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 -

In late March the NZD got whacked after the surprise housing policy announcement by the NZ government which coincided with a period of increased support for the USD. Since then the currency has been attempting to regain that lost ground. Meanwhile, our short-term fair value model estimate has been creeping higher (now about 0.7250) against a backdrop of higher risk appetite and NZ commodity prices.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

NZD: Stay the course

Jason Wong -

The NZD is probing new lows for the year below 0.70. The currency has been the worst of the “G10” majors over the month to date, falling over 3½% and on the “Expanded Majors” (Bloomberg definition), the NZD is the third worst performer over that period, only being outdone by the Turkish Lira (down 6½%) and Polish Zloty (down 4½%). Turkey is a basket case, with the President sacking its central bank Governor last weekend, while Poland has experienced a new surge in COVID19 cases – one of the worst across Europe, driven by the more-contagious UK variant – triggering fresh lockdown restrictions.

NZD Corporate FX Update

Jason Wong -

After tracking sideways through Q1, we expect NZD/USD to push higher through the rest of the year. We still conservatively target 0.76 by year-end, with a path towards 0.80 not particularly onerous.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

Upside risk developing for NZD

Jason Wong -

After a strong run late last year the NZD has tracked sideways in 2021, including on a TWI basis. NZD/USD has been consolidating within a clear 0.71-0.73 range. This was largely as expected – given our end-Q1 target of 0.72 when we last revised forecasts mid-December– ahead of an expected move higher through the rest of the year towards 0.76. That said, the positive run of news means that we see some upside risk to our NZD projections bubbling away underneath the surface.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

NZD Corporate FX Update

Jason Wong -

After a strong run through to early January, the NZD is showing signs of fatigue, which we expect to be temporary. The outlook remains positive for 2021, given the NZD’s leverage to the global economic recovery and rising commodity prices.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

Economy Watch

RBNZ Unmoved

Stephen Toplis -

In our Monetary Policy Review (MPR) preview we surmised the RBNZ would try to produce a statement that would leave market pricing unchanged in so doing buying itself time to make sense out of the current evolution of the economy. If this was its objective, as we had supposed, then it can most certainly claim success. For all intents and purposes, today’s Monetary Policy Review was about as same as the February Monetary Policy Statement as one could possibly expect.

QSBO Reveals Inflationary Pulse

Stephen Toplis -

For us, the primary foci of interest in today’s NZIER Quarterly Survey of Business Opinion were the findings of the state of the labour market and inflationary pressures. It is our view the Reserve Bank is very close to meeting both its inflation and employment objectives and, hence, its need to maintain the current level of stimulus will dissipate. There was nothing in today’s report to dissuade us from that view.

Employment Report: Better by far

Craig Ebert -

The 55.3% annual growth in March’s job advertising reflected a weakened base period, when COVID-induced shutdowns were starting to bite. However, this is not to belittle the latest result. As perspective, March 2021 ads proved 5.8% higher than they were back in March 2019 (in seasonally adjusted form). This sense of solidity was shored up by the fact advertising lifted 10.6% in the month of March. This was the strongest monthly gain since July, and came after a period where monthly growth trended down to almost naught by February.

Government on Housing Market War Footing

Stephen Toplis -

The New Zealand government is dead set on curtailing soaring house prices. It has been saying so for some time now and prices have just kept soaring. So, it should come as no surprise that their patience has now been exhausted and a full attack on prices is now underway.

Market Right to Be Tolerant of “Weak” Q4 GDP

Craig Ebert -

In barely moving, the financial markets have given today’s “weak” Q4 GDP outturn a break. And fair enough. Not because the reported 1.0% decline – which was worse than market expectations for a 0.2% increase – was dodgy in the way it was measured. It wasn’t. Rather, there was always likely to be tolerance of any slight pull-back in GDP, after the massive 13.9% catch-up in Q3, which snuck annual growth up to 0.2%.

External Deficit To Widen From Current Low

Doug Steel -

New Zealand’s external accounts have been off the market’s radar for some time – and for good reason. The nation’s annual current account deficit stood at 0.8% of GDP in calendar year 2020. This matched the annual result from a quarter earlier but was a material reduction from a 3.3% of GDP deficit in 2019 and 4.2% in 2018. Indeed, New Zealand has its lowest annual deficit since 2001 (and the late 1980s before that). We think this is as low as it will get for now, as we anticipate a bigger annual deficit ahead (more on that later).

Struggle Street

Craig Ebert -

Activity in New Zealand’s services sector remained in contraction for a fourth consecutive month, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for February was 49.1, which was up 1.1 points from January (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). However, it was still well below the long term average of 3.8 for the survey.

BusinessNZ chief executive Kirk Hope said that while the slight pick-up in activity to levels seen in December was obviously a positive step, the sector remains below the critical 50.0 mark. The last time the sector was in contraction for four consecutive months was the first half of 2009.

“The slower return to business as usual post holidays was compounded by the two separate lockdown periods in mid and late February, with Auckland hit hardest. This has meant the key sub-indices of Activity/Sales (50.8) and New Orders/Business (50.3) were both lethargic over February.”

BNZ Senior Economist Craig Ebert said that “when simply averaging across all responses to the PSI and PMI surveys gives a composite reading of 51.6 for February. But re-weighting for the fact services comprise around 70% of the economy and the composite index yields 49.7. With this, we remain decidedly cautious on GDP growth for Q1.”

