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: The upswing begins?

Jason Wong -

Six weeks ago we became more positive on the NZD and questioned whether a sustained recovery was imminent (see “NZD: The makings of a recovery?”, 22 October 2019). We’ve been patient, and last night the NZD broke higher, out of the 0.62-0.6450 trading range evident since early August. Is this the beginning of the awaited upswing?

NZD Corporate FX Update

Jason Wong -

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

NZD: The makings of a recovery?

Jason Wong -

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

NZD Corporate FX Update

Jason Wong -

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

Deal or no deal? Initial thoughts on AUD and NZD

Jason Wong -

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

NZD/AUD: Back to fair value

Jason Wong -

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

Economy Watch

Ebbs and flows

Doug Steel -

New Zealand’s manufacturing sector experienced slower expansion levels in November, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

Q3 GDP: Steadying Growth, From a Much Stronger Base

Craig Ebert -

What if we were to say next Thursday’s September quarter GDP will print near 2% higher than many people figure on? That’s where our analysis is getting to, as substantial upward revisions to historical GDP data also come to pass. Sure, this will still leave a picture of a slowing economy, since a point of (increased) strength back in 2017/18. However, there is also a sense that the slowdown is now basing. Reflective of this, we anticipate a 0.5% (2.3% y/y) expansion in Q3 GDP.

BNZ/SEEK Employment Report

Craig Ebert -

September’s big jump in job advertising has been followed by softer months that have essentially given up those gains, with November’s print falling a seasonally adjusted 0.8%, after easing back 0.3% in October. This has all but flattened off the trend measure. This advanced just 0.1% in November. Flatness was also indicated by its annual rate of increase subsiding to -1.0%, while the seasonally adjusted index was down 0.8% compared to November 2018.

Government delivers infrastructure boost

Stephen Toplis -

The Government reports an estimated fiscal surplus of 2.4% for the year ended June 2019, substantially greater than the 1.2% estimated at Budget time.
The budget balance will move into deficit this financial year (0.3% of GDP). It is forecast to return to surplus (0.5% of GDP) in the year to June 2022. It rises to 1.5% of GDP by June 2024.
Net core crown debt will rise from 19.0% of GDP to 21.5% in June 2022. It is then forecast to fall to 19.6% of GDP by June 2024.
Treasury forecasts GDP growth of 2.2% for the year ended June 2020. Growth of 2.8%, 2.7%, 2.5% and 2.4% are then expected in the years ended June 2021, 2022, 2023 and 2024 respectively.
The bond tender programme for the three years ended June 2022 is unchanged. An extra $2.0 billion will be issued in 2022/23 raising that year’s offering to $8.0 billion. In 2023/24 the bond tender programme will be $6.0 billion.

RBNZ Capital Review Not So Scary

Stephen Toplis -

The “best” news from today’s announcement is that the uncertainty around bank capital requirements is now largely behind us. Knowing the lie of the land – even if you don’t like the look of it – is usually so much better than not knowing it. And, in this case, the certainty is significantly better than once feared. At the margin, this should lift confidence reducing our downside fears for growth and the probability of further interest rate reductions.

Business Clouds Lighten

Craig Ebert -

We are sure we weren’t alone in sniffing an improvement in this afternoon’s ANZ Business Outlook survey. But we certainly didn’t expect as big a bounce as it posted. Importantly, own-activity expectations shot up to +12.9, from the -3.5 level they sank to last month. While they are still clearly below their long-term norm (of +26.5) they are now much less confronting to our view that GDP growth will trundle along at around 2% per annum, close to trend.

Retail Trade Trending Steadily Higher

Craig Ebert -

Our feel for consumer spending is that it’s trending steadily higher. So today’s reported 1.6% increase in September quarter retail trade volumes, for an annual expansion of 4.5%, likely overstates the case.

Hot Milk

Doug Steel -

The NZ milk price outlook continues to improve. Dairy prices have been firm in 2019 and have pushed higher over recent auctions. Indeed, today’s 1.7% gain in the GDT Price Index is the fifth consecutive increase taking the cumulative gain to 8.3% since the most recent trough in early September. GDT prices are heading toward the top of a trading range that has held them since 2014 and are now a chunky 26.4% higher than a year earlier. Price gains have occurred as solid demand has bumped up against docile global supply.

