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 Review and 2019 Outlook

Jason Wong -

2018 Review
The NZD showed mixed performance through 2018, weakening against the USD and JPY and outperforming the other key commodity currencies, AUD and CAD. Performance of the NZD on EUR, GBP, and CNY crosses depends on measurement. Taking the spot rate as at the end of 2018 and 2017, the NZD showed little movement. Using December month averages, the NZD ended up stronger on these crosses.

NZD Corporate FX Update

Jason Wong -

The NZD showed a strong recovery in November, breaking its prior six-month downward trend. Over recent weeks it has been trading slightly rich compared to our short-term fair value model estimate, which has hovered around 0.66-0.67.

NZD/AUD to sustain a higher range

Jason Wong -

In our early October FX forecast update, we had the AUD falling back to 0.71 and NZD to 0.65 by year end, on the premise that the US would press ahead with lifting the tariff rate on $200bn worth of Chinese imports to 25% from Jan 1st and confirm it was extending tariffs early in 2019 to the whole gamut of Chinese imports.

NZD Recovers, Now What?

Jason Wong -

The NZD has been the best performing major developed currency over the past month. After reaching a multi-year low of 0.6425 in early October, a strong rally has seen it rise to as high as 0.6884, a level not seen since June.

NZD Corporate FX Update

Jason Wong -

Our forecasts show the NZD hovering around 0.65 through the next six months, but we aren’t confident enough to declare the downward trend of the past six months over. Much bad news is priced in but the global macro backdrop is challenging.

Economy Watch

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).
The PSI for December was 53.0, which was 0.4 points down from November (A
PSI reading above 50.0 indicates that the service sector is generally expanding;
below 50.0 that it is declining). This was the lowest level of expansion since
June, and meant the overall average rate for 2018 was 54.9. This was lower
than 2016/2017, but still slightly ahead of the long term average of 54.5 for the
survey.
BusinessNZ chief executive Kirk Hope said that the December result was
influenced by a few factors.
“Despite the sub-index of new orders (59.2) improving from November, the other
key sub-index of activity/sales (52.2) continued to drop, reaching its lowest level
of expansion since May 2014. Employment (50.3) returned to levels experienced
for a sizeable part of 2018, while supplier deliveries (51.6) returned to expansion.
The further dip in expansion also saw a drop in positive comments received, with the proportion of
positive comments in December (54.4%) lower than both November (60.1%) and October (56.5%).
Both Xmas and holidays were the stand out reason for negative comments, although a number of
positive comments also focused in this space”.
BNZ Senior Economist Doug Steel said that the recent PSI results “adds to the sense that growth in the
service sector has been slower over the past six months. But it is also important to recognise that it
appears to be stabilising at this slower pace rather than slowing further”.

BNZ PMI - Stocked Up

Craig Ebert -

New Zealand’s manufacturing sector experienced a positive end to 2018,
according to the latest BNZ - BusinessNZ Performance of Manufacturing Index
(PMI).
The seasonally adjusted PMI for December was 55.1 (a PMI reading above
50.0 indicates that manufacturing is generally expanding; below 50.0 that it
is declining). This was 1.4 points up from November, and the highest level of
overall activity since April.
BusinessNZ’s executive director for manufacturing Catherine Beard said that the
December result ensured activity over 2018 kept ahead of the long-term results
for the sector.
“2018 averaged 53.8 in activity, slightly ahead of the overall average of 53.4 since the survey began.
However, it was still a noticeable dip in expansion compared with 56.2 over 2017 and 56.0 over 2016.
Looking at the main sub-index values, new orders (56.1) still remains in healthy territory, although it was
interesting to note that finished stocks (58.6) was at its highest level since the survey began.
In addition, the proportion of positive comments for December (60.6%) was slightly up from November
(60.1%). Seasonal factors were again a major discussion point, with the Christmas period dominating
comments”.
BNZ Senior Economist, Craig Ebert said that “the latest NZ PMI result is all the more encouraging in
the context of slowing growth in global manufacturing. The latter is part of what’s casting clouds around
international GDP growth expectations, going into 2019”.

QSBO Highlights Cyclical Stretch

Craig Ebert -

Just how hot is the NZ economy? Judging by pricing intentions in this morning’s Quarterly Survey of Business Opinion (QSBO), not very. But look at the survey’s capacity constraint variables and it’s clear the economy is relatively heated. And that this is likely to remain the case for a while yet, with the QSBO’s improved growth measures more consistent with annual GDP running around trend (2.5-3.0%).