Easing back

Craig Ebert -

New Zealand’s manufacturing sector saw a slower rate of expansion during February, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for February was 53.4 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down 4.6 points from January.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the February result was more in line with the long term average of the PMI (53.0).

“The major sub-index values were all down from January, with Production (57.3) leading the way, followed by New Orders (56.2). Both Employment (49.8) and Deliveries (47.6) remained in contraction, with the former reverting back to levels seen in December.”

“Despite the PMI remaining in expansion, the proportion of those outlining negative comments stood at 54%, compared with 46% in January. Given the second recent partial lockdown, it remains to be seen what impact this will have on the sector over the next few months.”

BNZ Senior Economist, Craig Ebert said that “supply issues were to the fore from respondents’ comments to February’s PMI survey. Of those citing negative factors, supply rather than demand problems dominated, with frequent references to supply chains, shipping, freight, costs, and difficulties in finding suitable staff.”

Trade Triumphs and Tribulations

Doug Steel -

There are some momentous changes occurring across various components of NZ’s international trade activities. Some are strongly positive for the nation’s income like the ramping up of global prices for primary products, while others are deeply negative like the lack of international visitors. They all have implications for activity, inflation, and the balance of trade.

Retailers Suffer Old Mother Hubbard

Craig Ebert -

Normally, a quarterly fall of 2.7% in real retail trade – as was reported by Stats NZ this morning – would cause great alarm. However, these are not normal times. Importantly, the drop in Q4 needs to be seen in the context of the large amount of catch-up spending that occurred in Q3, following the lockdown-depressed Q2. Q4 retail trade was up 4.8% on the same quarter a year prior.

Contraction continues

Doug Steel -

Activity in New Zealand’s services sector remained in contraction for a third consecutive month, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for January was 47.9, which was down 1.2 points from December (A PSI reading above 50.0 indicates that the service sector is generally expanding; below50.0 that it is declining). This was also well below the long term average of 53.8 for the survey.

BusinessNZ chief executive Kirk Hope said that the January result was generally negative when examined more deeply.

“While New Orders/Business (53.7) remained in expansion mode, the remaining sub-indices all displayed contraction, including Activity/Sales (46.4) and Employment (46.9). Looking at the comments made by respondents, the ongoing trend of contraction was typified by the influences of the Xmas period, ongoing COVID-19 related issues (including freight challenges) and a slower return to business as usual post holidays”.

BNZ Senior Economist Doug Steel said that “combining last week’s very strong PMI with today’s soft PSI points to some slowing in growth. But we also need to factor in strong public sector jobs growth and a booming construction sector”.

Solid start to year

Craig Ebert -

New Zealand’s manufacturing sector started the year with expansion, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for January was 57.5 (a PMI reading above
50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up 9.2 points from December, and a solid return to expansion.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the January result was a welcome start to 2021, with the result clearly above the long term average of 53.0 for the Index.

“All major sub-index values were up from December, with New Orders (62.4) leading the way with its highest result since July last year. Production (59.1) rose 6.8 points, while Employment (55.4) produced its highest result since August 2017.”

BNZ Senior Economist, Craig Ebert said that “the 3-month average to January was 53.6, slightly above the long-term norm of 53.0. Also, January’s improvement was encouraging in its composition, with New Orders leading the way”.

RBNZ February MPS Preview

Stephen Toplis -

The RBNZ simply must be less dovish in its February Monetary Policy Statement than it was in November. Nearly every economic development since that November missive has portrayed a stronger, and more inflationary, economy than was expected. This is not a criticism of the RBNZ, as the data flow has bamboozled everyone. But the world is unequivocally different to what we had all expected, and the Reserve Bank will have to recognize this.

A positive start to 2021

Craig Ebert -

By increasing 1.4% in January, job advertising started 2021 on a positive note. However, the result also indicated a loss of momentum. Its January gain was the slowest since August, when COVID-19 restrictions were increased to Level 3 in Auckland and Level 2 everywhere else. That job advertising is not thriving (just yet) was also borne out by the fact January’s level was 6.3% shy of where it was a year prior.

Labour Market Tightness Staggering

Stephen Toplis -

We have been warning for some time that the scene was being set for the next move in interest rates to be up. Indeed, we abandoned the prospect of sub 0.25% rates back in early November last year. As relatively hawkish as we were, we were not prepared to be definitive that rates would rise. Now we are. There is still massive uncertainty as to when and by how much but, today, we are formally building in a first rate hike in May 2022.

Milk Up

Doug Steel -

Global dairy prices have started 2021 in fine fettle. Happy New Year indeed. Positive momentum was maintained at the latest auction overnight, with the GDT Price Index rising 1.8%.

Under Par

Craig Ebert -

Activity in New Zealand’s services sector improved from the previous month, but
still recorded contraction, according to the BNZ - BusinessNZ Performance of
Services Index (PSI).

The PSI for December was 49.2, which was up 2.5 points from November (A PSI
reading above 50.0 indicates that the service sector is generally expanding; below
50.0 that it is declining). The PSI averaged 47.0 over 2020.

BusinessNZ chief executive Kirk Hope said that the December result typified a
difficult year for the sector, with half the year spent in contraction.

“While June and July showed a post-lockdown recovery, the remainder of 2020 displayed either soft expansion or contraction. The two key sub-indices of activity/sales and new orders/business failed to show any consistent pattern of expansion, while the remaining sub-indices spent a significant proportion of time under the key 50.0 mark”.

