BNZ Research

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Currency Research

NZD: Back to the 90s?

Jason Wong -

The click-bait title of this note refers to the low volatility period of the 1990s, not the level of the NZD. As the first half of 2019 draws to a close, currency watchers will know that it hasn’t been a particularly volatile period for currency markets.

NZD Corporate FX Update

Jason Wong -

- We’ve trimmed our NZD optimism for the second half,
given the escalation of US-China trade wars. We see
the NZD as largely confined within 0.65-0.69, but with
downside risk still lingering over the short-term.

Our NZD projections have been unusually stable, being
unchanged over the past six months, even as we have
recently highlighted some prevailing downside risk. We
trim 1½-2 cents off our 2H19 projections, taking the
average down to 0.6750, consistent with a view that the
NZD largely trades within a 0.65-0.69 range.

NZD Corporate FX Update

Jason Wong -

The NZD remains stuck in a 0.6650-0.6950 trading range, which is expected to continue over coming months. As the year progresses, we expect a more positive tone to the global economic backdrop to prevail – a factor which the NZD is sensitive to – supporting a move to 0.70 by year-end.

NZD: Conflicting Forces

Jason Wong -

The run of global economic data has been softer, the US yield curve turned negative adding to fears of economic recession, the Fed has done a U-turn on its policy outlook, and other central banks have raised concern about the external outlook. Meanwhile, credit spreads remain tight, commodity prices trend higher and the NZD seems to have good support. These are conflicting forces. In this note we try to summarise what’s going on, with implications for the NZD.

Economy Watch

GDP Growth Holds Up, For Now

Craig Ebert -

As it turned out, Q1 GDP expanded 0.6%. This was in line with market (and our) expectations. But annual growth came in at 2.5%, versus market expectations of 2.3%. Expenditure GDP increased 0.8% in Q1, for annual growth of 2.9%. Skimming through the detail, however, there were clearly a lot of ups and downs, hits and misses, which queried the idea of a commonly decent tone to New Zealand’s economic expansion. We also note that our view on the NZ economy, and by implication the RBNZ, is more broadly becoming clouded by a number of leading indicators that are losing momentum.

Deficit Through Its Peak

Doug Steel -

New Zealand’s external accounts have been off the radar as an issue for financial markets. Today’s mild narrowing in the annual current account deficit to 3.6% of GDP keeps it this way. Of most interest to us was the exports and imports figures that combined to give a hint of downside risk to our 0.6% pick for tomorrow’s Q1 GDP.

Growing Risks of Economic Slack Emerging

Doug Steel -

Downside risks to economic growth are rising. Not that we think this week’s Q1 GDP figures will be weak. Indeed, on our reckoning, they should be reasonably good given the indicators for that period. Our unease relates to what happens to growth thereafter, with an expanding list of lead indicators turning south.

Catch up

Craig Ebert -

Activity in New Zealand’s services sector picked up after three consecutive monthly falls in expansion, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

On the Edge

BNZ/BusinessNZ -

New Zealand’s manufacturing sector was close to no change in activity for May, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

Deficits Return in 2020?

Stephen Toplis -

The major focus of today’s Budget will be the ensuing discussion as to whether the “Wellbeing” budget delivered what the electorate and various lobby groups desired of it. Time will tell on this front. More immediately, though, the data clearly show future fiscal surpluses will come under increasing pressure from the combination of rising expenditure, slowing GDP growth and the lack of an obvious way to meaningfully enhance revenue. Nonetheless, New Zealand’s positive aggregate fiscal positioning, relative to the rest of the world, is not yet under any great threat.

Construction Concerns To Force OCR Lower?

Stephen Toplis -

May’s ANZ Survey of Business Opinion will have nudged the RBNZ a smidgen closer to lowering its cash rate further. The Bank has displayed a clear focus on the possibility that falling growth will alleviate capacity constraints in the economy and, in turn, ease pressure on the labour market and future inflation. Today’s survey will have built on those concerns with no evidence provided that growth is about to accelerate.

Retail Spending Effectively Solid

Craig Ebert -

If the New Zealand economy is suffering a lack of demand, consumers clearly haven’t received the memo. March quarter retail trade rose a seasonally adjusted 0.7%, in real terms. This was effectively a strong result, following the (unrevised) jump of 1.7% reported for Q4. The overall strength was evident in annual growth running at 3.3%.

Keeping head above water

BNZ - BusinessNZ -

New Zealand’s manufacturing sector experienced an increase in expansion for April, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

RBNZ Spooked By Growth

Stephen Toplis -

The RBNZ (and its new committee) has firmly nailed its colours to its mast. While we thought the balance of economic data would rail against a rate cut today, the RBNZ instead chose to focus on the economy’s downside risks in pushing through what is, effectively, a pre-emptive cut in rates. But not only did the Bank cut the cash rate today to 1.5% it also intimated a clear desire to give it another nudge lower.

