continues to face near-term headwinds, driven by weaker economic momentum both globally and domestically. It’s too early to be optimistic on any potential US-China trade “deal”, with the recent handshake agreement seen at this stage to be not much more than symbolising a truce.

Deal or no deal? Initial thoughts on AUD and NZD

Jason Wong -

The much anticipated 13th round of US-China trade talks ended with a so-called trade “agreement”, which looks more symbolic than substantial, and might be better described as simply an interim trade war truce.

NZD/AUD: Back to fair value

Jason Wong -

• The NZD/AUD cross has (justifiably) moved back down below its 5-year average of 0.9320 and is now closer to fair value.
• In-sync NZ and Australian economies and monetary policy argue for a range-trading environment to sustain over the foreseeable future. We see 0.91-0.92 as an area of support.
• Exporters should look to lock in some cover on any forays below 0.92. Importers have had ample opportunity to lock in cover above 0.95 this year. We might struggle to regain that level through the rest of the year, so look to reduce target levels for any future hedging.

Economy Watch

BNZ/SEEK Employment Report

Craig Ebert -

The jump we saw in September’s job advertising has been somewhat nipped in the bud by October’s result.

MPS Preview: Nervous Nellie Edges Steady Eddie

Craig Ebert -

For next week’s RBNZ Monetary Policy Statement, the OCR committee will probably feel the case for another rate cut is finely balanced – in the least not obvious. After much toing and froing, however, it will probably err on the side of a 25 basis point cut. This is even though we think there is no overwhelming basis for it, at this juncture.

Labour Market Revealing Its Inflationary Teeth

Craig Ebert -

This morning’s labour market data were broadly in line with market expectations. However, the results might have the Reserve Bank wondering if the jobs market is more inflationary than it has judged.

Is The Business Struggle Finding a Floor?

Craig Ebert -

The revelation in today’s survey was really how retailers were beginning to stand out in their negativity, while other sectors, by and large, were showing signs of finding a footing, even recovering a bit.

2.0% CPI inflation Won’t Deter RBNZ Doves

Stephen Toplis -

The big question that hangs in the air after today’s CPI release is: what will it take for the RBNZ to concede that inflation is near enough to target for it to relax a tad? Sure, the annual increase in the CPI (as reported today) is a mere 1.5% but this is likely to be the lowest annual reading witnessed for some time. And more to the point, the portion of inflation that most reflects domestic demand conditions (non-tradables) has soared through 3.0%.

BNZ/SEEK Employment Report

Craig Ebert -

From a sense of stability in August, job advertising took a step into positive territory in September.

Pressure For Negative Rates Gains Momentum

Stephen Toplis -

The chances of New Zealand ending up with negative interest rates took a big step up today with the release of NZIER’s Quarterly Survey of Business Opinion. Given the rhetoric in the August MPS, we made the point that it was now a matter of looking for reasons why the RBNZ wouldn’t cut its cash rate rather than seeking reasons why it might do so. Today’s findings not only provide no reason for the RBNZ to pause but, instead, imply accelerated action.

BNZ Forecasts Rate Cuts: November and February

Stephen Toplis -

Unlike the August Monetary Policy Statement, today’s OCR delivered no surprises. In short, the RBNZ left its cash rate unchanged at 1.00%, it confirmed it has an easing bias, and noted that interest rates will be staying low for some time.

Q2 GDP Keeps The Wolves At Bay

Craig Ebert -

As encouraging as today’s Q2 GDP was (relatively speaking), and as much as we forecast growth to continue along at a similar pace, we still think the risks are tilted toward disappointment, looking ahead. And looking ahead is clearly what the Reserve Bank is attempting to do, in providing the “stimulus” it thinks is necessary.

Balance of Payments Still Broadly Encouraging

Craig Ebert -

Normally, with such a stretched economy, New Zealand’s Balance of Payments (BOP) would be starting to test limits. Instead, the current account deficit is presently middling, and biased to shrink a bit further. The nation’s balance sheet with the rest of the world, meanwhile, is significantly less leveraged than it was ten years ago. Such starting points are encouraging, especially with global risks percolating.

Business Survey Not Weaker…But Still Weak

Craig Ebert -

Today’s ANZ business survey wasn’t really any weaker than it was last month. Sure, many of its headline results did drop. However, after we adjusted them for seasonality they were more in the realm of stable. Nonetheless, this left the survey languishing at poorly levels, indicating that the economy could well undershoot official forecasts, including (especially?) those of the Reserve Bank.

Softer spending an RBNZ headache

Stephen Toplis -

From an RBNZ perspective, today’s data should be no big deal as they appear in line with the Bank’s near term estimates. Our concern, however, is that the Bank expects consumption to pick up relatively strongly through the latter part of this year and into 2020. We are not so convinced. If we are right, then the possibility that the cash rate heads ever closer to zero becomes elevated.