BNZ Senior Economist Craig Ebert said that “activity indicators such as these have had their work cut out lately, in trying to nail GDP to the nearest percent. In any case, the composite index is consistent with our view that NZ real GDP will be broadly flat over the six months to March 2021”.

Flat end to year

Doug Steel -

New Zealand’s manufacturing sector experienced contraction for the last month of 2020, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for December was 48.7 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down 6.0 points from November, and the lowest level of activity since May.

BusinessNZ’s executive director for manufacturing Catherine Beard said that after six consecutive months in expansion, the December result was a disappointing way to end the year.

“While production (51.5) managed to keep its head above water, the other key sub-index of new orders (49.9) failed to record expansion. Employment (49.9) also fell just below the 50.0 point mark, while finished stocks (45.9) and deliveries (44.5) both fell well into contraction.”

“Interestingly, the December value was the same as the overall average result of 48.7 for 2020. While seven of the twelve months saw expansion in the sector, the effects of COVID-19 and the subsequent lockdown saw a dramatic fall in activity during the first half of 2020 that brought the overall average down.”

BNZ Senior Economist, Doug Steel said that “the PMI’s three-month moving average sits at an expansionary 51.8, albeit below its long-term average of 53.0. This all suggests some expansion in the final quarter of last year, but the softer December month suggests some caution heading into the New Year.”

Employment Report: 2020 ends on creditable note

Craig Ebert -

Job advertising maintained its creditable recovery into the end of 2020. Its seasonally adjusted gain of 3.0% for December brought the level of ads to about where they were at the end of 2019. This gave a sense of near full recovery from the depths of March/April 2020, when COVID-19 lockdowns were in the extreme. As for the previous peak in job ads, however, this occurred in the first half of 2019. This is a reminder that job advertising was already tailing off a bit over the latter half of 2019, well before COVID-19 came into view.

Financial Markets Wrap

NZD underperforms in March

Jason Wong -

• Global reflation thematic drove global equities and US rates to fresh highs
• Nevertheless, a USD recovery and negative domestic forces drove the NZD down 3½% in March
• NZ (and many other country) rates lower against a backdrop of higher US Treasury yields

NZD hits 3-yr high in February before late-month plunge

Jason Wong -

• Global reflation trade and domestic forces drive NZD to a three-year high in February
• Increased bond market volatility near month-end sees a sharp reversal
• Massive increase in NZ rates during the month

Flat currencies, flat equities, higher rates in January

Jason Wong -

The NZD range traded in January as the USD consolidated after its weak run last year.
There were only modest movements in NZD crosses; CNY was the strongest of the majors.
Global rates pushed higher with US10s back above 1%; NZ 5 year swap rate closes at a 9-month high.

Full Currency Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

Interest Rate Strategy

NZGB Market Implications From May Bond Maturities

Nick Smyth -

There are significant New Zealand bond maturities in May. This includes $11b of the 15-May-2021 government bond, $1.5b of the 15-May-2021 LGFA bond and $1.1b of Kauri SSA bonds (see Chart 1). The RBNZ has bought back around $4.4b of the May-2021 NZGB, so private sector investors will receive just over $6.5b on its maturity.

Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

Where to now for NZ wholesale rates?

Nick Smyth -

NZ wholesale rates have had a decent correction lower over the past few weeks. This owes, in part, to some retracement in global rates. But the main driver has been the NZ government’s announcement on housing and the market’s subsequent paring back of OCR rate hike expectations.

Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

NZGB supply outlook; Biding our time to enter NZGB 10s20s flatteners

Nick Smyth -

NZDM is well placed from a funding perspective. By the end of this month, it will have raised $38b towards its $45b bond programme for the current 2020/21 fiscal year (ending Jun-2020). That will leave $7b to be raised between April and June.

Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

NZ Curve Steepening Likely Has Further To Run

Nick Smyth -

Yield curves globally continue to aggressively steepen. The New Zealand 2s10s swap curve breached 120bps this week, the first time since 2017. It has steepened almost 90bps in just four months, a similar move in magnitude and speed as that after the 2016 US election.

Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

NZ BEIs widen sharply – Time to take some profit

Nick Smyth -

As regular readers will know, we have been firm advocates of kiwi linkers for several years. In December, we implemented a breakeven (BEI) widener, buying the Sep-2030 linker against selling the May-2031 nominal. Our entry level was 125bps and we set an initial target of 155bps.

Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

RV Analysis of the NZGB May 2026

Nick Smyth -

NZDM intends to syndicate a new May-2026 bond this week. This will fill in the gap in the curve between the Apr-2025 and Apr-2027 maturities. After the syndication, there will be approximately one-year gaps between the Apr-2023 and Apr-2029 NZGBs.

Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

The (eventual) unwind of RBNZ stimulus – a playbook

Nick Smyth -

The market has almost fully priced out RBNZ rate cuts

The NZ economy proved remarkably resilient post lockdowns, with GDP recovering to its pre-Covid level in Q3 2020. The housing market has been exceptionally strong, leading the Minister of Finance to suggest that house prices be included in the RBNZ’s monetary policy Remit.

Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

Extend profit target on NZ steepening position and other trade updates

Nick Smyth -

Curve steepening has been the dominant global trend in rates markets in 2021 following the Democrats’ unexpected victories in the Georgia Senate run-offs. Both the NZ and Aussie curves have steepened in sympathy with the US, taking our 2s10s 1yF steepening position above its profit target earlier this year. We entered the position at 67bps in September, with an initial target of 87bps. The curve has retraced modestly lower over the past week to now be around 85bps.

Full Interest Rate Research is available to BNZ Wholesale clients upon request, please email bnz_research@bnz.co.nz to subscribe.

Markets Outlook

The Framing of Stagflation

BNZ Research -

We expect the RBNZ to maintain its dovish settings and rhetoric at Wednesday afternoon’s Monetary Policy Review. This entails a cash rate stuck down at 0.25% and the Bank’s LSAP envelope kept at $100b. However, this is right as the economy is encountering stagflationary aspects, which will be real a test for the RBNZ this year.

Previewing the April Monetary Policy Review

BNZ Research -

RBNZ will stand fast
Should be happy with current market pricing
May 5 Financial Stability Report probably of greater interest
Commodity prices continue to boost NZ economy
Population growth slump continues to slow it

Construction Inflation as a Leading Light

BNZ Research -

Those who continue to fret over “too-low” CPI inflation should be greatly encouraged by trends in New Zealand’s construction industry. There, pricing is definitely ramping up. This is as strong demand clashes with supply constraints that are being exacerbated by global supply-chain problems. This is another reason for us to wonder if we have quite enough housing-related inflation in our CPI forecasts.

Trans-Tasman Bubbles and Comparisons

BNZ Research -

Ultimately, any trans-Tasman travel bubble must be logistically safe and secure. But it’s also important the border is re-opened to people, to the extent safely possible, for the sake of the screeds of businesses currently suffering its virtual closure. This is a pointer that the economic impacts of a travel bubble are potentially more significant from a compositional perspective than for respective net-GDP gains overall.

GDP Signals Full of Static

BNZ Research -

Our +0.4% expectation for Q4 GDP is, to be sure, for the “official” production-based measure and would establish annual growth of 0.6%. Our expenditure-based GDP estimate, it’s worth noting, is -0.4% for the quarter. Yet this would make for annual growth of 3.3%. This is further illustration that the messages on NZ economic growth are extremely mixed.

GDP’s Choppy Waters

BNZ Research -

We have long thought that GDP, after a big bounce in Q3, would be choppy to flat across Q4 and Q1 combined. We remain of that view. Only by the middle part of this year will a reliable picture start to form from the data, as to the economy’s underlying performance and trajectory. This week, there are numerous quarterly activity indicators on show, which will test our view on Q4 GDP, which, just for the record, currently sits at +0.7% (+0.9% y/y).

Covid-19 Reiterates Its Economic Control

BNZ Research -

There’s a bucket load of economics news coming out over the coming week covering housing data, core statistics, a fiscal update and keynote speeches from both the RBNZ Governor and the Minister of Finance. But all of these pale into insignificance as Auckland goes back into Level 3 Covid status and the rest of the country Level 2.

RBNZ Anchored to the Rising Inflationary Tide

BNZ Research -

With respect to the Reserve Bank’s now-dual mandate, the labour market has largely side-stepped bad-case predictions, while CPI inflation is also looking far more robust than the Reserve Bank expected. So, as we wrote in our full “RBNZ February MPS Preview” (of 11 February), the Reserve Bank simply must be less dovish in its MPS this Wednesday. However, our preview also made it clear that “This does not mean the Bank will be rushing to shift its current policy stance”.

An Abundance of Caution

BNZ Research -

This morning’s PSI for January – much like the government with its latest COVID-19 restriction increases – displayed an abundance of caution. The PSI certainly didn’t manage to bounce big in January, the way the PMI (to 57.5) did. In fact, it eased to a seasonally adjusted 47.9, from 49.1 in December. The increased COVID-19 restrictions, meanwhile, will play to a wary RBNZ at next week’s MPS, but are also likely to activate more fiscal support/stimulus.

BPS’s Wellbeing Focus Has Housing in Its Sights

BNZ Research -

While the Budget Policy Statement was released today it was arguably the Finance Minister Grant Robertson’s breakfast speech that proved the most pointed. In setting out the government’s policy priorities, he put a clear emphasis on housing. Watch this (policy) space.

Just How Slack Is the Labour Market?

BNZ Research -

The prognosis of New Zealand’s labour market slack is shaping up as important for the Reserve Bank’s reaction function. This is now that the other part of its mandate, CPI inflation, is firming up to around the middle of the 1 to 3% target band. While the Bank expects the unemployment rate to be “only” 5.6% in Q4 2020, it also doesn’t expect it to peak until Q2 2021, at 6.4%, and then only gradually reduce, to 5.5%, by the end of 2022. Pre-COVID, 5.5% unemployment was viewed as still quite slack. However, we suspect that level will indicate more tightness in the market, in effect, than the “old days” ever did.

The Times They Are a Changin’

BNZ Research -

Today’s missive outlines a few major threads of importance. One is inflation, and its upside potential. Another is the labour market, and its relevance (too) to RBNZ policy. The last, but by no means the least, is climate change policy. This will have important implications for economies and, by implication, financial markets. With this in mind, we would draw attention to the draft report the newly-minted Climate Change Commission (CCC) is due to release Monday next week.