Labour Softness Not A Rate Cut Portent

Stephen Toplis -

On balance then, we do not see overall labour market settings deviating substantially from full employment. Accordingly, while the pressure to raise interest rates is dissipating and the potential for a prospective rate cut is rising, we do not see sufficient softening in the labour market that, in and of itself, would demand the Reserve Bank provide any further stimulus any time soon.

Cost Pressure Remains

Doug Steel -

Business confidence remains mired in negative territory, as cost pressures remain intense. Growth is slowing, but the balance of inflation and employment indicators don’t look out of line with RBNZ targets.

Preview of Q1 Labour Market Data

Craig Ebert -

With the financial markets still vacillating on an OCR cut for next week, this Wednesday’s labour market data could yet be a swing factor. Base case, we expect them to retain a decent degree of robustness. However, the risks seem tilted to the data appearing a bit mixed this quarter, even if just in a statistical sense. We saw from the Q1 CPI how markets react to this sort of thing. That is to say, aggressively.

CPI Slow But Firm Enough At Core

Craig Ebert -

Just when the market was going off the idea of OCR cuts, along comes today’s March quarter CPI to excite the notion anew. To be sure, this latest CPI was slow. But its core measures arguably weren’t. All up, it leaves us on the fence regarding odds of an OCR cut at the 8 May Monetary Policy Statement (MPS), awaiting more direction from the data, and, more to the point, looking at the forward indicators. As of now, we still think the Bank will defer.

Slipping Service

BNZ Research/ Business NZ -

Activity in New Zealand’s services sector slipped to its lowest level since 2012, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: Food prices (m/m%), Mar: 0.5 vs. 0.4 prev.
CH: CPI (y/y%), Mar: 2.3 vs. 2.3 exp.
CH: PPI (y/y%), Mar: 0.4 vs. 0.4 exp.
US: PPI ex food and energy (y/y%), Mar: 2.4 vs. 2.4 exp.
US: Initial jobless claims (k), 1st Apr: 196 vs. 210 exp.

Good Morning
After the passing of a number of significant event risks yesterday, markets have returned to calm, with volatility subdued. The USD has strengthened across the board, taking the NZD down to its recent lows in the process. RBNZ Governor Adrian Orr gave an interview with Bloomberg late yesterday in which he said the May OCR decision would be a difficult one.

Meandering March

BNZ – BusinessNZ -

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

QSBO Confirms RBNZ On Target

Stephen Toplis -

As much as our central view on activity and inflation remains unchanged we concede that we are millimetres away from formally moving our rate call to a cut. Not because we think it is justified by economic fundamentals but because it is hard to stand in the way of the freight train that is market pricing with the RBNZ guiding the locomotive from the cab. For now, though, we will stand fast and await the upcoming announcements on the Q1 CPI and labour market before finalizing our call for the Bank’s May response.

NZ Businesses Growing Tired of It

Craig Ebert -

While we take on board today’s weak-looking business survey, we still think it’s important to understand what’s behind it. To the extent that it’s still capacity limits being encountered, next week’s NZIER Quarterly Survey for Business Opinion (QSBO) will give key insight.

Financial Markets Wrap

NZD Weaker In May As Trade Tensions Escalate

Jason Wong -

May was a classic “risk-off” month, with big falls in global equity markets, lower global bond rates, lower industrial commodity prices, and lower commodity currencies...

NZD Underperforms in April

Jason Wong -

Risk appetite, equities and global commodity prices push higher through April...

NZD Flat Amidst Plunging Global Rates

Jason Wong -

• Interest rates around the world plunged as central banks surprised with dovish tilts
• Plunging rates supported risk appetite, seeing rising equity markets
• Low currency vol continues, with NZD well supported

Interest Rate Strategy

NZ Rates Strategy: Contemplating downside scenarios

Nick Smyth -

NZ rates are at record lows and the move has been swift. The decline in the 10 year swap since rates hit their most recent peak on the 8th of November currently stands at 140bps. Outside of the GFC (when the OCR was cut by 5.75%), that’s the steepest decline in the NZ 10y rate over the past 20 years over that time horizon (see Chart 1).

NZGB Bond Programme – Thoughts and Market Implications

Nick Smyth -

The New Zealand Budget last week was accompanied by a revised bond programme from NZDM.

Bearish duration proxies in the Kiwi rates market

Nick Smyth -

NZ rates have experienced a substantial rally over the past six months as the market has anticipated (and the RBNZ delivered) an OCR cut and global rates have fallen.

Looking At It Through A Household Debt Lens

Nick Smyth -

As at the end of last year, the RBNZ’s mean estimate of the neutral OCR was just above 3.25%, within a wide range of estimates between 1.9% and 4.6% (see Chart 1). The RBNZ’s neutral estimate has continued to drift lower over time, albeit more gradually over the past few years. Other central banks have also been lowering their own neutral rate estimates over the past few years. Earlier this year, the Bank of Canada reduced its neutral estimate by 25bps, to 2.75%, the same level as the Fed.