Oil Pressure On External Deficit To Ease

Doug Steel -


New Zealand’s current account deficit widened to 3.6% of GDP for the year to September 2018 from 3.3% in the year to June 2018. This matched market (and our) expectations so nothing to cause market movement. But it’s worth noting that this is the largest annual deficit since 2009. Higher oil prices contributed to a bigger deficit in Q3, but a recent collapse will see the reverse over coming quarters.

(Most) Businesses Shake Some of Their Gloom

Craig Ebert -

As much as today’s ANZ survey might have started running to the rescue of our middling macro-economic forecasts (no thanks to agriculture), it also registered a cooling in its inflation gauges. However, the details revealed that the drop in inflation expectations was very much concentrated in the retail sector; but also that the retail sector lifted its own-pricing intentions to +46.2, from an already-high +42.4 in November.

Slower Pace

BNZ Research/Business NZ -

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

BNZ Bankers Survey - Full Report

BNZ -

BNZ’s bankers launch a new measure of business, conditions and confidence in NZ
December 17 2018 - If you really want to know how the economy is performing, ask a banker who knows their customer well. That’s the premise behind Bank of New Zealand’s Quarterly Business Bankers’ Survey launched today.

BNZ Bankers Survey - Dashboard

BNZ -


BNZ’s bankers launch a new measure of business, conditions and confidence in NZ
December 17 2018 - If you really want to know how the economy is performing, ask a banker who knows their customer well. That’s the premise behind Bank of New Zealand’s Quarterly Business Bankers’ Survey launched today.

Holding Firm

Craig Ebert -

Activity in New Zealand’s manufacturing sector for November experienced a similar result to the previous month, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

Fiscal Forecasts Weather Toned-Down GDP

Craig Ebert -

Today’s Half-year Economic and Fiscal Update (HYEFU) was, in broad respect, very similar to the May Budget, as we expected it would be. Yes, there was a little bit of surplus pruning regarding the nearer term. But this was the consequence of toned-down economic forecasts, which now look less vulnerable to disappointment. So the end result is arguably a more assured set of fiscal projections.

GDP Wellbeing Back In Focus

Craig Ebert -


Gross Domestic Product (GDP) doesn’t matter…until it does. And it did today, with its September quarter growth sagging to 0.3%, compared to market expectations of 0.6%. Upward revisions to recent history helped soften the blow. And the Q3 GDP details only shored up our view that Q4 GDP will expand solidly. However, the Q3 GDP outcome, patchy as it was, adds to other factors likely to nourish the Reserve Bank’s dovish leanings.

Activity Defying Confidence

Doug Steel -

Economic activity has been doing better than weak confidence readings would have you believe. This applies to agriculture as much as it does to the wider economy. Tractor registrations are at their highest level since the 1970s. Sure the outlook has soften a little in some areas, like dairy prices, albeit that this has been partly driven by very strong milk production on generally favourable weather conditions. Lamb prices remain strong.

RBNZ in Summer Hibernation

Stephen Toplis -

We reckon there is a strong argument for interest rate normalisation. New Zealand is at maximum sustainable employment, the output gap is zero and inflation, both headline and underlying, is near 2.0%. Be that as it may, there is clear RBNZ reluctance to shift rates higher and it is fair to say that there is little evidence that inflation is about to get out of control with rates where they are. Consequently, we find ourselves lowering our prospective interest rate track and suggest current market pricing is about right, for now at least.

ANZ Survey: Same Old, Same Old

Stephen Toplis -

There was nothing in today’s ANZ Business Outlook to change our view of the world. And, importantly, we doubt there was anything in it to change the central bank’s perceptions either.

Uptick in Activity

BNZ Research/BusinessNZ -

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

Maximum Sustainable Employment Breached?

Stephen Toplis -

We’ve been saying it for some time now. How can the RBNZ seriously contemplate cutting its cash rate (from its present record low) when the economy is in a position of maximum sustainable employment? That’s the view we had when the unemployment rate was 4.4%. Following today’s labour market data it now sits at 3.9%.

NZ Construction Outlook

Stephen Toplis -

We remain hopeful the current growth phase in construction can be extended for some time. The expansion is likely to be dominated by residential building, in particular, multi-unit dwellings. Nonetheless, the headwinds are growing and capacity constraints are becoming more binding both of which will limit the pace of the future expansion. And for those trying to make money in the sector, frustration will grow further as staffing issues become more problematic and cost pressures increase.