Markets Today

BNZ Markets Today

Nick Smyth -

Despite further strong economic data, global rates fell sharply overnight. The US 10-year yield is 10bps lower and at its lowest level in a month. Equities continue to power ahead, supported by the lower rates, strong data and robust corporate earnings results. FX moves have been modest, but with a bias towards USD weakness and NZD and AUD strength.

BNZ Markets Today

Jason Wong -

US and European equity markets have hovered near record highs, while other assets are consistent with higher risk appetite, with US Treasury yields drifting higher and the NZD and AUD heading the leaderboard, with gains of more than 1% over the past 24 hours.

Outlook for Borrowers: Post-April Monetary Policy Review

Nick Smyth -

The RBNZ kept its monetary policy settings unchanged at the April Monetary Policy Review. As universally expected, the RBNZ kept the OCR on hold, at 0.25%, and maintained its QE bond buying limit at $100b, with the programme still set to run until June 2022. The RBNZ’s Funding for Lending Programme, which gives banks access to cheap three-year loans, is also set to run through the end of 2022.

BNZ Markets Today

Jason Wong -

The market was unperturbed by news of a pause in the use of the J&J vaccine and stronger than expected US inflation data, with the S&P500 pushing up to a fresh record high. US Treasury yields and the USD actually fell after the inflation report, seeing the NZD and AUD make overnight gains in the order of 0.6%.

BNZ Markets Today

Jason Wong -

As expected, it’s been a slow start to a busy week. After a strong run to new record highs, equity markets are slightly weaker, while bond markets continue to consolidate. Only small changes in currencies are evident, with the NZD flat around 0.7030.

BNZ Markets Today

Nick Smyth -

Friday capped off a positive week for equity markets, with both the S&P500 and Dow making fresh record highs. Bond yields and the USD ticked up on Friday, although both were still lower on the week. The RBNZ Monetary Policy Report takes place this week but we are not expecting any major surprises.

BNZ Markets Today

Nick Smyth -

Recent market trends have continued overnight, with equities pushing higher and bond yields and the USD lower. There hasn’t been much fresh news, with Fed Chair Powell largely reiterating previous messages in a speech overnight. The NZD is back above 0.7050.

BNZ Markets Today

Jason Wong -

In a quiet week, US equities are flat and US 10-year Treasury yields are tracking sideways. Commodity currencies and GBP have underperformed, with the NZD pushing down to 0.7010.

BNZ Markets Today

Jason Wong -

There has been little news overnight, and US equities are consolidating near their recent record high. US Treasury yields have drifted lower. In currency markets, EUR has outperformed, GBP has underperformed and the NZD has also been on the soft side.

BNZ Markets Today

Nick Smyth -

Good Morning
US economic data since last Thursday has been very strong, including payrolls and both ISM surveys. Equities have rocketed higher while the USD has experienced a broad-based decline, with the NZD pushing back to 0.7060. US yields have been volatile but with little net change since Thursday. Some caution needs to be applied to the market moves as liquidity has been thinner than usual over Easter. Ahead today, the NZ government makes its announcement on the Trans-Tasman ‘bubble’ at 4pm.

BNZ Markets Today

Nick Smyth -

Market sentiment remains positive ahead of Biden’s speech on his planned infrastructure package. US equity markets are higher overnight, led by tech stocks, while the USD is broadly weaker. The US 10-year yield has consolidated just above the 1.7% mark. Nonfarm payrolls data is released on Friday night, with the market looking for a big rise in employment in March.

BNZ Markets Today

Jason Wong -

It’s been a messy picture for financial markets, not easy to summarise in a simple soundbite – European equities are higher, US equities are lower; UST10 yields hit a fresh high but are now lower from the NZ close; and the NZD was looking strong yesterday, but has fallen back as the USD has pushed to a fresh high for the year and shows broadly based gains.

BNZ Markets Today

Jason Wong -

Risk appetite began the week on a negative note after fears of some systemic risk arising from a hedge fund getting in trouble. No contagion now looks evident and risk appetite has improved, resulting in a turnaround of equity markets and US Treasuries. After last week’s underperformance of the NZD, some tentative signs of improvement are underway but otherwise it’s a case of “nothing to see here” for currency markets.

BNZ Markets Today

Nick Smyth -

It was a ‘risk-on’ trading session on Friday night, with equities and bond yields higher and the USD broadly weaker. The NZD was back at 0.70 by the end of the week. The RBNZ announced a reduction to its QE bond buying pace on Friday, which drove an increase in NZ government bond yields.

BNZ Markets Today

Nick Smyth -

US bond and equity markets have traded broadly sideways overnight amidst a lack of market-moving news. The USD has pushed higher again, to near its year-to-date highs, while the EUR remains under pressure due to concerns around a Covid-19 ‘third wave’ in the region. The NZD has fallen to around 0.6950, a four-month low. NZ wholesale rates increased 4-8bps yesterday, rebounding after heavy falls the previous two days.

BNZ Markets Today

Jason Wong -

Risk sentiment has improved a little from the previous trading session, with US equities showing gains, US Treasury yields nudging higher and oil prices recovering yesterday’s large losses. Currency movements have been modest. Since the NZ close, the NZD has tracked sideways and is flat after printing a fresh low.

BNZ Markets Today

Jason Wong -

Markets are trading more cautiously, with Europe’s likely delayed recovery not helping. Global equity markets are flat, US Treasury yields have nudged down further and oil prices have plunged around 6%. The USD and JPY have been the strongest. The NZD has been in freefall since the government announced measures to curb runaway house price inflation, tacking on another 1% of loss overnight to yesterday’s significant fall.

