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

USD Outlook: It’s Complicated

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

NZD: Enough Weakness For Now?

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

NZD Corporate FX Update

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

NZD Back Down To Reality

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

NZD Positioning Signal Reads Overbought?

Jason Wong -
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Each week the CFTC publishes data that provide a useful gauge on net speculative positioning in currencies and other financial market variables such as commodities and US Treasuries. We normally give the data a glance and then move on quickly. However, it piques our interest when positioning gets to extreme levels – the theory being that one-sided positioning might give a good contrarian signal for the outlook.

NZD/AUD: Reverse Swing Ahead?

Jason Wong -
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Our last major note on the NZD/AUD cross rate was back in August last year, where we toned down our exuberance for the cross and suggested an AUD 0.91-0.95 range through to the end of 2018. That view has largely played out apart from a downside breach late last year as NZ political risk dominated pricing, but this wasn’t sustained.

NZD/CAD: Canada (Home and) Dry?

Jason Wong -
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Last week we saw intensification of concerns over US trade actions against China and the likelihood of retaliatory measures from China against the US usurped the FOMC meeting as the key driver of market price action – in equities and FX at least. And Friday night saw higher Canada CPI inflation, with all key core measures now hovering around target at 2%. The Canadian dollar outperformed both the Australian and New Zealand dollars, with CAD proving to be the best performing G10 currency, with AUD and NZD both in the bottom four.

Economy Watch

Order Up

Business NZ/ BNZ -

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

Q1 GDP Preview – Downside Risks

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

When Further Below Par Is Not Good

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

Macroeconomic Risks From NZ Cattle Disease

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

Fiscally Sound But Risks Building

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

What Will Fonterra Forecast?

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

Returning To Norm

Business NZ/BNZ Research -

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

BNZ PMI - Boom!

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

Clarity Defines Orr Debut

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

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

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

Which Wage Information to Trust?

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

Lift In Service

Business NZ/BNZ -

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

Easing Off

BNZ - BusinessNZ -
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New Zealand’s level of manufacturing expansion decreased further in March,
according to the BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

QSBO Gets a Grip

Craig Ebert -
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In summary, today’s QSBO was very close to what we expected. While there was potential for it to look a bit better, because it doesn’t cover farmers (who are currently gloomy in their general outlook), it also seemed prone to the negative global rhetoric around trade, along with the recent market volatility. As it turned out, business sentiment found a floor, while its activity expectations were reasonable enough to suggest maintained pressure on resources.

BNZ Economy Watch - Deliberating Dairy

Doug Steel -
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Fonterra has lifted its milk price forecast for 2017/18 to $6.55 and so have we. This follows from generally higher international prices and a relatively stable NZD during 2018. We expect global dairy prices to drift lower in 2018, but downside risks have moderated with a higher Euro, higher oil prices, and robust dairy demand. Reflecting this, we lift our 2018/19 milk price forecast to $6.10. But with wide error bounds around any season-ahead milk price forecast, we look at some alternative scenarios.

Fed Hyperactive as RBNZ Hibernates

Stephen Toplis -
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We still think that the cash rate will increase in advance of the RBNZ’s expectations but there was nothing in today’s OCR review to suggest that the Bank is moving in that direction.

Financial Markets Wrap

NZD Eventually Finds Support During May

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

NZD Slumps in April

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

NZD Flat in March

Jason Wong -
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• Global equity markets weak and volatile
• But little spillover for currency markets; NZD/USD and NZ TWI flat
• Safe-haven flows see global rates lower; NZ-US yield compression continues

Interest Rate Strategy

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

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

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

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

Government Bond Supply And The Outlook For Swap Spreads

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

The End Of The NZ Yield Premium Over AU?

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

Post-RBNZ Update: Steepeners And Linkers Look Even Better

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

Outlook for Borrowers: Post May Monetary Policy Statement

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

NZ Linkers Are Cheap; 2035 BEI Widener

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

The US 2s10s Curve And The Risk Of Recession

Nick Smyth -
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The flattening of the US yield curve over the past two months (to the flattest levels since 2007) has come to the forefront of attention among both market participants and central bankers. Last week, San Francisco Fed President John Williams noted that an inverted curve “is a powerful signal of recessions” while Dallas Fed President Robert Kaplan said last year that the yield curve would be a factor he would consider when deciding on interest rates (a flatter curve implied “a little less operating flexibility at the Fed”).

Trade Idea: NZ 1y1y 2y1y Steepener

Nick Smyth -
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Global curves have flattened significantly over the past month and a half, with NZ being no exception. We highlighted two main risks when we recommended a 2s10s steepener in early March, namely a further rally in global rates and an intensification in funding pressures (FRA-OIS spreads) pushing up short-end swaps. As it transpired, both risks materialised, stopping us out of the position.