NZGB Bond Programme – What We’ll Be Watching Out For

Nick Smyth -

The NZ Budget is on 30th May and this will accompanied by NZDM releasing an updated bond programme. At the last bond programme update, at the Half-year Economic and Fiscal Update (HYEFU) in December, NZDM forecast $8b of gross NZGB issuance in the upcoming fiscal year (the same level as the current fiscal year – see Table 1).

NZ Rates Outlook - Valuations Stretched

Nick Smyth -

RBNZ cuts to 1.5%, signals a soft easing bias – NZ short-end getting closer to fully-priced

Outlook for Borrowers: Post-May Monetary Policy Statement

Nick Smyth -

The RBNZ reduced the OCR at the May MPS, to 1.5%. The market was pricing around a 33% chance of a rate cut immediately prior to the decision, although a strong majority of economists expected a move. The decision was the first made by the newly-formed Monetary Policy Committee.

A Stock-Take on NZ BEIs – Positive Catalysts Ahead

Nick Smyth -

We have been highlighting the value case for NZ BEI wideners for some time. The interpolated 10 year NZ BEI is barely above 1%, well below headline CPI inflation, the range of core measures of 1.5% to 2.2%, and the RBNZ’s 2% target midpoint..

BNZ Interest Rate Strategy: NZ swap spreads getting stretched – buy NZGB 2027 v swap

Nick Smyth -

NZGBs have underperformed swaps significantly since the start of the month.

Outlook for Borrowers: Post-March OCR Review

Nick Smyth -

At the March OCR Review, the RBNZ surprised the market, and us, by moving to an explicit easing bias. The Bank said the “more likely direction of our next OCR move is down”, citing a weaker global outlook and less momentum in the domestic economy.

RBNZ OCR Review Uber-Dovish; Enter 2s5s Steepeners

Nick Smyth -

The RBNZ surprised the market, and us, by moving to an explicit easing bias at yesterday’s OCR Review. This has generated a significant move lower in NZ rates, with the front-end of the curve leading the charge (see Chart 1). The softer global outlook, and the more pronounced downside risks attached to it, appeared to be the main driver of the RBNZ’s change in policy stance. Readers can see our economics team’s summary of the OCR Review for more detail.

Markets Outlook

An August Cut…If Not Before?

Craig Ebert -

Immediately after May’s Monetary Policy Statement (MPS) we highlighted that the Reserve Bank would be cutting rates again. At that time we noted that we were “ambivalent between August and November” with regard to timing. Given latest developments, and from our economic commentaries over recent weeks, it should be clear to all that our ambivalence has shifted in favour of August. Indeed, so much have the sands shifted that there is a solid risk the RBNZ is goaded into cutting its OCR a further 25 basis points, to 1.25%, this week.

GDP Might Struggle To Look Robust

BNZ Research Team -

Yes, our Q1 GDP growth estimate is above the Reserve Bank’s May MPS expectation of 0.4% (2.2% y/y), but this is courtesy of the big jumps since reported in Building Work Put in Place and the OTI-based merchandise export volumes. Outside of these, GDP growth appears to have a slow, even patchy, tone about it, which is something we are bearing in mind for Q2/Q3.

So What If Q1 GDP Proves Solid?

BNZ Research Team -

In spite of New Zealand’s leading economic indicators coming off the boil, Q1 GDP growth stands a decent chance of looking solid. Indeed, we have bumped up our estimate of this to 0.7% (2.5% y/y). This is mainly after seeing the massive jump reported for building work in the March quarter. That being said, the few components that promise to shunt Q1 GDP higher threaten to become backdrafts going into Q2.

Threats More Local Than International?

BNZ Research Team -

It would be easy to blame the big wide world for the slowdown occurring in the NZ economy. However, it’s not clear that New Zealand’s global-facing industries are being hit disproportionately, through all the usual channels. Indeed, commodity export prices are proving remarkably resilient to the global slowdown. The tone around domestically-facing industries is clearly slowing, however, including the services sector. And it’s turning negative with respect to residential construction’s outlook. This is in spite of still-strong population growth.

A Week Full of Public Policy Pointers

BNZ Research -

A slowing economy will keep Thursday’s wellbeing Budget on its toes but still positive enough to keep the markets content, and the bond programme relatively contained. Wednesday’s RBNZ Financial Stability Report (and associated press conference and testimony to Parliament) will also be interesting – especially in the context of the bank capital proposals, but also for the potential for further relaxation of the LVR home lending restrictions. And this week’s ANZ business survey is the first post the government’s announcement that it was abandoning its proposals to introduce a wide-ranging capital gains tax. But will other things still weigh heavily?