Financial Markets Wrap

Better risk sentiment supports NZD

Jason Wong -

Some overhanging global concerns receded in October, driving risk appetite higher
Sees higher global equities and rates
NZD higher while safe-haven currencies underperform; GBP a star performer

NZD mildly weaker through September

Jason Wong -

• Stronger risk appetite saw higher equities and global rates, but the NZD weakened nevertheless…
• …with speculators taking net short positions to a record high as NZ economic data underwhelmed

Trade wars and big rate cut drag down NZD

Jason Wong -

• In August the NZD underperformed, alongside the yuan, as the US-China trade war escalated
• Global and NZ rates fell to fresh record lows

Interest Rate Strategy

Outlook for Borrowers: Post-November MPS

Nick Smyth -

The RBNZ threw another significant surprise to financial markets yesterday, in keeping the OCR unchanged at 1%. Prior to the decision, the market had priced around a 75% chance of a rate cut, a view shared by a large majority of economists (ourselves included). There was a significant market reaction, with wholesale interest rates rising by up to 16bps and the NZD appreciating by 1%.

The beginning of the end? NZ long-end rates outlook

Nick Smyth -

NZ longer-term rates hit record lows at the start of last month, with the 10 year swap reaching 1.1% and the 10 year NZGB yield briefly traded below 1%, before recovering over 30bps over the remainder of October. The massive decline in rates this year has been more a global story than a NZ-specific one (notwithstanding the RBNZ’s 50bp OCR cut in August). 10y NZ-US and NZ-AU spreads have been broadly range-bound this year (see Chart 1). In this note we recap recent developments and set out our medium-term outlook for the NZ long-end.

The two key drivers of NZ long-end rates are global rates, especially the US and Australia, and the RBNZ outlook.

BNZ RV Chart Pack

Nick Smyth -

NZGBs have underperformed on a cross-market basis over the past fortnight as the market has pared back OCR expectations.
Swap-bond spreads appear to have found a base, albeit near multi-year lows. Short-end spreads have moved wider, as we had expected.
NZGB 2029s have cheapened vs. 2027s and 2033s. The 29s remain rich, albeit less so than before.
NZ 10y BEI makes new highs for the year as nominal bonds have sold off.
Modest widening in long-end LGFA-NZGB spreads ahead of tender tomorrow.

Trade idea: Pay the belly of 2s5s10s

Nick Smyth -

The RBNZ OCR decision next week looks delicately balanced, with the market pricing around a 60% chance of a cut (having been more than fully priced for a 25bp cut only a month ago). Given current pricing, kiwi duration positions are effectively a binary play, at least in the near-term, on the November meeting outcome. While we see a November cut as the most likely outcome, our conviction levels are low, and we, like the market, are still learning about the RBNZ’s reaction function under an MPC (November will be just the committee’s fifth meeting).

BNZ RV Chart pack

Nick Smyth -

After hitting multi-year lows, swap-bond spreads have bounced a little.
The long-end of the NZGB curve has steepened more than global peers.
The 2033s and 2027s are cheap on the curve; the 2029 NZGB is expensive.
NZ BEIs increased after a strong CPI release, but remain within established ranges. Valuations still very attractive and carry is favourable until late-March.
Some modest widening in mid-curve LGFA-NZGB spreads.

Outlook for Borrowers: Post-Sept. OCR Review

Jason Wong -

As widely expected, the RBNZ left the OCR unchanged at 1.0% at the September OCR Review, following the shock 50bps easing in August. The Bank has evidently maintained an easing bias and we continue to project another 25bps cut to 0.75% in November. With a softer growth outlook our central view now embeds a final 25bps rate cut in February to 0.5%.

Limits to falling NZGB yields – a supply and demand analysis

Nick Smyth -

The NZ government is in a very strong fiscal position by international standards, with net core Crown debt of around 20% of GDP. The strength of the government’s finances is illustrated by the fact that the stock of total NZ government securities was lower in June 2019 than what it was three years earlier. The decline in nominal securities (bonds and bills) has been even more marked than the total, with the amount outstanding of inflation-indexed bonds having increased over that time.

Basis risk with NZ OIS under unconventional policy

Nick Smyth -

In a recent media interview, Governor Orr expressed a preference for negative interest rates over QE, and our working assumption at this stage is that this will be the initial unconventional policy option, if the need arises.

Negative Interest Rates A Real Possibility

Nick Smyth -

As the RBNZ’s cash rate moves ever lower, the possibility of a negative cash rate, or unconventional monetary policy, gets ever higher. Investors, borrowers and savers alike need to start pondering the implications of this now because, if we are to head into this uncharted territory, the process may evolve much sooner than many expect.