Path to improvement

Craig Ebert -

Expansion in New Zealand’s services sector climbed above its long term average level of activity, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

Back in black

Doug Steel -

October brought some much needed relief to the manufacturing sector with the Performance of Manufacturing Index (PMI) jumping back into expansion mode. There were widespread gains across various segments including regions, industries, and firm sizes. To be sure, at 52.6 overall, the PMI is hardly what you would call strong. But it is certainly much better than the previous three months where the index languished below 50 which indicated a sector going backwards.

BNZ/SEEK Employment Report

Craig Ebert -

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

MPS Preview: Nervous Nellie Edges Steady Eddie

Craig Ebert -

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

Labour Market Revealing Its Inflationary Teeth

Craig Ebert -

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

Is The Business Struggle Finding a Floor?

Craig Ebert -

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

2.0% CPI inflation Won’t Deter RBNZ Doves

Stephen Toplis -

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

BNZ/SEEK Employment Report

Craig Ebert -

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

Pressure For Negative Rates Gains Momentum

Stephen Toplis -

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

BNZ Forecasts Rate Cuts: November and February

Stephen Toplis -

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

Q2 GDP Keeps The Wolves At Bay

Craig Ebert -

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

Balance of Payments Still Broadly Encouraging

Craig Ebert -

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

Financial Markets Wrap

Very low currency volatility in November

Jason Wong -

• Higher risk appetite as markets await US-China trade deal news
• NZD/USD flat with little volatility but NZD crosses stronger
• Global rates push higher

Better risk sentiment supports NZD

Jason Wong -

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

NZD mildly weaker through September

Jason Wong -

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

Interest Rate Strategy

Bond market implications from HYEFU – fiscal stimulus inbound?

Nick Smyth -

The Half-Year Economic and Fiscal Update (HYEFU) is next Wednesday, 11 December. Treasury will update its forecasts and economic assumptions and New Zealand Debt Management (NZDM) will provide an update on the NZGB bond programme. At the Budget in May, the bond programme was set at $10b for this fiscal year. Net issuance of nominal NZGBs was set to be positive in the current fiscal year for the first time since FY 2015/16.

Five reasons why NZ-US spreads can widen from here

Nick Smyth -

NZ and US rates have experienced a major rally in 2019 but, through that all, the 10 year NZ-US spread has been relatively stable (Chart 1). The 10yr spread has broadly tracked expectations the OCR-Fed funds rate differential, which have mostly hovered between -50bps to -75bps.

BNZ RV Chart Pack

Nick Smyth -

Swap-bond spreads appear to have found a base. Short-end NZGBs have outperformed on the ASW curve.
The NZGB 2027 is the cheapest bond on the curve. The 2033 has richened over the past fortnight and no longer stands out as cheap.
NZ BEIs have consolidated over the past fortnight. We think they are likely to face resistance ahead, unless the nominal sell-off gains momentum.
Long-end LGFA-NZGBs compress but remain within recent trading ranges.
Housing NZ bonds underperform noticeably.

Outlook for Borrowers: Post-November MPS

Nick Smyth -

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

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

Nick Smyth -

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

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

BNZ RV Chart Pack

Nick Smyth -

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

BNZ RV Chart pack

Nick Smyth -

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

Outlook for Borrowers: Post-Sept. OCR Review

Jason Wong -

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

Markets Outlook

How “Significant” Fiscal Stimulus?

BNZ Research -

This week’s smattering of economic data will be overshadowed by the government’s Half-year Economic and Fiscal Update (HYEFU), due Wednesday (1:00pm). This will reveal what Finance Minister, Grant Robertson, meant by a “significant” fiscal stimulus. We suspect it’s principally about capital expenditure (leaving options related to households until next year’s election Budget).

High Noon For Bank Capital

BNZ Research -

There is market chatter that the Reserve Bank, having completed its consultation process in full, might take a smidge off the originally proposed capital target percentages. Also, that it might extend the transition period beyond the five years initially proposed. Overall, however, the bank-capital policy will surely mean for a substantial change from what we have. This will have, along with purported benefits, costs, which will have to show up somewhere, for someone. And not just in the price of credit but more directly in its volume of supply.

A Week to Sate Data Watchers

BNZ Research -

If things are – as the Reserve Bank has proposed – firmly in data-watching mode, then there are loads of it on offer this week. None of it is top-tier. But there are copious amounts of the next best thing. This will give us a good feel on momentum, across various aspects of the economy. The economic news will be complemented by financial-sector angles of Wednesday’s RBNZ Financial Stability Report (FSR).