Back(bone) Niggles

BNZ Markets Research -

The services sector has been the backbone to New Zealand’s economic growth since the 2008/09 recession. So, even with the rebound recorded in April’s Performance of Manufacturing Index, to an ”almost normal” level of 53.0, GDP growth looks prone to toil on the basis of the latest PSI. This, in turn, is starting to challenge the view that NZ GDP growth will do relatively well through the course of 2019 – albeit after a relatively mild Q1.

An Early Peek At Q2 Inflation

BNZ Research -

April’s food and rental prices released today come in close to our expectations, but there is still plenty to watch and consider regards the influences on inflation. This includes signs of price pressure following the recent lift in the minimum wage and higher rents feeding into the CPI. Meanwhile, there are a few activity indicators due this week that will allow us to gauge the current growth pulse and assess against RBNZ forecasts.

RBNZ Should Buy Itself Time

BNZ Research Team -

We believe the best approach the Reserve Bank could take this week is to keep interest rates on hold while formally building in an easing bias into its rate track. For all intents and purposes, this would be a time-buying exercise which would: limit the chances of the RBNZ making a policy mistake; increase the chances of a rate cut being impactive if it was eventually utilized; minimize future market volatility. From an investor perspective, the risks around this week’s meeting are huge. On this basis it may well be that a relatively neutral approach to the likely outcome is the most appropriate stance.

Beyond Sustainable Employment

BNZ Research Team -

This week has a couple of local economic reports that could yet swing opinion on a May OCR cut. With the market still reluctant to price it far from 50/50, it’s coming down to the wire. The slow headline Q1 CPI jerked pricing back to that area, while Adrian Orr’s interview with the NBR late last week (including talk of on fiscal stimulus) didn’t exactly encourage the idea of an immediate rate cut.

Trading Days

BNZ Markets Research -

As we see it, Friday’s March figures will be consistent with solid growth in merchandise export and import volumes as per the Q1 GDP accounts (albeit with growth in exports overtaking that of slowing imports on an annual basis). This, in turn, is integral to the trend-like 0.5% expansion we currently estimate for Q1 GDP.

Inflation Likely Firmer Than RBNZ Foresaw

BNZ Research Team -

To be sure, some of the upside we see for the Q1 CPI relates to the rebound in fuel prices. However, also note we are picking that non-tradables inflation firmed to an annual pace of 3.0% in Q1, from 2.7% in Q4, whereas the Bank is looking for 2.8%. This gives a sense of where we see the directional bias to the core inflation measures for Q1.

Perspective Pleas

BNZ Research Team -

As a sounding board for New Zealand, we think news, and rhetoric, out of Australia will bear monitoring. That economy has arguably been coming off the boil more than New Zealand’s has – and in key respects. Yet the RBA is sounding less committed to easing even further, compared to the RBNZ’s latest missive. There is certainly a lot of RBA-speak due before the next RBNZ announcement, starting this week.

Markets Gagging For A Rate Cut

BNZ Research Team -

The RBNZ has moved to a formal easing bias and, one can only assume, has given the markets a clear message that a rate cut is its central agenda. But we can’t help but think that key employment and inflation data still don’t support such a move. Consequently, while you never want to bet against what a central bank is telling you, we still can’t rule out tighter conditions than currently priced by markets.

Markets Today

BNZ Markets Today

Jason Wong -

Newsflow has been lacking at the start of the new week. The USD continues to drift lower, with the commodity currencies showing some of the best, albeit moderate, gains. US equities are flat while global rates have nudged lower, reversing Friday’s move higher.

BNZ Markets Today

Jason Wong -

EUR ended the week on a strong note after better than expected PMI data, which also helped lift rates and drag US Treasury yields higher. NZD and AUD were flat for the day.

BNZ Markets Today

Jason Wong -

US equities reached a record high, US Treasury rates slipped below 2% and the USD is under further downward pressure, as the afterglow continues following the Fed’s opening of the door to an easing cycle.

BNZ Markets Today

Jason Wong -

Market pricing was range-bound overnight ahead of the FOMC statement this morning. In the statement, the number of Fed members who thought that rate cuts were appropriate this year pleasantly surprised the market, seeing the USD weaken across the board and Treasury yields fall after the announcement.

BNZ Markets Today

Jason Wong -

It has been an eventful overnight session in markets, driven by a dovish speech by ECB President Draghi and President Trump confirming that he will meet President Xi later this month. The net result is a rally in bond and equity markets, stronger risk currencies like the NZD and weaker European currencies.

BNZ Markets Today

Jason Wong -

It has been a quiet start to an action-packed week, with modest movements in equities, bonds and currency markets. The NZD is hovering near the 0.65 mark, while the AUD has slipped overnight to 0.6850.

BNZ Markets Today

Jason Wong -

Economic data releases generated some market movements on Friday. The NZD underperformed and rounded out a bad week, not helped by a soft PMI manufacturing report and soft economic data out of China, while the USD was boosted by strong retail sales data. The latter helped slightly moderate expectations for Fed rate cuts, and saw curve flattening, alongside a record low in long-term inflation expectations.