Markets Outlook

In The Balance

BNZ Research -

To our way of thinking, there is not a strong case for the Reserve Bank cutting its cash rate even further at Wednesday’s Monetary Policy Statement. Be that as it may, we believe the OCR committee will feel the case for another rate cut is finely balanced. And we think that, after vigorous debate, it will err on the side of a 25 basis point cut (to 0.75%), while maintaining a slight easing bias. This is mainly as the committee remains nervous about GDP growth not being as strong as it forecast in August, and all that that entails for its inflation and employment projections.

Eyes On The Labour Market

BNZ Research -

Domestic focus this week will be centered fair and square on Wednesday’s plethora of labour market data. With financial markets undecided and twitchy on whether the RBNZ will cut the OCR again next week, each piece of incoming data is getting analysed to the third degree.

A Break in Transmission

BNZ Research -

If the Reserve Bank’s “stimulus” is to work, it needs to do so besides injecting more froth into house prices. Absent a material improvement in the business surveys, it’s hard to see the economy expanding as robustly as the RBNZ thinks it will. This couches our view that the Bank will feel the need to keep cutting interest rates – even though it’s starting to sound less than committed to another cut next month.

The Manifestation of Strong Terms of Trade

BNZ Research -

Labouring as it is in general, NZ GDP still has many things going for it. Population growth is perhaps the most obvious, arithmetically speaking. But relatively strong terms of trade are also providing solid support to GDP – via the national income channel. Our Rural Wrap of last week picked up on this, in highlighting a lamb sector with serious tail winds, and an upgrade to our milk price forecast.

Differing Outlooks on All-Important Inflation

BNZ Research -

A good part of the surprise we think the Bank will get on the Q3 CPI will come in the non-tradables element. The August MPS figured on annual non-tradables inflation slowing to 2.7% in Q3 (from 2.8% in Q2) – on the assumption spare capacity is opening up in the economy – whereas we anticipate a pick-up to 3.0%.

GDP Growth Doesn’t Matter…Au Contraire

BNZ Research -

With near-term CPI inflation likely to overshoot RBNZ expectations, look for the Bank to emphasise slowing GDP growth as cause to keep cutting its cash rate. In this respect, we now anticipate 0.3% growth for Q3 GDP. And 0.5% for Q4 – with downside risk. Last week’s business surveys suggest we might still not be conservative enough, as they pointed to annual GDP growth heading down to the vicinity of 1%. This is miles below recent forecasts of the RBNZ (and Treasury).

Still Lacking Confidence?

BNZ Research -

We have been witnessing a general deterioration in economic growth indicators over recent months. It is this context that we get the latest gauges on business confidence this week. Neither survey is likely to make pretty reading. Confidence is likely to remain deeply negative. More signs of growth underwhelming are likely to encourage the RBNZ to act on its easing bias.

OCR Review: Taking Stock

BNZ Research -

In spite (or because?) of the Reserve Bank’s “shock” 50 point cut last time, we, like all and sundry, expect an unchanged OCR at this week’s meeting. So attention will presumably go straight to the Bank’s commentary, to see if it is still leaning the way of further easing down the track. We think this will be the case – and to a degree that won’t particularly jar with current market pricing.

GDP/OCR Preview: What’s To Stop The RBNZ Cutting?

BNZ Research -

We expect Thursday’s Q2 GDP figures will give a hint of the disappointment the RBNZ is likely to face as a medium-term proposition. With this, the Bank will probably feel under pressure to keep cutting its policy interest rate. Yet it also pays to think about what might stop the RBNZ along this inexorable path, if only temporarily. Like a still-tight labour market, strengthening CPI inflation, the weakening exchange rate, another flare up in the housing market, even global tides.

More Suggestion of Lessening Growth

BNZ Research -

It’s hard to know whether it’s still principally capacity problems, or weakening demand now coming in over the top. But the data are more and more questioning the pulse of New Zealand’s GDP. After this morning’s shaky manufacturing data we have pruned our pick on Q2 GDP growth to 0.3%.

Signs of Domestic Demand Weakness?

BNZ Research -

This morning’s June quarter Overseas Trade Indexes came in broadly as we expected…except for the greater weakness in import volumes than we imagined. Their 3.5% drop was not sheeted to lumpy items, instead reflected slippage in the range of core import categories. This piques our concern about how economic activity was travelling in Q2, and crucially with respect to elements of domestic demand.

BNZ Markets Outlook

BNZ Research -

We still struggle to see how yet-lower interest rates will transmit any durable stimulus to the economy, when interest rates are not perceived to be a key obstacle to growth in the first place. This is not from any model we are running, by the way, but from the vast majority of feedback we are getting directly from business audiences themselves.

Markets Today

BNZ Markets Today

Jason Wong -

Weaker Chinese economic data have seen a decent rally in US treasury yields amidst a risk-off tone. Commodity currencies have underperformed, with weak Australian employment data not helping.