Disconcerting Undertones

Stephen Toplis -

There was enough in today’s data to support our view that the New Zealand economy will hang together despite the headwinds that it is facing. But there is gathering evidence that those headwinds are blowing relatively strongly and, in some cases, from unexpected directions. This will leave us pondering the prospect that the wheels might fall off, particularly were we to be hit by either some form of external shock or a very dry summer. Nonetheless, now is not the time for the RBNZ to react to those risks by cutting interest rates, particularly when pricing data suggest a diametrically opposite course of action.

Financial Markets Wrap

BNZ Financial Markets Wrap

Jason Wong -

• Global equities plunge; Risk appetite index down to a multi-year low
• NZD underperforms alongside other commodity currencies and risk assets
• NZ rates down to multi-year lows

NZD Recovers Strongly in November

Jason Wong -

• The NZD bounced back strongly, up 5½% for the month
• Supported by optimism on US-China trade relations, a less hawkish Fed outlook, and positive domestic data
• NZ rates higher against a backdrop of lower global rates

NZD Resilient In October As Equity Markets Tumble

Jason Wong -

• Global equity markets tumbled in October as risk appetite collapses
• Against that backdrop, the NZD was resilient, down only 1½%, while the TWI was flat
• US Treasuries weren’t a safe-haven as rates rose across the curve, while NZ rates fell

Interest Rate Strategy

NZ Rates Outlook: Scaling Back Our Bearish Expectations

Nick Smyth -

In early November we made the medium-term case for paying NZ swaps. We thought the market would struggle to push out the timing of OCR hikes much further, NZ rates looked expensive on a cross-market basis and in relation to broader macro fundamentals, and the market was positioned long and vulnerable to re-pricing sharply higher in the event macro data made RBNZ hikes look more likely. Additionally, we saw upside risks to global rates and expected the market to ultimately revise up its Fed expectations, helping to push US yields higher.

RBNZ Proposed Capital Requirements: Preliminary Thoughts

Nick Smyth -

Last Friday, the RBNZ released a consultation paper proposing to increase the required Tier 1 capital ratio from 8.5% to 16% for the “Big 4” NZ banks (15% for smaller banks). Additionally, the RBNZ proposed to increase the “IRB scalar” applied to model-based risk-weighted assets (RWAs) from 1.06 to 1.2. This will also have the effect of further increasing large banks’ capital requirements.

Trade Idea: Long NZGB 2029 vs. Pay Swap

Nick Smyth -

After reaching new wides just over a week ago, swap spreads have snapped back over the past week (see Chart 1). The long-end of the NZGB curve has led the underperformance over the past week.

Outlook for Borrowers: Post-November MPS

Nick Smyth -

RBNZ Monetary Policy Outlook
At the November MPS, the RBNZ reiterated that it expected to keep the OCR on hold into 2020. It said the timing and direction of any future OCR move would be data dependent.

Mind the Trans-Tasman Gap: NZ-AU spreads to widen further

Nick Smyth -

NZ rates underperform significantly over the past week – this move ultimately has further to go
Over the last week, NZ 2y swap has increased 15bps, 5y by 26bps and 10y by 23bps. The catalyst for this move was the much larger-than-expected fall in the NZ unemployment rate (3.9% v. 4.4% exp.), to its lowest level since 2008. We see the sharp move higher in NZ rates as largely correcting for the large outperformance of NZ vs. other markets after RBNZ Governor Orr suggested the possibility of rate cuts, which now look remote. Ultimately, we think the NZ move has further to go, and there is scope for the market to price a steeper RBNZ tightening path, albeit rates may now consolidate for a period after such a large move. See our note from last week on the medium-term rationale for paying NZ swaps.

Targeting Wider NZ Swap Spreads Ahead Of Q1 Maturity ‘Wall’

Nick Smyth -

• We have been highlighting the supportive supply backdrop for NZGBs and high grade NZ fixed income for some time.
• This culminates in Q1, when there will be record maturities across NZGBs, LGFA and SSA (over $15b in total). Ahead of this, there has been very strong demand at recent NZDM tenders.
• Swap spreads have tended to widen in the months preceding recent NZGB maturities. Additionally, swap spreads have shown a seasonal tendency to widen in December.
• We would look to use a pull-back in swap spreads ahead of December to position for widening. Our model, in which net supply is a key variable, points to wider 10y swap spreads ahead.
• We target a long position in the NZGB 4.5% 2027 against swap at an I-spread of -28bps or higher.