BNZ Markets Today

Jason Wong -

Lower US Treasury yields have helped boost risk sentiment, sending US equities higher, led by the tech sector. Currency movements have been modest, with little fallout from a plunge in the Turkish Lira.

BNZ Markets Today

Nick Smyth -

After a hectic week, market moves were more subdued on Friday. The S&P500 was flat, the US 10-year yield continued to hold just below 1.75% and currencies were range-bound.

BNZ Markets Today

Jason Wong -

US equities have pulled back overnight after long-term US Treasury yields extended their upward trend in the afterglow of the uber-dovish FOMC statement some 24 hours ago. The USD has recovered some of its post-FOMC losses. The NZD has been one of the weakest performers overnight, settling back below 0.72.

BNZ Markets Today

Jason Wong -

Markets were trading nervously ahead of the much-anticipated FOMC announcement, with US long-term bond yields shooting higher, boosting the USD and sending equity markets lower, led by the tech sector. Two hours prior to the announcement, the US 10-year rate broke up through 1.685%, the highest level since early 2020, while 10-year inflation break-evens hit an eight-year high of 2.33%. In early trading the S&P500 was down as much as 0.7%, while the Nasdaq was down 1.5%.

BNZ Markets Today

Jason Wong -

Most markets are tracking sideways, ahead of the FOMC announcement due in about 24 hours. US equities are little changed around their record high levels, the US 10-year rate continues to hover around the 1.6% mark and currency movements have been minimal. The NZD currently sits just under the 0.72 mark and AUD around 0.7750.

BNZ Markets Today

Nick Smyth -

Market moves have been modest overnight. Treasury yields have eased back slightly while the S&P500 is broadly flat. News that more European countries had suspended use of AstraZeneca’s Covid-29 vaccine had limited impact. The NZD has outperformed over the past 24 hours and trades this morning just under 72 cents.

BNZ Markets Today

Nick Smyth -

Global bond yields lurched higher again on Friday, with the US 10-year yield reaching 1.64%, its highest level in more than 12 months. Equity markets were reasonably resilient to the sharp rise in bond yields, although tech stocks predictably underperformed (NASDAQ -0.6%). The USD strengthened across the board, except for the CAD which was boosted by a blockbuster employment report. The NZD finished the week back below 72 cents.

BNZ Markets Today

Nick Smyth -

Markets have traded with a risk-on tone overnight, with the S&P500 rising to a new all-time high and the NASDAQ up over 2.5%. The ECB left its policy settings unchanged, as expected, but said it would frontload its bond buying next quarter, driving a fall in peripheral European government bond yields. The EUR briefly dipped after the ECB, but it has reversed that move and now sits higher on the day. The NZD has pushed above 0.72 amidst broad-based USD weakness.

BNZ Markets Today

Jason Wong -

US bond and equity markets overnight have been supported by another soft CPI reading, reducing some fear in the market about inflation risks. The USD has traded weaker post that CPI result. The NZD has recovered some lost ground during local trading hours and sits slightly higher from this time yesterday.

BNZ Markets Today

Jason Wong -

Market sentiment has flipped, with a rotation back into tech stocks leading a surge in US equities, while the US 10-year rate has drifted lower. The USD has shown broadly based weakness, helping the NZD and AUD recover a little overnight.

BNZ Markets Today

Jason Wong -

The risk-off mood during Asian trading hours has given way, with US and European equities showing solid increases, with further evidence of a rotation into value plays and away from tech stocks. The US 10-year rate is consolidating around the 1.6% mark and supporting the USD. This is doing some damage for sentiment towards emerging market currencies and acting as a drag on the NZD, although other currencies like JPY and EUR have underperformed.

BNZ Markets Today

Nick Smyth -

The US nonfarm payrolls report, released on Friday night, was much stronger than expected. After initially spiking higher, the US 10-year yield consolidated around 1.55%. Equity markets rebounded while the USD continued to push higher, with the BBDXY making a three-month high. With wholesale rates pushing higher in NZ, the RBNZ announced an increase to its bond buying for this week, although without much market impact on Friday. Over the weekend, the Senate passed the huge $1.9 trillion US fiscal stimulus bill, albeit with some modest changes.

BNZ Markets Today

Nick Smyth -

The bond market sell-off has resumed, with the US 10-year Treasury yield breaking back above 1.5% in the last hour as Fed Chair Powell was speaking. The market was seemingly looking for Powell to push back harder on the recent increase in yields. Equities turned down and the USD appreciated as US yields rose. The turnaround in the USD has pushed the NZD down below 0.72. Elsewhere, oil prices spiked higher after OPEC+ decided not to raise output next month.

BNZ Markets Today

Jason Wong -

Global bond rates have shown chunky gains overnight, with the market staring in the face of higher than expected UK debt issuance following the Budget and inflationary pressure in the US. This looks to have impacted equity market sentiment, with a modest fall in the S&P500 and the tech sector underperforming. Currency moves have been small overnight, but with the NZD at the bottom of the leaderboard.

BNZ Markets Today

Jason Wong -

Financial markets have been quiet overnight. US equities show modest falls after the strong bounce in the prior session. UST10s have been range bound and the USD has been broadly weaker. The GDT dairy auction was a boomer, but with little impact on the NZD, which sits mid-pack and approaches the 0.73 mark.