Interest Rate Strategy: LGFA 2022 Tender Preview

Nick Smyth -
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The NZ Local Government Funding Agency (“LGFA”) has announced that it will issue a new 2.75% coupon, 14 April 2022 maturity bond next Wednesday. The 2022 will be the first bond on the LGFA to have a maturity (or coupon) that doesn’t match an NZGB.

Outlook for Borrowers: Post March OCR Review

Nick Smyth -
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At the March OCR Review, the RBNZ kept the OCR on hold at 1.75%, as universally expected by economists. The Statement was largely a repeat of the version from February, with the Bank reiterating its expectation that growth should firm this year and inflation should eventually rise, after a dip in the coming quarters. The Bank finished by noting “numerous uncertainties” and reiterating a neutral policy stance. For reference, the last projections from the RBNZ in February had the first full rate hike in early-2020.

Markets Outlook

Manufacturing Survives Slings and Arrows

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

A Sapping Start to 2018

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

Cattle Disease Adds To Business Angst

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

Filling Holes

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

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

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

Either Or

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

All Eyes On The Labour Market

BNZ Research Team -

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

Five Million People

BNZ Research Team -
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Wednesday’s ANZAC day holiday splits into two what is a generally quiet data week. While there doesn’t look to be much to move markets, there are a couple of releases that could prove important in the bigger picture. Tomorrow’s migration numbers for March fits this category, as NZ’s population heads toward five million. Friday’s trade and consumer confidence figures are also worth a look.

BNZ Markets Today

Nick Smyth -
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US equities increased again overnight after more positive
earnings reports from US corporates, and as US-China
trade tensions moved off the headlines for a day. The
USD is mixed, with the NZD again being one of the
underperformers. Meanwhile, the US yield curve flattened
again, drawing a response from incoming NY Fed
President John Williams.

Downside Risk to CPI

BNZ Research -
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Recent data continue to provide us with hope that the economy can continue to grow around its potential for some time to come. Importantly, the expansion should not be cut off at the knees by the central bank any time soon as CPI inflation remains at the bottom of the RBNZ’s target range. Thursday’s Q1 CPI data should confirm this. Moreover, there is a very real chance that the RBNZ (and maybe even the market) will again be surprised to the downside when the latest price data is released.

QSBO Stronger Than Its Seams

BNZ Research Team -
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Overall, we anticipate a hanging-in-there type of result for tomorrow’s QSBO, rather than anything strong as an indicator of economic expansion. But this is not to lose sight of the NZIER survey’s clearest message – that the economy is getting extremely stretched.

Short and Sweet

BNZ Research Team -
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We are keeping a close eye on labour market momentum – along with business investment indicators – given the slump in business confidence. The labour market will certainly be a key interface between a currently buoyant household sector and a less than confident business sector.

Maximum Sustainable Employment (Achieved Already?)

BNZ Research Team -
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The government this morning confirmed a range of changes to the Reserve Bank of New Zealand’s modus operandi. These were hardly any revelation, given the prescriptiveness of the terms of the review process. . If anything, the largely reiterated inflation-related content might be seen as reinforcing a dovish bent on the part of the RBNZ. However, the new words relating to “maximising sustainable employment” might, ironically, highlight why the Bank can’t be too dovish, and might even need to turn hawkish in due course.

Markets Today

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Research

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZMarkets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

Nick Smyth -
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The US 10 year yield came within a whisker of 3% overnight, and remains close to the highs reached at the start of 2014. The higher US rate environment seems to be helping the USD, which strengthened across the board. The NZD fell to its lowest level since mid-January.

BNZ Markets Today

Nick Smyth -
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US Treasury yields rose again on Friday, with the 10 year yield up to 2.96%, its highest since early 2014. Equities fell again, with higher bond yields probably weighing, and the USD strengthened. The NZD is back down near to 0.72. Over the weekend, US Treasury Secretary Mnuchin mentioned he was considering a trip to China and was “cautiously optimistic” a deal could reached; this should help support risk assets to start the week.

BNZ Markets Today

Nick Smyth -
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Commodity prices remain in the spotlight, with oil prices
making a fresh high again overnight, although they have
since eased back. The 10 year US Treasury increased
again, with the yield curve steepening for a change, amid
higher inflation expectations. US equity markets are lower
and the USD stronger.

BNZ Markets Today

Nick Smyth -
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Most market moves have been reasonably modest
overnight, although US equities and bond yields have
pushed a little higher. Oil prices rose to a new, post-2014
high. The CAD and GBP have fallen after a dovish Bank of
Canada statement and lower than expected CPI
respectively. The NZD has again been one of the
underperformers in FX markets ahead of CPI today, and
NZD/AUD has eased back towards 0.94.