Making the (medium-term) case for paying NZ swaps

Nick Smyth -

The NZ rates market has been the star performer in 2018. It is the only developed rates market with a lower 10 year swap rate (almost 30bps) than at the end of last year. Below, we outline the medium-term case for scaling into paid positions in NZ swaps.

Markets Outlook

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.

2019: A Dawning Sense of Realism

BNZ Research Team -

As 2019 gets underway, a sense of realism appears to be setting in to markets. Compared to a few months ago, equities have taken a knock. While measures of volatility/risk have come back on the radar after a long slumber. Realism on the economic front is a matter of accepting that the post-GFC expansion is now very long in the tooth. This brings with it the likelihood of apparently-weak GDP growth, but also the risk of surprisingly resilient inflation.

Advance New Zealand Fair

BNZ Research Team -

The more we look around, the more resilience we see in New Zealand’s economic data and anecdotal evidence. This is not to say the economy is roaring away, or is immune from a marked slowdown at some stage. But, for now, it is emanating a tone of fortitude.

Manufacturing Clobbers GDP

BNZ Research Team -

It appears that the pressure on the Reserve Bank to hike interest rates any time soon is dissipating. Not only are petrol prices and the NZD depressing short term inflation measures but it now also looks like growth could come in on the lower side of RBNZ expectations.

Economic Growth Remains Defiant

BNZ Research Team -

It seems to us that the economy continues to forge ahead in a far more robust fashion than many of the business confidence indicators might have you believe. There’s no doubt confidence is being rocked by a combination of uncertainty, capacity restrictions and margin pressure. But actual economic output continues to grow. With this in mind, we will be watching this week’s suite of partial indicators for confirmation that Q3 GDP held up. At this stage we are forecasting an increase of 0.7% for the quarter, 2.9% for the year. This is the same pick as the RBNZ.

BNZ Markets Today

Jason Wong -

Currency markets are treading water ahead of the important Xi-Trump meeting this weekend. US equities are modestly lower through the morning session, while the US 10-year rate is back near the NZ close of 3.03% after earlier breaking below 3%.

Q3 Retail Volumes Pinched By Petrol Prices

BNZ Research Team -

All things considered, we are not freaked out by the apparent stalling in Q3 retail spending. Indeed, when thinking through the various timing influences, we probably need to bump up our expectation on Q4 retail trade growth.

More Evidence of Economic Momentum

BNZ Research -

The big news for the week has already been released. The Performance of Manufacturing (PMI) and Performance of Services indices (PSI) have bounced relatively strongly. We’d been concerned that they might go the same way as business confidence and foretell a significant economic slowdown. Had this been the case our growth forecasts would have been threatened. Fortunately, for now at least, the performance indicators are sufficiently strong for us to maintain our view that GDP can continue to expand at a near potential rate for a while longer yet. For the record, we are forecasting GDP growth of 2.9% for calendar 2018 and 2.8% for next year.

Oil Caps CPI, Replenishes Disposable Income

BNZ Research Team -

Bear in mind there is a full three months’ worth before the next RBNZ policy meeting; the 13 February MPS. That’s a long time between drinks. But already, the trajectory on the NZ CPI is being pruned, by the latest wave of reversal in international oil prices.

When Perception Isn’t Reality

Craig Ebert -

It’s a moot point which way the numbers go in Wednesday’s ANZ business survey. But there is an argument that from where its headline results already sit, they will be hard pressed to shock the market now. This is particularly so, with a lot of the hard data on the NZ economy defying the worst of the recent business survey insinuations. Speaking of which, there is a lot of hard data on the NZ economy due this week – albeit none of it top-tier.

Markets Today

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.

BNZ Markets Today

Nick Smyth -

Events Round-Up
AU: Home loans (m/m%), Nov: -0.9 vs. -1.5 exp.
EC: Core CPI (y/y%), Dec: 1 vs. 1 exp.
US: Philadelphia Fed business opinion, Jan: 17 vs. 9.5 exp
US: Initial jobless claims (k), Jan: 213 vs. 220 exp.

Good Morning
US equities have managed to inch a little higher overnight, despite the continued US government shutdown, disappointing earnings from Morgan Stanley and speculation that Trump might impose tariffs on auto imports. The NZD has underperformed again, as the market awaits CPI data next week.

BNZ Markets Today

Nick Smyth -

Risk sentiment continues to gradually improve, with better than expected earnings from US banks helping to support equity markets. Theresa May’s deal was voted down by a record margin, but the market sees a shift towards a softer Brexit and away from a no-deal scenario; GBP has bounced strongly from yesterday morning’s lows. The NZD has underperformed overnight and the NZ 2 year swap rate made a fresh low yesterday.