Stronger GDP (and Productivity)

BNZ Research -

One of the biggest problems with productivity is in trying to measure it. In the old days of nuts and bolts and punch-clocks, it wasn’t all that difficult. But these days productivity is far more complex in concept and measurement – particularly with the service sector increasingly dominant in the economy.

In The Balance

BNZ Research -

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

Eyes On The Labour Market

BNZ Research -

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

A Break in Transmission

BNZ Research -

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

The Manifestation of Strong Terms of Trade

BNZ Research -

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

Differing Outlooks on All-Important Inflation

BNZ Research -

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

GDP Growth Doesn’t Matter…Au Contraire

BNZ Research -

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

Still Lacking Confidence?

BNZ Research -

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

OCR Review: Taking Stock

BNZ Research -

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

Markets Today

BNZ Markets Today

Jason Wong -

“Getting VERY close to a BIG DEAL with China. They want it, and so do we!” That one tweet by you know who has had the biggest impact on markets this week, trumping the other key risk events. US equities rose to a fresh record high, while the US 10-year treasury yield climbed as much as 11bps to 1.90%. The impact of the tweet on currency markets has been more muted, and has actually supported the USD, with reduced tariffs seen to be positive for the economy.

BNZ Markets Today

Jason Wong -

Markets have been quiet ahead of the FOMC announcement in the next hour or so. The NZD and AUD have trended higher since the NZ close for no obvious reason, seeing the NZD back up probing the high seen earlier this week. Ahead of the FOMC, the USD is slightly on the soft side, while US treasury yields have drifted lower.

BNZ Markets Today

Jason Wong -

There has been a lot of economic data and newsflow over the past 24 hours but financial markets remain in a holding pattern ahead of more important events later in the week. US equities are flat, US treasury yields are slightly higher and the NZD is slightly weaker.

BNZ Markets Today

Jason Wong -

In a quiet start to the week, US equities are flat and there have been only small changes in global rates and currencies.
It’s a fairly action-packed week ahead, but loaded towards the end of the week, with the FOMC meeting Thursday morning NZ time, the ECB meeting Thursday night and the UK election results coming in Friday. All this comes ahead of a scheduled increase in Chinese import tariffs by the US on 15-December on about $160bn of mainly consumer goods.

BNZ Markets Today

Nick Smyth -

A much stronger-than-expected nonfarm payrolls report on Friday night set the scene for increases in bond yields, the USD and equity markets. The NZD rose again on Friday, despite this broad-based USD strength, with upbeat comments from RBNZ Deputy Governor Bascand providing support. The NZD/AUD cross broke above 0.96 for the first time since August. All eyes are on HYEFU this Wednesday for the details of Labour’s “significant” fiscal package.

BNZ Markets Today

Nick Smyth -

Markets have largely been in a pre-payrolls holding pattern overnight. Treasury yields have nudged up, equity markets are little changed, and the USD has continued to drift lower. Yesterday, the RBNZ softened some aspects of its original bank capital proposal, which led the market to pare back OCR rate cut expectations and boosted the NZD. The NZD is trading at a four-month high against both the USD and AUD, with the NZD/AUD cross pushing up towards 0.96.

BNZ Markets Today

Jason Wong -

US equities and bonds reversed course from the previous night’s chunky movements after more trade news headlines, this time with a more positive tone. The US 10-year treasury yield is up 6bps. In currency markets, GBP and CAD lead the way, while the NZD has nudged higher.

BNZ Markets Today

Jason Wong -

US equities have slumped 1% and US treasury yields have rallied hard after President Trump’s comments to reporters about the US-China trade deal. Reaction in currency markets has been more muted. Modest USD weakness has prevailed, helping keep the NZD’s head above the 0.65 mark.

BNZ Markets Today

Nick Smyth -

After what was an exceptionally quiet November, there have already been some big moves to kick off December. Global rates have increased sharply, on increased talk of fiscal stimulus. Meanwhile, equity markets and the USD have declined after a weaker-than-expected ISM manufacturing survey. The NZD is up more than 1% against the USD and has risen on all the crosses, with NZD/AUD breaking above 0.95, after Grant Robertson signalled a “significant” fiscal stimulus over the weekend.