BNZ Markets Today

Jason Wong -

The NZD and NZ rates have been the biggest movers over the past 24 hours as the market was positioned for an RBNZ rate cut that wasn’t delivered. The NZD has sustained the initial market reaction and has traded in a tight range overnight, hovering around 0.64. There has been a modest risk-off tone overnight that has seen global rates head lower.

BNZ Markets Today

Jason Wong -

Markets have remained listless, given the lack of news. US equities are probing fresh record highs while US treasury yields have remained tightly range-bound. The NZD sustained yesterday’s modest loss, ahead of an expected RBNZ rate cut today.

BNZ Markets Today

Jason Wong -

The week has begun on a quiet note, with a lack of news headlines and the US bond market closed for Veteran’s Day holiday. GBP and NZD lead the way in currency markets.

BNZ Markets Today

Jason Wong -

US-China trade deal headlines dominated Friday trading, but even with President Trump hosing down some inherent optimism, US equities still managed to closer higher, while US Treasury yields also nudged up. The USD’s yield advantage proved to be the swaying factor in currency markets, seeing broadly based gains, driving the NZD down further and ending at a fresh three-week low.

BNZ Markets Today

Jason Wong -

Further optimism on an imminent US-China trade deal has driven US equities up to a fresh record high and driven US Treasury yields up to a 3-month high. Higher risk appetite sees JPY underperform, but the NZD’s reaction has been inexplicably muted, lagging gains in the AUD and CNH.

BNZ Markets Today

Jason Wong -

Markets have been fairly listless with modest changes across FX, equity and bond markets. The NZD has traded a less than 30pip range over the past 24 hours, hovering around the 0.6375 mark.

BNZ Markets Today

Jason Wong -

Increasing optimism on a US-China trade deal and a stronger-than-expected US non-manufacturing ISM index have driven markets, with a chunky rise in UST yields and more curve steepening. Higher US rates have supported the USD, and this dynamic has more than offset the positive news for the NZD, seeing it trade back below 0.64.

BNZ Markets Today

Nick Smyth -

Equities and bond yields headed higher overnight following more encouraging comments from US officials on Phase-One US-China trade negotiations. The USD regained some of its losses from last week but remains range-bound while the NZD continues to trade just above 0.64. NZ rates experienced another sizeable rise yesterday, with rates at the short-end reaching their highest level since the August 50bp OCR cut.

BNZ Markets Today

Nick Smyth -

It was a risk-on session on Friday with positive noises on the Phase-One US China trade agreement and stronger-than-expected US economic data lifting the S&P500 and NASDAQ to fresh record highs. There was less movement in bond and currency markets. The USD remained near three-month lows while the NZD consolidated above 0.64. The week ahead features the NZ HLFS employment survey, the RBA meeting and US non-manufacturing ISM survey.

BNZ Markets Today

Nick Smyth -

Markets have been traded with a risk-off tone overnight with equities falling, bond yields lower and the Japanese yen strengthening. This followed a Bloomberg report that a long-term US-China trade agreement would be difficult to achieve and a much weaker-than-expected Chicago PMI survey. The USD weakened sharply yesterday morning after Fed Chair Powell said the hurdle for hikes was very high and it has largely consolidated that move overnight. The NZD is back above 0.64, driven by the weaker USD and the market’s paring back of November OCR rate cut pricing, which is now around 50%.

BNZ Markets Today

Nick Smyth -

The Fed cut its cash rate by 25bps a short while ago but hinted at a pause in its easing cycle. There hasn’t been much move in markets though as investors wait for more colour from Powell’s press conference. Earlier in the session, the Bank of Canada surprised markets by signalling an easing bias, which pushed the CAD sharply lower. The NZD has traded a very narrow range the past 24 hours. The ANZ Business survey is the focus locally today.

BNZ Markets Today

Nick Smyth -

Markets have consolidated overnight ahead of the FOMC meeting tomorrow morning. The US 10 year Treasury yield has drifted back slightly after reports that the Phase-One US-China deal might not be signed at APEC, although progress was still being made. Yesterday NZ rates moved sharply higher, playing catch-up after Monday’s holiday, as the market scaled back its probability of a November OCR cut to 75%. Currency moves have been subdued overnight, but the GBP received an initial boost after Labour dropped said it would support a December election.

BNZ Markets Today

Nick Smyth -

Optimism over US-China trade talks has boosted the S&P500 to an all-time high overnight and global rates have continued to head higher. Currency movements have been more muted, although the NZD has been a notable underperformer since Friday afternoon. It’s a big week offshore with the FOMC and BoJ meetings, RBA Governor Lowe speaking tonight ahead of Australian CPI tomorrow, while US GDP, payrolls and ISM manufacturing are also released.

BNZ Markets Today

Jason Wong -

There has been plenty of newsflow overnight. The net result has been a broadly stronger USD, alongside JPY, suggesting a risk-off tone, with NZD and AUD underperforming, alongside a soft GBP. US equities are flat while global rates are down slightly.