BNZ Markets Today

Nick Smyth -

Risk sentiment has improved overnight on news of tax cuts in China, with global equity markets higher and US bond yields inching up. But the main event is the UK parliamentary vote on Theresa May’s Brexit deal at 8am NZT, which will set the tone for risk assets and currencies in the day ahead. The GBP has weakened, and the USD strengthened, ahead of the vote. The NZD has moved lower despite an improvement in NZ business confidence and increase in dairy prices.

BNZ Markets Today

Nick Smyth -

Weak Chinese trade data released yesterday generated renewed concerns about global growth, pushing equity markets lower. Global rates are little changed however and currency movements have generally been contained. The GBP remains volatile ahead of the parliamentary vote on Theresa May’s deal tomorrow (UK time).

BNZ Markets Today

Nick Smyth -

US equity markets were unchanged on Friday, as risk sentiment continued to recover in the New Year. Global rates moved lower amid more dovish comments from Fed officials. Meanwhile, the NZD rose strongly on growing hopes of a US-China trade deal.

BNZ Markets Today

Jason Wong -

Market movements have been modest in the current session, with not a great deal to trade on. Commodity currencies are little changed overnight against a backdrop of a small bid returning to the USD against the other majors. US rates and equities are little changed.

BNZ Markets Today

Jason Wong -

Risk appetite continues to recover, with increased optimism that the US-China trade war will be resolved and some dovish Fed speakers adding to the case for a Fed pause in the tightening cycle. The USD is weaker across the board, while the NZD has been the best performer of the majors.

BNZ Markets Today

Jason Wong -

Happy New Year. In this first Markets Today for the year we begin with an overview of key events and market movements since Christmas. In illiquid market conditions we’ve seen some heightened volatility in equity and bond markets, while currency markets have been well-behaved apart from a “flash crash” a week ago.

BNZ Markets Today

Jason Wong -

Global equity markets are sinking deeper into the red, the US yield curve flattens further and the USD has weakened overnight, reversing some of its post-Fed gains yesterday. This leaves the NZD higher in overnight trading but still 1% down since this time yesterday.

BNZ Markets Today

Jason Wong -

Markets are quiet ahead of the FOMC announcement at 8am NZ time. The USD has drifted a little lower ahead of the announcement as has the US 10-year rate. The NZD is little changed.

BNZ Markets Today

Jason Wong -

After a couple of big daily falls US equities are up 0.8-1.2% but, as we’ve seen, anything can happen in the last few hours of the trading session. US bonds have rallied a little ahead of the US FOMC announcement tomorrow. Most currencies are little changed overnight. CAD is softer as oil prices continue to fall, while the NZD has sustained the gains it saw in local trading yesterday.

BNZ Markets Today

Nick Smyth -

Equity markets have weakened again overnight amid a broader risk-off tone to markets. The NZD is little changed ahead of the Federal Reserve meeting and NZ GDP on Thursday morning.

BNZ Markets Today

Nick Smyth -

Global equity markets got hammered again on Friday amid growing concerns about the global growth outlook. Both Chinese activity data and the European PMIs were much weaker than expected. The USD briefly made a fresh 18-month high, with strong US retail sales release adding weight to the narrative that the US economy is outperforming the rest of the world. The NZD was hit by the weaker Chinese data and the RBNZ’s announcement that it was proposing to significantly increase the amount of capital NZ banks need to hold.

BNZ Markets Today

Nick SMyth -

It has been a relatively quiet night in markets overnight, with no fresh developments on the US-China trade front and no major economic data released. The ECB said it would end its QE programme, as planned, at the end of this month, although Draghi alluded to growing downside risks to growth; the EUR is slightly lower as a result. The NZD has been relatively stable.

BNZ Markets Today

Nick Smyth -

US equities have risen strongly overnight on a series of positive reports on US-China trade talks, including reports that China might revamp its Made in China 2025 industrial policy. The GBP has also recovered sharply, as the market anticipates that Theresa May will win a leadership challenge in a few hours’ time. The NZD has fallen, despite a broadly weaker USD.