BNZ Markets Today

Nick Smyth -

Market movements have been reasonably modest overnight, with equity markets nudging up and bond yields slipping lower. The big mover has been oil, where prices spiked after attacks on oil tankers in the Gulf of Oman, which the US blamed on Iran. The AUD has underperformed after yesterday’s labour market report revealed a higher than expected unemployment rate, while the NZD is little changed.

BNZ Markets Today

Nick Smyth -

A lower than expected US core CPI release overnight boosted market expectations of Fed rate cuts and led to falls in US rates and a steepening of the yield curve. There was only a short-lived positive impact on equities from the CPI release however, with the S&P500 now slightly lower on the day. The USD has also strengthened, despite the miss on US CPI.

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: Manufacturing activity volume (q/q%), Q1: 2 vs. 2 prev.
AU: NAB Business conditions, May: 1 vs. 3 prev.
AU: NAB Business confidence, May: 7 vs. 0 prev.
UK: Unemployment rate, Apr: 3.8 vs. 3.8 exp.
UK: Employment change (3m/3m), Apr: 32 vs. -1k exp.
UK: Weekly earnings ex-bonus (y/y%), Apr: 3.4 vs. 3.2 exp.
US: NFIB Small business optimism, May: 105 vs. 102 exp.
US: PPI ex food and energy (y/y%), May: 2.3 vs. 2.3 exp.

Good Morning
There hasn’t been much movement, on net, in major markets overnight. US equities initially made gains after news that China would incentivise more infrastructure investment, but the move has since reversed. The NZD has underperformed for the second day running and is sitting just under 0.66. US CPI data tonight is the focus.

BNZ Markets Today

Nick Smyth -

It has been a ‘risk-on’ start to the week for global markets after President Trump’s announcement over the weekend that he would “’indefinitely suspend” tariffs on Mexico. Equities, bond yields and the USD are all higher. The NZD has underperformed.

BNZ Markets Today

Jason Wong -

On Friday, investors cheered on the prospects that the US economy was heading for recession, which might trigger the Fed to reverse its previous rate hikes. US equities rose, rates fell and the USD remained under pressure. After Trump decided not to proceed with tariffs against Mexico, some recent trends might be reversed as the new week begins.

BNZ Markets Today

Jason Wong -

US-Mexico negotiations continue and the threat of tariffs hasn’t perturbed the equity market, with US equities rising for their third consecutive day. The USD is on the soft side, with EUR leading the way after the ECB didn’t meet the uber-dovish expectations of the market. Bond yields have only shown small movements ahead of the US payrolls report tonight.

BNZ Markets Today

Jason Wong -

US equities continue to recover after last month’s swoon while US Treasury yields are little changed, following the release of two opposing economic indicators. The USD is recovering some of the losses seen over recent days but the NZD has managed to hold its ground.

BNZ Markets Today

Jason Wong -

US equities have recovered strongly and US rates have jumped higher, reversing some recent price action while the USD dollar remains under pressure. Some soothing words by Fed Chair Powell helped support the move alongside optimism that the US-Mexico trade war might not come to much.

BNZ Markets Today

Jason Wong -

One could write a book on events and headlines since our last daily on Friday, after yesterday’s local public holiday. The bottom line is that downward pressure remains on global equity markets, global rates and the USD.

BNZ Markets Today

Nick Smyth -

Global market moves overnight have been minimal, with the exception of a sharp fall in oil prices. US Treasury yields have drifted lower, aided by a dovish speech by Fed Vice Chair Clarida. In contrast, New Zealand government bond yields moved higher yesterday after the Budget revealed smaller surpluses than previously forecast and a corresponding increase to the bond programme.

BNZ Markets Today

Nick Smyth -

It’s been another risk-off session in global markets, with equity markets and bond yields lower, as investors remain concerned about a prolonged US-China trade war. The 10 year Treasury yield hit its lowest level since September 2017, the 10 year Australian government bond fell below the RBA’s cash rate and NZ rates made record lows across the curve as markets anticipated more central bank easing. The USD has strengthened against the risk-off backdrop and is approaching its highs of the year. The NZ Budget is today.

BNZ Markets Today

Nick Smyth -

Markets have been quiet overnight with both the US and UK on holiday. Equity markets are flat-to-higher, while core European government bond yields have slipped lower after reports that the European Commission was considering fining Italy for breaching its debt rules. The NZD is slightly lower to start the week.

BNZ Markets Today

Nick Smyth -

Equity and bond markets stabilised on Friday night with Trump’s comment that Huawei could be included in a possible trade deal with China helping to calm nerves. The USD fell for a second session running with investors starting to contemplate Fed rate cuts this year. Against that backdrop, the NZD has continued to recover from its year-to-date lows reached earlier in the week. NZ rates continued to slump on Friday, with new lows across the curve and OCR rate cut expectations building.