BNZ Markets Today

Jason Wong -

Financial markets have been quiet overnight with minor changes in equities, bonds and currencies, not helped by a lack of data and news headlines. The NZD has trended higher overnight but at a pedestrian rate of 2-3pips per hour for a gain of 30pips to 0.6420.

BNZ Markets Today

Jason Wong -

Markets are in a holding pattern ahead of some key Brexit votes later this morning. Firstly, at 7am NZ time, the UK Parliament will vote on whether they agree on the “principles” of the Withdrawal Agreement Bill. The vote is expected to be close, but narrowly pass. The next vote that comes at 7:30am NZ time is the programme motion, and is seen to be more important. It defines the timetable to enact the Brexit legislation, and whether the UK leaves the EU on October 31. Media report that this again will be a close vote, but could fail. Johnson threatened to abandon the Withdrawal Agreement Bill if Parliament voted against his proposed fast-track timetable and move to trigger a general election before Christmas. Even if both motions pass, then there’s still the thorny issue of what amendments are attached to the bill tomorrow.

BNZ Markets Today

Jason Wong -

Risk sentiment continues to improve, with optimism on a Brexit deal and a positive vibe on future US-China trade developments. Commodity currencies have showed some modest performance, seeing the NZD hover around the 0.64 mark. Global and NZ rates continue to track higher.

BNZ Markets Today

Jason Wong -

On Friday, GBP continued to lead the way in currency markets, supported by increased confidence that Johnson’s Brexit deal would win the support of the UK Parliament. The USD remained under pressure helping the NZD and AUD reach a one-month high. The US yield curve continued to steepen.

BNZ Markets Today

Jason Wong -

Overnight, Brexit has been in the spotlight again, causing some market volatility. However, the net result is little change in GBP from this time yesterday, with doubt that a new negotiated deal will get the vote in UK’s Parliament. UST yields spiked higher, but have fallen back in line. Commodity currencies have outperformed against a backdrop of broadly based USD weakness.

BNZ Markets Today

Nick Smyth -

Market optimism for a Brexit agreement continues to build, which has pushed the GBP to a five month high and supported risk appetite more broadly. The Brexit-driven strength in the GBP and a weaker than expected US retail sales report have combined to weaken the USD. The NZD got a short-lived boost from NZ CPI yesterday, but subsequent comments from RBNZ Deputy Governor Bascand, that OCR cuts were a “reasonable prospect”, has seen the NZD underperform over the past 24 hours.

BNZ Markets Today

Doug Steel -

A decent bout of Brexit optimism sent a wave of risk on sentiment through markets overnight despite some lingering concern around how much of a deal the US and China really did last week. From early last night, there were positive signs that a Brexit deal may be done this week. Bond yields and equities are higher, gold fell, and safe haven currencies are lower. The US dollar is broadly flat.

BNZ Markets Today

Nick Smyth -

The risk-on market moves that accompanied the US-China mini trade deal on Friday have partially unwound amidst growing scepticism about the agreement. Trading activity has been light however with both the US and Japan on holiday. The NZD has fallen 0.6% and is back at 0.63.

BNZ Markets Today

Nick Smyth -

Positive market sentiment continued on Friday as the US and China agreed to a partial trade deal and the UK and EU agreed to intensify negotiations over a possible Brexit deal. Equity markets and bond yields rose sharply for the second day running as the market started to price-in a more positive economic outlook and investors rotated out of safe havens. The improvement in risk appetite led to falls in the JPY and USD, while the GBP had another big rise on Brexit optimism. The NZD was slightly stronger while NZ rates had a large move higher on Friday.

BNZ Markets Today

Jason Wong -

Hope for an interim US-China trade agreement or détente that averts further tariffs alongside hope that a Brexit deal might be achievable after all have fuelled a rise in risk appetite. Equity markets are higher and UST10s are up 6bps, while safe-haven currencies have underperformed. GBP is up over 1.7%.

BNZ Markets Today

Jason Wong -

Risk appetite has improved a bit on reports that China is keen on an interim trade deal focused on the agricultural sector, which sees US equities claw back some of yesterday’s losses, while US Treasury yields are higher. The currency market this week hasn’t been sucked into this back and forth mood music on US-China relations and movements remain small.

BNZ Markets Today

Jason Wong -

More bad news ahead of US-China trade talks later this week has soured risk sentiment. US equities are down about 1%, UST yields are slightly lower and safe-haven currencies have outperformed. GBP is the weakest major as a Brexit deal is looking impossible at the upcoming EU summit. Fed Chair Powell’s speech – which could impact the market – has been pushed out and now won’t be released until 7:30am NZ time.

BNZ Markets Today

Jason Wong -

It has been a sleepy start to the new week with modest movements in asset prices. US equities are flat while the US yield curve has flattened as some expected policy easing is priced out of the curve. Most key currencies are little changed, but the NZD and AUD are down slightly.