BNZ Markets Today

Jason Wong -

Calmer conditions in the US Treasuries market overnight have encouraged equity investors to buy the dip, driving a strong rally, spurred on by a stronger ISM manufacturing print. Better risk sentiment has supported commodity prices, although there has been little follow-through of the recovery seen in the NZD and AUD during local hours. Given recent bond market gyrations, the RBA’s policy update later today will be more closely watched than usual.

BNZ Markets Today

Nick Smyth -

Friday saw more volatility in bond markets, although this time it was yields moving sharply lower. The US 10-year yield fell back to 1.4%, having traded as high as 1.6% on Friday morning. Meanwhile, equity markets weakened (the NASDAQ an exception), commodities fell, and the USD strengthened sharply. The NZD and AUD fell around 2% on Friday. In news over the weekend, Auckland is back in a Level 3 lockdown for a week and the rest of the country Level 2. The snap lockdown may temper the market’s recent shift towards pricing OCR hikes in 2022.

BNZ Markets Today

Nick Smyth -

The bond market sell-off has accelerated over the past 24 hours, seeing big increases in rates across all countries. The NZ 10-year swap rate hit 2% yesterday, the first time since 2019, while the US 10-year rate got to within a whisker of 1.5% overnight. Equities have come under pressure from the rise in bond yields, with tech stocks falling hard, while currency moves have been more modest. The NZD made a new post-2018 high yesterday, above 0.7450, in the wake of the Finance Minister officially announcing a change to the RBNZ’s monetary policy Remit.

BNZ Markets Today

Jason Wong -

Equity markets remain on the backfoot, with the S&P500 on track to post a sixth consecutive daily fall. US Treasuries are in a consolidation mode tracking sideways, while currencies have shown only small movements, the NZD tracking not far off yesterday’s high ahead of the RBNZ MPS this afternoon.

BNZ Markets Today

Jason Wong -

There was plenty of action in markets during NZ trading hours, with the reflation trade dominating, seeing fresh highs in rates, commodities and commodity currencies. It has been less interesting overnight, as US and Australian rates have reversed course while equity markets are trading with a cautious tone. The NZD is currently close to yesterday’s high, while the AUD has punched up through 0.79.

BNZ Markets Today

Nick Smyth -

Global bond yields continued to move sharply higher on Friday, with the US 10-year rate hitting its highest level in 12 months and yield curves steepening. The increase in global rates saw the S&P500 give up earlier gains and close marginally down on the day. The reflation theme continues to drive sector rotation in equity markets, with small cap and cyclical stocks outperforming. Surprisingly, the USD didn’t benefit from the sharp increase in US real yields. The AUD made a three-year high on Friday while the NZD hit 0.73.

BNZ Markets Today

Jason Wong -

Global equities have taken on a more cautious tone after the recent rise in bond rates, and with weaker US data overnight not helping. The NZD continues to hover around the 0.72 mark, while GBP remains the flavour of the month.

BNZ Markets Today

Jason Wong -

The USD is modestly stronger while US equities and US Treasury yields are modestly lower overnight. These trends were in play ahead of a huge surprise in the strength of US retail sales and the report extended those market movements, although not by much. This sees the NZD trading sustainably below 0.72

BNZ Markets Today

Jason Wong -

There hasn’t been much news overnight, with only second-tier economic releases, but that hasn’t stopped US Treasury yields continue their run higher, while US equities hit a fresh record high after the long weekend. Higher US real rates have supported the USD, seeing it make broadly based gains, with the NZD flirting with the 0.72 level.

BNZ Markets Today

Jason Wong -

Newsflow has been light with the US on holiday, but global equity markets and commodity prices continue to roar ahead, while global rates push higher. Currency markets remain uneventful and show modest changes, with the USD remaining on the backfoot.

BNZ Markets Today

Jason Wong -

Ahead of the long weekend in the US, the S&P500 rose 0.5% to close at a record high while the US 10-year rate closed above 1.20% for the first time in almost a year. Currency markets were dull by comparison, with the NZD flat at 0.7220 and losing further ground to the AUD, with NZD/AUD down close to 0.9300.

BNZ Markets Today

Jason Wong -

The low volatility in most asset prices evident this week has continued for another day, as newsflow remains light. The S&P500 is down slightly, US yields have ticked higher and commodity currencies have shown some modest outperformance.

BNZ Markets Today

Jason Wong -

It has been another quiet overnight trading session, with global equities nudging lower and soft US CPI data helping US rates nudge lower. Currency movements have been small, although notably the NZD has underperformed again, but managing to keep its head above the 0.72 mark.

BNZ Markets Today

Jason Wong -

It has been an uneventful day for financial markets, with US equities consolidating recent gains, US 10-year yields nudging lower, and small movements in currencies. The NZD has been the weakest of the majors overnight, giving up a little of the gain seen during the local trading session.

BNZ Markets Today

Nick Smyth -

Reflationary expectations in the market continue to build. The market brushed off a weaker-than-expected US nonfarm payrolls release on Friday, instead focusing on the prospect of another huge US fiscal stimulus and Covid vaccine rollout. Equities and commodities have continued to push higher while the US 10-year rate hit its highest level since March, before retracing over the past few hours. US market-based inflation expectations have reached their highest level since 2014. The USD is on the back foot again, seeing the NZD push back above 0.72.