BNZ Markets Today

Nick Smyth -

Global rates and equities moved sharply lower overnight, with heightened trade tensions continuing to weigh on sentiment and a much weaker than expected US business survey raising concerns about the US growth outlook. The disappointing US data sparked a turnaround in the USD, which has weakened across the board. The NZD has bounced back above 0.65. NZ rates continued fall yesterday amidst growing global risks and the 10 year swap will break 2% today for the first time on record.

BNZ Markets Today

Nick Smyth -

Equities and global rates have moved lower overnight after reports the US would extend restrictions to more Chinese technology firms. There hasn’t been much change since the FOMC minutes were released a short while ago, with the Fed reiterating its pledge to be patient. The NZD has continued to grind lower amid building OCR rate cut expectations.

BNZ Markets Today

Nick Smyth -

Equity markets have rebounded over the past 24 hours after the US granted a temporary reprieve to Huawei. Brexit also continues to linger as a risk for markets, with Labour leader Corbyn saying his party will vote against Theresa May’s withdrawal agreement bill. Meanwhile, Governor Lowe indicated that the RBA would consider cutting rates next month, leading to a sharp fall in the AUD. The NZD made a fresh year-to-date low.

BNZ Markets Today

Nick Smyth -

Equity markets have remained under pressure overnight, with US decision to place restrictions on Huawei continuing to weigh on sentiment. Moves in other markets have generally been contained, although the AUD benefited from the Liberal-National coalition’s unexpected election victory over the weekend.

BNZ Markets Today

Nick Smyth -

Equity markets ended last week on a soft note amid reports that plans for fresh US-China trade talks had been put on hold. The big news over the weekend was the surprise victory for the Liberal-National coalition in the Australian election, which will likely see the AUD open higher this morning. There may be some positive knock-on effect to the NZD, which closed at its lowest level of the year on Friday.

BNZ Markets Today

Nick Smyth -

Risk sentiment has continued to improve overnight, with equities making further gains and Treasury yields moving higher. The moves came despite confirmation of US restrictions on Huawei. The USD has strengthened, helped by better economic data. The NZD and AUD have continued to drift to new lows, with a surprise rise in the Australian unemployment rate yesterday leading the market to price a better than even chance of an RBA rate cut next month.

BNZ Markets Today

Nick Smyth -

Equity markets have moved higher overnight after reports that Trump would delay a decision on auto tariffs by up to six months. In contrast, weaker Chinese and US economic data pulled bond yields lower, with Treasury yields trading close to their year-to-date lows and German bund yields falling to their lowest since 2016. The NZD has continued to grind lower overnight, although FX market moves have been contained.

BNZ Markets Today

Nick Smyth -

Markets have recovered over the past 24 hours after some more optimistic-sounding comments from President Trump on the prospect of a trade deal with China. Equities and bond yields moved higher while the NZD and AUD increased modestly.

BNZ Markets Today

Nick Smyth -

Markets moved into risk-off mode overnight after China retaliated by increasing tariffs on $60b of US imports by up to 25%. US equities plunged, bond yields fell and the AUD and NZD depreciated.

BNZ Markets Today

Nick Smyth -

Markets have been resilient, so far, to confirmation that the US would increase tariffs on around $200b worth of Chinese imports to 25%. After initially falling, US and Chinese equities and US Treasury yields ended higher on the day on Friday. Currency movements, including the NZD, have been contained.

BNZ Markets Today

Jason Wong -

Another risk-off session is the order of the day, with the market nervous about US-China trade talks that kick off within the next couple of hours. Equities and bond yields are lower but the USD is also under a little bit of pressure and shows broadly based losses. This sees the NZD recovering towards 0.66 and the AUD towards 0.70.

BNZ Markets Today

Jason Wong -

US-China trade war news has dominated headlines overnight, with the market overall taking a complacent view of proceedings, seeing US equities modestly positive and US rates slightly higher. The NZD has only sustained a small fall after the RBNZ cut rates yesterday. GBP remains soft as hopes for a Brexit deal fade.

BNZ Markets Today

Jason Wong -

Events Round-Up
AU: Trade balance ($b), Mar: 4949 vs. 4480 exp.
AU: Retail sales (m/m%), Mar: 0.3 vs. 0.2 exp.
AU: Real retail sales (q/q%), Q1: -0.1 vs. 0.3 exp.
NZ: RBNZ 2Yy inflation expects., Q2: 2.01 vs. 2.02 prev.
AU: RBA cash rate target (%), May: 1.50 vs. 1.25 exp.
GE: Factory orders (m/m%), Mar: 0.6 vs. 1.4 exp.
NZ: GDT dairy auction price index: +0.4%

Good Morning
The escalation of US-China trade tensions is in focus, driving a risk-off session, with a belated slump in US equities, while US Treasury rates are pushing lower. JPY and the USD are well supported in this environment. NZD slipped below 0.66 overnight while the AUD shredded its post-RBA gains.