BNZ Markets Today

Jason Wong -

After an eventful week, Friday’s focus on the US employment report was an anti-climax, with a mixed report seeing only modest reaction to currencies and US rates. But with fears of another bad economic report allayed, US equities recovered strongly to unwind most of the loss seen earlier in the week.

BNZ Markets Today

Nick Smyth -

Another weak US business survey, this time the ISM Non-manufacturing index, sparked a further sharp fall in bond yields overnight. Equities initially plunged on growing US recession fears, but the falls in Treasury yields and increase in Fed rate cut expectations led to a quick reversal and US indices are now higher on the day. The lower Fed rates outlook has hit the USD, which has fallen across the board. The NZD and AUD have outperformed.

BNZ Markets Today

Nick Smyth -

Equity markets have plunged and bond yields fallen sharply overnight as the fall-out from yesterday’s very weak Manufacturing ISM survey continued. Market sentiment hasn’t been helped by the WTO’s ruling on state subsidies for Airbus which means the US is permitted to levy tariffs worth $7.5b on EU imports. The NZD has performed well in spite of the risk-off backdrop and has pushed up to 0.6270. All eyes are on the non-manufacturing ISM survey which is released tonight.

BNZ Markets Today

Nick Smyth -

Good Morning
There have been big moves in markets overnight after a very weak US ISM manufacturing survey, which fell to its lowest level since the GFC. US rates, which had been trading higher earlier in the day, plunged, while US equities and the USD turned down. The RBA cut its cash rate to 0.75% yesterday, as expected, but its reference to achieving “full employment” in the statement saw a sharp move lower in the AUD. The RBA statement and yesterday’s grim QSBO survey combined to push the NZD to a fresh four year low, but the turn-around in the USD has seen the NZD recover most of its earlier losses.

BNZ Markets Today

Nick Smyth -

The September quarter ended on a positive note, as equity markets brushed off reports from Friday that the US had discussed restricting investments in Chinese companies. The USD strengthened again, with the DXY index reaching its highest level since mid-2017, while bond yields were little changed. The NZD has underperformed over the past 24 hours, and reached a fresh four year low, after another miserable ANZ business confidence survey. All eyes are on the RBA rate decision this afternoon.

BNZ Markets Today

Nick Smyth -

US equity markets closed lower on Friday night after Bloomberg reported that the US administration was considering delisting Chinese companies in the US and restricting US portfolio flows into Chinese markets. The CNH also weakened on the report, although there was only a minor impact on the NZD and AUD. There was little net movement in FX and bond markets on Friday. It’s a big week ahead, with the RBA meeting tomorrow, the Chinese PMIs, ISM surveys and nonfarm payrolls, as well as the QSBO survey in NZ.

BNZ Markets Today

Jason Wong -

Markets are seeing a mild risk-off tone prevail with lower US equities and Treasury yields, as the week draws to a close, with US politics and the US-China trade war remaining the key themes. Currency movements have been modest, but notably the NZD has sustained the run-up seen after Governor Orr’s upbeat speech yesterday.

BNZ Markets Today

Jason Wong -

US politics has been a key driver of markets again with the inquiry into impeachment against President Trump remaining a focus. Markets have reversed course from yesterday’s price action, seeing US equities higher, US yields higher and a broadly based recovery in the USD. The NZD is back decisively below 0.63, with the post RBNZ OCR Review blip proving to be fleeting.

BNZ Markets Today

Jason Wong -

After a sleepy local trading session there has been plenty of news to digest overnight – some hard line comments against China in Trump’s UN speech, an increased risk of impeachment of Trump, the UK Supreme Court ruling against the suspension of parliament, soft US economic data and an RBA speech by Governor Lowe. The net result is weaker US equities, lower US Treasury yields and a weaker USD.

BNZ Markets Today

Jason Wong -

EUR and GBP have opened the week on a soft note, reflecting a much weaker PMI report for the former and Brexit fog for the latter. NZD has recovered some of last week’s losses although remains below 0.63. Lower European rates have dragged down US Treasury yields.

BNZ Markets Today

Jason Wong -

A risk-off mood developed Friday night after hopes for a US-China trade deal receded as a delegation from China looked to return home earlier than planned. The S&P500 reversed course and closed down 0.5%, while the US 10-year rate fell 6bps to 1.72%. The NZD was already heading south well ahead of that announcement, marking fresh 4-year lows, and closed near that historical low of 0.6255.

BNZ Markets Today

Jason Wong -

The USD has reversed course after its post-FOMC rally, and is now back to pre-FOMC levels. GBP leads the way with positive vibes on Brexit continuing. The NZD hasn’t benefited from USD-weakness, falling in sympathy with the AUD after the Australian unemployment rate ticked higher. US rates are slightly lower for the day.