BNZ Markets Today

Nick Smyth -
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US equities have moved higher overnight on some easing in geopolitical risks and ahead of more corporate earnings reports later this week. The US dollar is broadly weaker after President Trump accused China and Russia of “playing the currency devaluation game”. The NZD has been one of the laggards, and is unchanged from this time yesterday.

BNZ Markets Today

Nick Smyth -
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It was a quiet end to last week, with most markets seeing modest moves. US stocks fell slightly but were up on the week, while the US yield curve continued to grind flatter. Oil prices made a new high.

BNZ Markets Today

Jason Wong -
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Market movements have been modest although there is
still a notable grind up in the NZD, supported by a better
risk backdrop.

BNZ Markets Today

Jason Wong -
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Market price action has been fairly minimal across the board. Rising Middle East tensions see a mild risk-off tone and oil prices continuing to rally, while the NZD is down slightly.

BNZ Markets Today

Jason Wong -
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Commodity currencies have outperformed and equity
markets have recovered since President Xi’s speech
yesterday allayed fears of a US-China trade war. Other
currencies and bond markets have seen only modest price
movements.

BNZ Markets Today

Jason Wong -
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Market sentiment began the week on a positive note, seeing a rebound in US equities, a nudge higher in UST yields and the NZD outperform, while the USD is weaker across the board.

BNZ Markets Today

Jason Wong -
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The US-China verbal war on trade continued on Friday, driving down US equities by more than 2% with only a little spill-over for dollar-bloc currencies and UST yields.

BNZ Markets Today

Jason Wong -
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The USD is broadly stronger as markets take a more
optimistic view on US-China trade tensions, while US rates
drift higher against a backdrop of a further recovery in
equities.

BNZ Markets Today

Jason Wong -
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The US-China trade war has heated up but the market is taking this in its stride. Initial market movements on headlines haven’t been sustained. Net FX movements have been minimal, apart from the

BNZ Markets Today

Jason Wong -
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On a slow news day, US equities are modestly higher
after the chunky fall yesterday. Commodity currencies
have outperformed and UST yields are higher on the
improved market sentiment.

BNZ Markets Today

Jason Wong -
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Most markets were closed for the Easter Monday holiday but unfortunately the US market is open and stocks have been pummelled as the new quarter begins. This has seen the NZD soften a little, while JPY has outperformed.

BNZ Markets Today

Nick Smyth -
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The S&P500 has stabilized overnight after sustaining heavy falls late in the New York session yesterday. The 10 year Treasury yield broke below its recent trading range yesterday and the US yield curve flattened its narrowest level since 2007. The USD is broadly stronger but remains within recent ranges.

BNZ Markets Today

Nick Smyth -
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Market moves were reasonably modest overnight, with no
top tier economic data being released and not much in the
way of headlines around US-China trade negotiations. US
bond yields fell, possibly related to month-end buying
while US equities also gave back some of their gains from
yesterday.

BNZ Markets Today

Nick Smyth -
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With no major economic data released overnight, headlines around US-China trade tensions remained the dominant market driver. After falling sharply last week, US stocks bounced back overnight on hopes that the two sides could negotiate an agreement and avoid the use of tariffs. The USD is weaker once again and at one-month lows. The NZD/AUD made an eight month high, as it broke above 0.94.

BNZ Markets Today

Nick Smyth -

US stocks fell sharply again on Friday as concerns mounted about an escalation in US-China trade tensions. The USD was broadly weaker, with the NZD doing surprisingly well amidst the risk-off backdrop.

BNZ Markets Today

Jason Wong -
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In overnight trading, the USD has pared back some of its
losses seen since yesterday before and after the FOMC’s
statement. UST yields have fallen further as US equity
markets show another chunky fall

BNZ Markets Today

Jason Wong -
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The USD took on a softer tone ahead of the FOMC statement and has made further losses since, while UST yields have nudged higher.

NZ At A Glance

New Zealand At A Glance

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

Rural Wrap

Monitoring Risks From M. Bovis

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

Deliberating Dairy

Doug Steel -
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Fonterra has lifted its milk price forecast for 2018/19 to $6.55 and so have we. This follows from generally higher international prices and a relatively stable NZD during 2018. We expect global dairy prices to drift lower in 2018, but downside risks have moderated with a higher Euro, higher oil prices, and robust dairy demand. Reflecting this, we lift our 2018/19 milk price forecast to $6.10. But with wide error bounds around any season-ahead milk price forecast, we look at some alternative scenarios.