BNZ Markets Today

Jason Wong -

Events Round-Up
CH: Caixin PMI services, Apr: 54.5 vs. 54.4 prev.

Good Morning
After a risk-off session during the NZ time zone yesterday following Trump’s tweet that threw US-China trade negotiations into disarray, markets have settled as we await further developments, and we’ve see a recovery in most risk assets overnight. The NZD is an exception, weakening a touch overnight but holding up just above 0.66.

BNZ Markets Today

Jason Wong -

On Friday, US rates pushed lower and the USD showed broadly based weakness after the US employment report, while US equities powered on up. GBP was the best performer after local elections sent a warning message to the Conservatives and Labour to get on with a Brexit deal.

BNZ Markets Today

Jason Wong -

Yesterday’s fall in US equities, and rise in US rates and USD after Fed Chair Powell uttered the words low inflation may be “transitory” has carried through into another trading session, although on the currency side, changes have been fairly small.

BNZ Markets Today

Jason Wong -

The NZD has solidified the loss seen post the NZ labour market data yesterday. It has been a bit of a whippy session overnight, with a weaker US ISM manufacturing report and the Fed Chair sounding upbeat in the opening statement to his press conference, after a no-surprise FOMC statement. US rates were lower but have bounced back up.

BNZ Markets Today

Jason Wong -

There has been a lot of economic data to digest and US earnings results, while month-end flows are also a factor. The net result is a flat US equity market and softer USD across the board, with GBP outperforming. US rates have pushed lower.

BNZ Markets Today

Jason Wong -

It has been a quiet start to a busy week, with modest price action in currency markets, while US rates have pushed higher.

BNZ Markets Today

Jason Wong -

The NZD ended the week on a positive note, alongside other commodity currencies, helped along by an underwhelming US GDP report that also saw US treasury yields retreat.

BNZ Markets Today

Jason Wong -

The USD remains well bid, although the NZD is trying to recover after reaching a fresh year-to date low on ANZAC Day. US 10-year Treasury yields have nudged higher overnight but are still lower than when we left the office on Wednesday.

BNZ Markets Today

Jason Wong -

There has been little newsflow, and it is one of those weird days where nothing much makes sense. The USD has shown broadly based gains, seeing it make a fresh high for the year, while the NZD makes a low. That’s against a backdrop of stronger equity markets. Meanwhile in bond markets, European rates are higher, while US Treasury rates are slightly lower.

BNZ Markets Today

Jason Wong -

Volatility remains suppressed, with the Easter break not helping. The NZD and AUD fell late on Thursday and have sustained those losses. The main price action to speak of is a strong gain in crude oil prices.

BNZ Markets Today

Jason Wong -

Market trading remains subdued ahead of the Easter holidays, with little pulse across global equities and bond markets. Currency markets have showed little movement overnight, while the NZD remains at the bottom of the pack after yesterday’s downside miss to the CPI.

BNZ Markets Today

Jason Wong -

Events Round-Up
UK: Unemployment rate (%), Feb: 3.9 vs. 3.9 exp.
UK: Weekly earnings x bonus (y/y%), Feb: 3.4 vs. 3.4%
GE: ZEW survey expectations, Apr: 3.1 vs. 0.5 exp.
NZ: GDT auction dairy price index: +0.5%
US: Industrial production (m/m%), Mar: -0.1 vs. 0.2 exp.
US: NAHB housing market index, Apr: 63 vs. 63 exp.

Good Morning
Market volatility remains suppressed in the lead-up to Easter. Of note though, US Treasury rates continue to trend higher and the 10-year rate is now back to levels preceding the last Fed meeting. AUD has recovered yesterday’s losses to trade flat, while the NZD remains flat.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week in the run-up to Easter with little newsflow to drive markets. US equities have spent much of the session in negative territory and are currently slightly lower, US Treasuries have traded in a narrow range and the NZD and AUD are little changed from where they began the week.

BNZ Markets Today

Jason Wong -

Strong China exports and credit data drove a classic “risk-on” session on Friday, seeing commodity currencies outperform, alongside higher global equities and rates.

BNZ Markets Today

Nick Smyth -

Lower than expected US core CPI data and a downbeat economic assessment from ECB President Draghi pushed global rates lower overnight, although they have recovered marginally over the past hour after the release of the FOMC minutes. Equity markets are unchanged to slightly higher while the USD is weaker. The AUD has outperformed after RBA Deputy Governor Debelle’s speech failed to provide the dovish signals the market was hoping for. Australian and NZ rates rose after the Debelle speech, with NZGB yields, in particular, rising sharply.

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: ANZ Truckometer - heavy (m/m%), Mar: -2 vs. 0.4 prev.
AU: Home loans (m/m%), Feb: 0.8 vs. 0.5 exp.
US: NFIB small business optimism, Mar: 101.8 vs. 102 exp.
US: JOLTS job openings (k), Feb: 7087 vs. 7566 exp.