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: ANZ Truckometer - heavy (m/m%), Nov: -1.9 vs. 4.6 prev.
NZ: Retail card spending (m/m%), Nov: -0.4 vs. 0.3 prev.
AU: NAB business conditions, Nov: 11 vs. 12 prev.
AU: House price index (q/q%), Q3: -1.5 vs. -1.6 exp.
UK: Unemployment rate, Oct: 4.1 vs. 4.1 exp.
UK: Employment change (k), Oct: 79k vs. 25 exp.
UK: Average weekly earnings ex-bonus (y/y%), Oct: 3.3 vs. 3.2 exp.
GE: ZEW survey expectations, Dec: -17.5 vs. -25 exp.
US: NFIB small business optimism, Nov:104.8 vs. 107 exp.
US: PPI ex food and energy (y/y%), Nov: 2.7 vs. 2.5 exp.

Good Morning
Market sentiment has improved somewhat over the past 24 hours following news that the US and China have had high-level dialogue on trade and reports that China would cut tariffs on imported US cars. Confidence remains fragile however and US equities have already pared most of their earlier gains. The GBP remains weak amidst speculation of a leadership challenge to PM May. The NZD is unchanged from this time yesterday, but higher on most of the crosses.

BNZ Markets Today

Nick Smyth -

The British pound was hammered overnight after Theresa May unexpectedly postponed the parliamentary vote on her Brexit deal. With the clock ticking to the March 29th exit date, the market is concerned about the growing risk that the UK could slide into a no-deal Brexit. The news exacerbated already fragile risk sentiment, with US equities falling again, although they have recovered somewhat over the past hour or so. The NZD has outperformed amidst the risk-off backdrop, and the NZD/AUD has made a fresh 18-month high.

BNZ Markets Today

Nick Smyth -

The British pound was hammered overnight after Theresa May unexpectedly postponed the parliamentary vote on her Brexit deal. With the clock ticking to the March 29th exit date, the market is concerned about the growing risk that the UK could slide into a no-deal Brexit. The news exacerbated already fragile risk sentiment, with US equities falling again, although they have recovered somewhat over the past hour or so. The NZD has outperformed amidst the risk-off backdrop, and the NZD/AUD has made a fresh 18-month high.

BNZ Markets Today

Nick Smyth -

US equities fell sharply again on Friday amid a renewed bout of risk aversion. The risk-off backdrop pushed US bond yields lower, with a weaker-than-expected payrolls report and dovish comments from Fed Governor Brainard adding to the downward pressure. Currencies saw relatively little movement, although the NZD drifted lower on the day. Finally, OPEC announced a larger than expected 1.2m barrels per day supply cut, which boosted oil prices.

BNZ Markets Today

Jason Wong -

Events Round-Up
AU: Trade balance ($m), Oct: 2316 vs. 3000 exp.
AU: Retail sales (m/m%), Oct: 0.3 vs. 0.3 exp.
GE: Factory orders (m/m%), Oct: 0.3 vs. -0.4 exp.
US: ADP employment chg (k), Nov: 179 vs. 195 exp.
US: Trade balance ($b), Oct: -55.5 vs. -55.0 exp.
US: ISM non-manufacturing index, Nov: 60.7 vs. 59.0 exp.

Good Morning
Risk appetite has taken another hit which sees safe-haven currencies like JPY and CHF outperform, while commodity currencies have underperformed. Global equity markets are a lot lower, while US 10 year rates are down to a fresh 3-month low.

BNZ Markets Today

Jason Wong -

Events Round-Up
NZ: Volume of building work (q/q%), Q3: 0.7 vs. 2.3 exp.
AU: GDP (q/q%), Q3: 0.3 vs. 0.6 exp.
AU: GDP (y/y%), Q3: 2.8 vs. 3.3 exp.
CH: Caixin PMI services, Nov: 53.8 vs. 50.7 exp.
UK: Services PMI, Nov: 50.4 vs. 52.5 exp.
CA: Bank of Canada O/N rate (%): Dec: 1.75 vs. 1.75 exp.

Good Morning
Trading conditions are quiet with the US on holiday to mark the death of President George HW Bush. The AUD and CAD are the weakest performers after weak data and a dovish monetary policy statement respectively, while GBP is better bid after a poor run recently.

BNZ Markets Today

Jason Wong -

The risk-on rally post the Xi-Trump meeting hasn’t lasted long, with risk assets reversing course. Equities and bond yields are lower and, overnight, commodity currencies have drifted lower, while JPY is the best performing major currency. Brexit woes continue to impair GBP.

BNZ Markets Today

Jason Wong -

The “highly successful” Xi-Trump meeting at the weekend triggered an improvement in risk sentiment to begin the new week, seeing equity markets rise and commodity currencies outperform. US 10 year rates opened higher, but have fallen away to be little changed just under 3%.