BNZ Markets Today

Nick Smyth -

Risk sentiment remains buoyant, with the market putting the GameStop saga from last week firmly behind it. The S&P500 and small-cap Russell 2000 indices are toying with fresh all-time highs. The USD has continued its recent mini resurgence and the EUR has broken below 1.20 for the first time since December. The GBP has outperformed post the BoE meeting with the market scaling back rate cut bets while the NZD has drifted back to 0.7150 amidst broad-based USD strength. NZ rates continued to head higher and the curve steeper yesterday while NZ market-based inflation expectations reached a six-year high.

BNZ Markets Today

Jason Wong -

Global equities have made small gains overnight and the US 10-year rate has pushed a few basis points higher, following stronger than expected employment and ISM services data. Currency moves have been small overnight, but the NZD has given up some of yesterday’s post-employment report gains, which drove a further sharp increase in rates.

BNZ Markets Today

Jason Wong -

It looks like the frenzy in stock (and silver) trading by retail punters is nearing an end and it’s back to “business as usual”, with equities showing another day of solid gains. The USD has found some broad-based support. The AUD is the worst performer after the RBA’s dovish surprise, while EUR is struggling as well. UST10 yields have pushed a little higher.

BNZ Markets Today

Nick Smyth -

Equities have bounced back strongly overnight from their falls last week amidst some signs that the market is moving on from the GameStop saga. The USD is stronger across the board, which has seen the NZD drift down to 0.7160. Elsewhere, the Reddit crowd helped drive silver prices to their highest level since 2013.

BNZ Markets Today

Jason Wong -

US equities closed last week on a poor note with the focus on the retail investors versus hedge funds battle rather than more fundamental drivers. Hence, this wasn’t a classic risk-off move, with commodity currencies mostly trading higher Friday night (AUD the exception, being flat) and US 10-year rates nudging higher. Weaker China PMI data over the weekend will set the trading tone as the new week begins.

BNZ Markets Today

Jason Wong -

US equities have bounced back strongly overnight after the previous day’s plunge, supported by economic data and a move to curtail speculative activity in the market on retail trading platforms. Better risk sentiment sees the US 10-year rate higher, after temporarily going sub 1% late yesterday, while the AUD and NZD are on a much better footing than they were during Asian trading.

BNZ Markets Today

Doug Steel -

After largely drifting through the week to date, markets are trading with a distinctly risk off tone ahead of this morning’s (8am NZT) FOMC announcement. Equity markets across Europe and the US are weaker, US bond yields are lower, and USD firmer.

BNZ Markets Today

Doug Stell -

Not a whole lot of news to drive markets overnight resulting in broadly flat US equity markets and little change in bond yields. Some minor moves in currencies, with the US dollar a touch weaker.

BNZ Markets Today

Doug Steel -

Wellingtonians coming back from their sunny anniversary day yesterday won’t notice much change across many major markets from our last report on Friday. Market movements have been reasonably subdued albeit with some risk off type moves on Friday, initial recovery into the new week, before another dip in risk sentiment appeared this morning. The net result sees equities generally lower, US bond rates lower, and the US dollar a touch firmer.

BNZ Markets Today

Jason Wong -

Good Morning
Another day, another record high for the S&P500, but risk sentiment has nudged lower in the last few hours to see the index back to flat. The USD has been broadly weaker, but after breaking 0.72 to the upside again, the NZD has drifted back down, alongside other commodity currencies.

BNZ Markets Today

Jason Wong -

Markets are in a “risk-on” mood with a new US President at the helm, expectations of additional fiscal stimulus and positive US earnings reports. US equities show good gains with the S&P500 and Nasdaq index printing fresh record highs. Commodity currencies head the leaderboard, while US Treasuries are tracking sideways.

BNZ Markets Today

Nick Smyth -

There remains an undercurrent of positivity in markets as investors look towards more US fiscal stimulus and vaccine roll-out. Equities, rates and commodities have all moved higher overnight, regaining some of their losses from last week. Meanwhile, the USD weakened, partially reversing its mini bout of strength last week. The NZD continues to lag other commodity currencies, with the NZD/AUD sliding to a fresh three-month low.

NZ At A Glance

New Zealand at a Glance

Stephen Toplis -

In aggregate, the NZ economy is currently going nowhere fast as it suffers from the absence of international tourists and, perhaps ironically, domestic capacity constraints. Nonetheless, we still expect momentum to pick up in H2 2021 supported by an improving global economy and ongoing momentum in the domestic construction sector. But with this will come inflation suggesting the RBNZ will need to ponder tightening monetary policy by mid-2022 alongside a more immediate prudential policy response, which will sit alongside the Government’s recent housing policy announcements. Against this backdrop the NZD is currently struggling but we still expect it to strengthen against the USD and JPY in due course.

Rural Research

World Food Prices Rising

Doug Steel -

Global food prices are rising. As always, there is much variation across prices for individual products, but a clear upwards trend has emerged overall in recent months.

The UN Food Price Index – which measures international prices for a basket of food groups – rose strongly into the end of 2020 after prior declines as the pandemic took hold. Prices have lifted further in early 2021.

Milk Up

Doug Steel -

Global dairy prices have started 2021 in fine fettle. Happy New Year indeed. Positive momentum was maintained at the latest auction overnight, with the GDT Price Index rising 1.8%.