Good Morning
Market sentiment is a little more cautious, with equities and bond yields falling and the JPY outperforming overnight. Market moves have been reasonably contained however, ahead of a series of key events tonight and tomorrow morning.

BNZ Markets Today

Nick Smyth -

Events Round-Up
NZ: ANZ Truckometer - heavy (m/m%), Mar: -2 vs. 0.4 prev.
AU: Home loans (m/m%), Feb: 0.8 vs. 0.5 exp.
US: NFIB small business optimism, Mar: 101.8 vs. 102 exp.
US: JOLTS job openings (k), Feb: 7087 vs. 7566 exp.

Good Morning
Market sentiment is a little more cautious, with equities and bond yields falling and the JPY outperforming overnight. Market moves have been reasonably contained however, ahead of a series of key events tonight and tomorrow morning.

BNZ Markets Today

Nick Smyth -

Markets are in a holding pattern ahead of several key event risks later this week . US equities markets are little changed while bond yields have nudged higher, the latter supported by a further rise in oil prices. The USD has weakened across the board, although the NZD has underperformed and is up only modestly.

BNZ Markets Today

Nick Smyth -

A market-friendly payrolls report, which showed a larger than expected jobs gain and softer wage growth, positive comments on US-China trade talks, and President Trump’s call for the Fed to resume QE all helped boost risk assets on Friday. The S&P500 ended the week within touching distance of its all-time highs, while bond yields fell modestly. Currency moves were contained, although the NZD was the worst performer on Friday. The GBP wasn’t far behind, after Theresa May asked for a short extension to Brexit from the EU and negotiations with the Labour party failed to generate a breakthrough.

BNZ Markets Today

Jason Wong -

Market pricing is well contained, as is typical leading up to the US payrolls report tonight. But within the mix of little overall price action, there’s some unexplainable weakness in the NZD following some weird rates activity yesterday, which we’d put down to flows than fundamental forces.

BNZ Markets Today

Jason Wong -

Positive economic and US-China trade talk news sees risk appetite improve, driving equities and global rates higher. NZD and AUD have pushed on higher against a backdrop of a weaker USD.

BNZ Markets Today

Jason Wong -

US equities are flat to lower and US Treasury rates have steadied after the significant sell-off yesterday. NZD, AUD and CAD are all weaker, facing their own issues.

BNZ Markets Today

Jason Wong -

Stronger US ISM data have driven a significant sell-off in US Treasuries, but that hasn’t perturbed equity markets, which show decent gains. The NZD is little changed from last week’s close, while GBP is recovering as a super-soft Brexit comes into play.

BNZ Markets Today

Jason Wong -

The March quarter ended on a positive note on Friday, with higher risk appetite driving global equities higher while US Treasury yields ended slightly higher. Currency movements weren’t significant, although commodity currencies headed the leaderboard, while Brexit uncertainty continued to weigh on GBP.

BNZ Markets Today

Nick Smyth -

US equities and bond yields are slightly higher overnight, although markets remain cautious. Likewise, most currencies are little changed, with the exception of the GBP, which has remained under pressure ahead of a vote on a modified version of Theresa May’s deal tonight. The NZD is hovering just below 0.68. RBNZ Governor Orr speaks at 9am this morning, and he is likely to be quizzed on the Bank’s decision to move to an easing bias at its OCR Review.

BNZ Markets Today

Jason Wong -

There has been minimal news overnight, but the market remains in an anxious state about the global economic outlook, which sees downward pressure on equity markets and global rates. The NZD has held its ground around 0.68 overnight after yesterday’s 1.6% drop after the shocking RBNZ OCR Review. GBP is bid ahead of a series of indicative votes on Brexit this morning by the UK Parliament, while the AUD is under pressure on the back of weaker risk appetite.

NZ At A Glance

New Zealand At A Glance

Craig Ebert -

New Zealand’s economy is slowing to a trend-like pace, as the international economy has come off the boil. While elements of softer demand are coming into play, New Zealand’s slowdown still fundamentally reflects of a lack of supply – especially with respect to labour. This is reflected in weak business confidence. As is government policy uncertainty/change, along with pervasive cost inflation. CPI inflation is being held back mainly by weak imported inflation but is almost at the 2% “ideal” in any case. Re interest rates, suffice it to say we think the RBNZ is being very pre-emptive with its recent policy easing path. We expect the NZD to be more broadly underpinned by solid fundamentals, including buoyant commodity export prices.

Rural Wrap

Milk Price Uncertainty

Doug Steel -

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

Mixed Signals

Doug Steel -

Primary product prices are buoyant and interest rates are low, yet rural property transactions are generally subdued. Rising costs and elevated uncertainty appear to be among the many factors at play. Meanwhile, some other indicators of on-farm investment are strong.