BNZ Markets Today

Nick Smyth -

Friday again saw limited moves across asset classes (oil excluded) with market participation and trading activity lighter than usual after Thanksgiving. Friday brought to an end an exceptionally quiet November in the FX market, with the NZD recording its second-narrowest trading range in 20 years. There is more on the cards for this week, with the final outcome from the RBNZ bank capital review announced, the US ISM surveys, payrolls, and Australian GDP all released. Over the weekend NZ Finance Minister Grant Robertson foreshadowed a “significant” fiscal stimulus, so rates should open higher and steeper this morning.

BNZ Markets Today

Jason Wong -

The US Thanksgiving holiday has meant markets have barely moved, making a dull week even duller. All key currencies are trading within 0.2% of levels this time yesterday, while US equity and bond futures show little movement.

BNZ Markets Today

Jason Wong -

The run of daily record highs for US equities continues, the latest milestone supported by some net positive US data releases, which have also seen UST yields and the USD nudge higher. The NZD has remained stuck in its familiar range and sits around 0.6425.

BNZ Markets Today

Jason Wong -

Another day, another fresh high in the S&P500, although gains have been modest. Currency markets remain range-bound while global rates have ticked lower.

BNZ Markets Today

Jason Wong -

Our celebration yesterday of a new week after last week’s snooze-fest in markets has proved ill-considered as the new week has produced more of the same. While there has been a bit of life in equity markets, currencies and bond markets generally show little movement. GBP has outperformed on polling showing a small increase in the chance of a majority Conservative government.

BNZ Markets Today

Jason Wong -

Last week ended on a fairly quiet note. EUR and GBP underperformed, following weak PMI data while the NZD continued to trade in a tight range. US treasury yields were little changed against a backdrop of lower yields for the UK and euro area.

BNZ Markets Today

Brendan Marsh -

Day five of the week, the weekend nearly upon us and the NZD finds itself still tied to the US64cent level, exactly where we started the week having traded barely a half cent range.

BNZ Markets Today

Brendan Marsh -

Day five of the week, the weekend nearly upon us and the NZD finds itself still tied to the US64cent level, exactly where we started the week having traded barely a half cent range.

BNZ Markets Today

Brendan Marsh -

We open this morning with FOMC minutes on the horizon (NZT 8:00am).

There’s been so much from Powell (FOMC press, Semi-annual Testimony – twice) and a myriad of Fed speakers in past weeks, all generally speaking to the on hold view. While there will be some interest in the diversity of views, there otherwise shouldn’t be any news as such in the release.

BNZ Markets Today

Nick Smyth -

Market moves have been modest again overnight amidst little fresh news. Bond yields have fallen modestly while equity markets are little changed. The AUD has risen overnight, brushing off what were initially seen to be dovish RBA minutes, and this has dragged the NZD above 0.6420.

BNZ Markets Today

Nick Smyth -

There have been few fresh developments overnight, with the exception of a report that China was growing pessimistic about the prospect of a trade deal, and market moves have been reasonably modest. The GBP has outperformed in the FX market as the Conservatives have extended their lead in the polls. The NZD has traded a very narrow range to start the week and domestic rates were virtually unchanged yesterday.

BNZ Markets Today

Nick Smyth -

US equity indices closed last week at fresh record highs amidst more positivity around a US-China Phase-One trade deal. Safe haven currencies fell against the USD while commodity currencies outperformed. Domestically, RBNZ Governor Orr and Assistant Governor Hawkesby reinforced the message that the Bank is on hold for now, although it could cut the OCR again if circumstances change.

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Doug Steel -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Nick Smyth -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

BNZ Markets Today

Jason Wong -

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

NZ At A Glance

New Zealand At A Glance

Stephen Toplis -

The mood of the country appears to have stepped up a tad over the last few weeks. You wouldn’t describe the business sector as being optimistic but confidence levels have certainly ticked up enough to suggest the economy is approaching its cyclical low. Consequently, the risk we may face negative interest rates has reduced markedly particularly given that headline inflation now looks set to head above 2.0% within six months and the labour market remains tight. Moreover, fiscal policy looks increasingly likely to be supportive of growth over the medium term.

Rural Wrap

Food Nourishing Exports

Doug Steel -

Food exports look set to lift NZ’s merchandise exports to a record high in 2019. Further export gains are expected next year, on elevated primary product prices. Meat prices are leading the charge, amplified by the impact of African Swine Fever on pigs in China. We see NZ’s food trade surplus lifting to over $30 billion, supporting both NZ growth and the nation’s external balances.

Spring Lamb

Doug Steel -

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