BNZ Markets Today

Jason Wong -

Markets were quiet ahead of the FOMC announcement this morning. The market has taken the statement as hawkish relative to expectations, more so after Fed Chair began speaking at the press conference. This sees the USD bid higher and US rates reversing the falls seen earlier in the day.

BNZ Markets Today

Jason Wong -

Oil prices have reversed course after it looks like Saudi oil production will be fully restored by the end of the month. The NZD and AUD have recovered losses seen during local trading, while EUR and GBP have reversed losses seen earlier this week. US equities are flat, while US Treasury yields are lower.

BNZ Markets Today

Jason Wong -

The week opened with the focus on the oil market after the attacks on Saudi oil production facilities on Saturday. Brent crude is currently up 14½% for the day, climbing higher overnight as new information comes to light. Market movements have been predictable, with CAD, NOK and safe havens outperforming, while the NZD has pushed lower. Global equities are modestly weaker, while global rates have pushed lower.

BNZ Markets Today

Jason Wong -

On Friday, global bond yields continued to show sharp increases, with the US 10-year Treasury yield up 12bps to 1.90%. The big bond market sell-off still hasn’t perturbed US equity markets, with the S&P500 flat for the session and still flirting with record highs, although the rotation away from defensive sectors continued. The NZD was inexplicably weak against the backdrop of goodwill gestures on US-China trade relations and a stronger yuan, seeing it close the week below 0.64, while NZD/AUD closed below 0.93 for the first time since November.

BNZ Markets Today

Nick Smyth -

The ECB announced a 10bp rate cut and the resumption of its QE programme from 1st November at its meeting overnight. The EUR and German bond yields initially fell in response, but they quickly reversed course and now both are higher on the day. Market sentiment has been boosted by incrementally more positive news on the US-China trade front, which has boosted equity markets and the CNY, although the NZD is surprisingly lower on the day. The global bond sell-off has extended, despite the ECB’s actions.

BNZ Markets Today

Nick Smyth -

After rising sharply over the past week, global bond yields have stabilised overnight. The market is likely to remain in a holding pattern ahead of the eagerly awaited ECB meeting tonight at which the central bank is universally expected to announce new easing measures. Equity markets have moved higher while the USD has shown broad-based strength. The NZD continues to hover just above 0.64.

BNZ Markets Today

Nick Smyth -

Global bond yields have continued their recent resurgence overnight, helped by an MNI report that the ECB might delay, or make conditional, the resumption of QE. Reports that China had offered to buy more US agricultural goods ahead of the October trade talks also supported rates. Equity and currency market moves have been contained.

BNZ Markets Today

Doug Steel -

Overnight markets have seen a mildly risk supportive session, although not universally so. Global bond markets meaningfully extended last week’s sell-off, safe haven currencies slightly underperformed, while commodity prices edged higher. Not so ‘in-theme’ were equity markets, with major indexes either up or down smalls.

BNZ Markets Today

Nick Smyth -

Markets ended last week on a cautiously optimistic note despite the US payrolls report showing weaker than expected job growth. Global equities and US Treasury yields consolidated on Friday after their sharp rises the previous night. The NZD rose for the fifth consecutive day amid the more positive risk sentiment and ended the week above 0.64. NZ rates were up sharply across the curve on Friday, reflecting offshore moves the previous night.

BNZ Markets Today

Jason Wong -

An announcement that US-China trade talks will kick off again next month and some positive US economic data have driven some chunky gains in equities and a big bond market sell-off, with UST yields up over 10bps across the curve. The NZD and AUD have sustained their gains made during local trading hours, while GBP continues its recovery on Brexit optimism.

BNZ Markets Today

Jason Wong -

Risk appetite has improved after the reduction in some geopolitical risks, with better news out of Hong Kong, Italy and the UK. Global equity markets are stronger, with the S&P500 currently up 0.9%. The USD (and JPY) has shown broadly based falls, with the market still digesting the very weak ISM manufacturing report a day earlier.

BNZ Markets Today

Jason Wong -

Good Morning
US equities, rates and the USD are much lower following a weak ISM manufacturing report. The NZD has recovered over half a cent from its low point yesterday afternoon to trade about 0.6325.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week with the US public holiday. Currencies show modest movements apart from overt GBP weakness, with nerves ahead of Parliament re-opening and speculation about a new general election.

BNZ Markets Today

Jason Wong -

There was plenty of economic data to digest Friday, but month-end hedging flows dominated trading activity. The NZD fell below 0.63 for the first time since 2015 but ended the week just above that mark. EUR was the weakest of the majors, not helped by soft inflation data and negative Italian politics. US equities and Treasuries were relatively flat.

BNZ Markets Today

Nick Smyth -

Equities and bond yields have bounced higher overnight after China indicated it wouldn’t retaliate to the latest import tariffs announced by Trump. Safe haven currencies have underperformed, while the CNH has appreciated and the AUD has outperformed. The NZD fell to a fresh, post-2015 low after yesterday’s ANZ Business survey, which showed confidence and own activity indicators at their weakest levels since the GFC.