BNZ Markets Today

Jason Wong -

Trading on Friday was fairly subdued as markets awaited the highly anticipated Xi-Trump meeting held at the weekend. US equities were stronger, US rates were lower, while the NZD closed near its recent highs.

BNZ Markets Today

Jason Wong -

Currency markets are treading water ahead of the important Xi-Trump meeting this weekend. US equities are modestly lower through the morning session, while the US 10-year rate is back near the NZ close of 3.03% after earlier breaking below 3%.

BNZ Markets Today

Nick Smyth -

US equities have surged higher and the USD has weakened after Fed Chair Powell said interest rates were “just below” neutral, a marked change from his assessment last month. Short-end Treasury yields have fallen and the curve steepened.

BNZ Markets Today

Nick Smyth -

Market movements have been reasonably modest overnight as we await Fed Chair Powell’s speech tomorrow and the Trump-Xi meeting on the weekend. There was little reaction to a speech from Fed vice Chair Clarida overnight. The USD is broadly higher once again, although the NZD has bucked the trend and is up slightly on the day.

BNZ Markets Today

Nick Smyth -

Risk appetite has improved overnight, with equities and US bond yields rising, and crude oil recovering some of its large falls on Friday. Signs of compromise from the Italian government over its budget plans helped boost sentiment, and led to a sharp drop in Italian yields. Currency moves have been modest as we await a barrage of Fed-speak over the remainder of the week and the Trump-Xi meeting at the G20 on the weekend.

BNZ Markets Outlook

Nick Smyth -

US equities ended the week on a soft note and US Treasury yields declined slightly, although volumes were light on a shortened trading day in the US. The EUR weakened, and the USD strengthened, after another batch of weaker than expected Eurozone PMI surveys. Meanwhile, oil prices remained in free-fall due to concerns about oversupply in the market.

BNZ Markets Today

Jason Wong -

Markets are quiet with the US on holiday. The only notable movement has been strength in GBP after a draft UK and EU political declaration was published. The NZD was modestly weaker in local trading yesterday and has sustained that move overnight.

BNZ Markets Today

Jason Wong -

Market sentiment has perked up leading into the US Thanksgiving holiday tonight, seeing global equities higher, a modest rise in global rates and supporting commodity currencies.

BNZ Markets Today

Doug Steel -

Equities lurch lower again, denting risk appetite. The US dollar has pushed higher across the board, arresting its slide over the past week. Meanwhile, the plunge in oil prices continues. Little change in yields.

BNZ Markets Today

Brendan Marsh -

The week ahead holds little in store in terms of key data releases or central bank meetings and includes the US out later in the week for Thanksgiving, however, there’s still been a couple of pressure points albeit from familiar sources for markets to respond to at the start of an abbreviated week.

BNZ Markets Today

Jason Wong -

The USD and US Treasury yields fell after comments from Fed Chair Clarida were interpreted as dovish. That helped the NZD to continue to power on up, and supported at the end of the week by further optimism on US-China trade talks after some positive comments by President Trump.

BNZ Markets Today

Jason Wong -

Brexit has been the key focus for the market and it’s not looking good for the UK, with GBP trashed again and UK gilt yields plunging, dragging down US Treasury yields. After a bad start, US equities are now back to square. The NZD continues to perform well, making further gains overnight.

BNZ Markets Today

Doug Steel -

Relatively calm trading conditions prevailed for most of the night, with generally limited market moves, before negative Brexit headlines late in the session saw a risk off tone take hold. Equity markets oscillated around flat before pressing lower, likewise US yields. Oil prices have recovered a small amount of recent heavy losses. The US dollar sits around 0.2% lower on the indices we track.

BNZ Markets Today

Jason Wong -

More optimism on US-China trade talks and a Brexit deal have supported risk currencies like the NZD, while GBP has been the top performer. US equities are stronger, while US Treasury yields haven’t responded to the better risk backdrop.

BNZ Markets Today

Nick Smyth -

It’s Veteran’s day holiday in the US, but US equity markets have remained under downward pressure to start the week, especially the tech sector. Brexit remains in focus too. Speculation of more UK cabinet resignations is increasing concern that Theresa May won’t be able to pass a Brexit deal through parliament, and this has weighed again on the GBP and EUR. On the flip side, the USD has extended its recent gains, with the various USD indices making fresh 18 month highs. The NZD has held up reasonably well, and is down only marginally against the USD overnight.