BNZ Markets Today

Nick Smyth -

The main news overnight has been UK Prime Minister Boris Johnson’s announcement that the Queen’s speech will take place on 14 October, effectively suspending parliament for almost five weeks in the run-in to 31st October. The GBP plunged on growing fears that MPs would find it harder to prevent a no-deal Brexit, but it has since recovered around half those losses and there hasn’t been any contagion to broader risk assets. Equities are higher overnight while bond yields have drifted lower once again. The NZD has underperformed and yesterday reached its lowest level since September 2015.

BNZ Markets Today

Nick Smyth -

Equity markets and bond yields have traded lower over the past 24 hours amidst growing scepticism about Trump’s claim of a weekend call between US and Chinese officials, although the moves have been reasonably modest. The GBP has appreciated on optimism that a no-deal Brexit might be prevented, while the NZD and AUD have underperformed against a mildly risk-off backdrop.

BNZ Markets Today

Nick Smyth -

Equity markets and bond yields have staged something of a recovery over the past 24 hours after some more conciliatory comments from Trump and Chinese Vice Premier Liu on trade. The NZD reached its lowest level since 2015 yesterday morning, but it has since recovered and has outperformed overnight alongside the AUD. Safe haven currencies have weakened.

BNZ Markets Today

Nick Smyth -

While the spotlight was expected to be on Fed Chair Powell at Jackson Hole on Friday night, his keynote address ended up being overshadowed by a further escalation in the US-China trade war. China announced it would retaliate with tariffs on $75b of US imports, followed by Trump announcing that he would add an additional 5% tariff on all $550b Chinese imports. Equity markets plunged, bond yields fell sharply, safe haven currencies appreciated and the AUD and CNH underperformed. The USD weakened after Trump complained about the strong USD, raising speculation that the US could consider unilateral currency intervention. The NZD performed well amidst the risk-off backdrop, and ended the week at 0.64, supported by comments by RBNZ Governor Orr that suggested the bar for a September OCR cut is quite high.

BNZ Markets Today

Jason Wong -

There has been generally little price action in markets overnight, with flat equities and US Treasury rates but the NZD has sustained the weakness seen during NZ trading hours, and it touched a fresh multi-year low overnight. Meanwhile, GBP is up over 1% on Brexit optimism.

BNZ Markets Today

Jason Wong -

Currency markets remain listless. The NZD shows a slight downward bias and trades near 0.64, while the other majors show modest movements as well. The US 10-year rate is up 1bp at 1.57% after a peek above 1.60%, while US equities have been boosted by some decent earnings reports.

BNZ Markets Today

Jason Wong -

There hasn’t been much news for markets to trade on overnight, with Italian politics and Brexit making some headlines. Global equity markets have fallen after the previous session’s solid gains, while global rates have also reversed course and show falls across the board. Currency markets remain unexciting, with the NZD still tightly range-bound.

BNZ Markets Today

Jason Wong -

The new week has begun with a positive vibe, with some US companies allowed to do business with Huawei for another 90 days, and further speculation that Germany’s government will ease fiscal policy to pull its economy out of recession. Global equity markets have bounced higher and global rates are higher, while currency markets remain fairly unresponsive and the NZD has drifted down regardless.

NZ At A Glance

New Zealand At A Glance

Stephen Toplis -

We still think the New Zealand economy can muddle through but it’s getting much more difficult. There is now a very real risk that rising uncertainty coupled with business frustration with rising costs and capacity constraints, results in much weaker growth than we are forecasting. If risk becomes reality then who knows just how low our activist central bank might push interest rates. Below zero is now a distinct possibility. With the RBNZ running out of effective policy options expect the Government to come under increasing pressure to ease fiscal policy and abandon its currently-forecast surplus track.

Rural Wrap

Spring Lamb

Doug Steel -

Amid uncertainty and insecurity of much change in the agriculture sector, primary product prices have been a pillar of strength. Subdued supply in many markets has offered price support as has a lower NZD. And in spite of various risks circulating offshore, demand has remained generally firm and even strengthened in some areas. Prices have been firm across many major export products, but none more so than lamb.

Concern and Caution - August 2019

Doug Steel -

The latest survey of farmer confidence from Federated Farmers does not make pretty reading. To be sure, it is not all doom and gloom but there is no denying a mood of concern and caution among the farming community.

Milk Price Uncertainty - June 2019

Doug Steel -

Current market conditions are milk price supportive. We caution against necessarily extrapolating such conditions over the entire season ahead. Global milk supply is currently muted offering support to prices but we are guarded regards demand over the coming year given current trade-tension-induced uncertainty. Our milk price forecast for the 2019/20 season remains at $6.70, but we look at some alternative scenarios given the current uncertainty.

Mixed Signals - April 2019

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 - January 2019

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.