BNZ Markets Today

Nick Smyth -

Equities ended last week on a soft note, led by the tech sector. Amidst a backdrop of more cautious risk sentiment, US Treasury yields declined and the US dollar rose – the DXY is almost back to 18-month highs. Locally, NZ rates rose again on Friday, although there were some signs of receiving interest finally emerging after a very volatile week.

BNZ Markets Today

Jason Wong -

Financial markets have been quiet ahead of the FOMC statement due 8am NZ time. Overnight currency moves have been insignificant, US equities are flat and US Treasury rates are little changed.

BNZ Markets Today

Jason Wong -

The USD is modestly softer across the board after the in-line result of the US mid-term elections, US Treasury yields are down slightly, driven by the long end, and US equities are stronger. The NZD has been the star performer following the surprising strength in labour market data yesterday.

BNZ Market Today

Jason Wong -

Markets are treading water ahead of today’s US mid-term elections with volumes well below normal. GBP has shown another modest gain to make it the strongest currency over the past 24 hours on a day where nothing much has happened. US equities and Treasury rates are slightly higher.

BNZ Markets Today

Jason Wong -

It has been an uneventful start to the week for financial markets ahead of a busy week, which includes the US mid-term elections and policy meetings by the Fed, RBA and RBNZ. Currency movements have been small apart from GBP which has swung around on Brexit headlines. After recent volatility in equity markets, overnight movements have been insignificant by comparison. US rates are slightly lower after last week’s big sell-off in Treasuries.

BNZ Markets Today

Nick Smyth -

A stronger than expected US non-farm payrolls report led to a sharp rise in US Treasury yields and an appreciation in the USD against G10 currencies. Emerging market currencies and equities performed strongly on reports that President Trump had instructed his staff to draft an outline for a possible trade deal with China, although White House advisor Kudlow later tried to cool expectations. Higher US bond yields weighed on US equities, which had initially risen on optimism for a US-China trade deal.

BNZ Markets Today

Nick Smyth -

After making fresh highs yesterday, the USD has moved sharply lower across the board over the past 24 hours. The NZD is the best performing currency in the G10, up more than 2%. Meanwhile, equities have moved higher again, helped by some more positive comments by President Trump on China.

BNZ Markets Today

Nick Smyth -

After what has been a terrible month for global equities, markets ended October in risk-on mode. US and European equity markets have risen strongly and US Treasury yields have moved higher. The USD has continued to push higher, helped by better than expected US data.

BNZ Markets Today

Nick Smyth -

US equities have moved modestly higher overnight, although the market remains volatile and risk sentiment cautious. Facebook’s earnings later this morning will be a key focus. The NZD and AUD have moved higher over the past 24 hours after President Trump discussed the possibility of a “great deal” with China.

BNZ Markets Today

Nick Smyth -

US equities have staged something of a recovery overnight, although the tech sector has again lagged. The more positive tone to risk assets has helped Treasury yields push a little higher and the JPY underperform. The NZD is little changed against the USD from Friday night’s close, although it has made gains on all the crosses.

BNZ Markets Today

Jason Wong -

US equities had another rough day, sending US Treasury rates lower, while JPY was the strongest of the majors in the risk-off environment. The NZD saw a couple of forces on Friday, with the net result being little change after a temporary shunt downwards.

BNZ Markets Today

Jason Wong -

US equities have recovered strongly after yesterday’s rout, putting some modest upward pressure on US Treasury yields, while the USD remains well bid. The NZD has remained tightly range-bound.

NZ At A Glance

New Zealand At A Glance

Doug Steel -

Economic growth is expected to remain near potential, having slowed from an above-trend pace over recent years. Supply issues such as physical capacity constraints, infrastructure bottlenecks, a low unemployment rate, and declining working age population growth are material factors acting against faster expansion. Associated cost pressures coupled with high energy prices and a falling NZD sees business margins under pressure. This, and some concern around government policy, has resulted in weak business confidence. It is a risk to investment. Meanwhile, rising costs are driving some upward pressure on inflation, although the RBNZ seems in no hurry to move interest rates in either direction. A possible El Nino weather pattern over coming months is a risk to pastoral agriculture and the type and cost of electricity generation.

Rural Wrap

Activity Defying Confidence

Doug Steel -

Economic activity has been doing better than weak confidence readings would have you believe. This applies to agriculture as much as it does to the wider economy. Tractor registrations are at their highest level since the 1970s. Sure the outlook has soften a little in some areas, like dairy prices, albeit that this has been partly driven by very strong milk production on generally favourable weather conditions. Lamb prices remain strong.