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 Forecast Update: Reality Check

Jason Wong -

On Friday 2 August, just before dawn NZ time, President Trump tweeted that he would place 10% tariffs on the remaining $300b of Chinese imports not already facing punitive tariffs as of 1st September. This followed a restart of face-to-face talks between senior officials, where no progress on any trade deal was made. Trump was irked that China didn’t ramp up purchases of US agricultural goods as he believed was agreed and he claimed President Xi had not stopped the sale of Fentanyl to the US.

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.

Economy Watch

BNZ/SEEK Employment Report

BNZ Research -


Welcome to the first BNZ/SEEK Employment Report. It’s intended to give a timely indicator of developments in New Zealand’s labour market with regional and industry insights by tracking job advertisements on SEEK.CO.NZ. We intend to release the report each month soon after the reference period.

For July, new job advertising numbers of SEEK.CO.NZ managed to edge 0.6% higher in the month, but this was not quite enough to recoup June’s 0.7% dip. The trend remains downward.

NZ’s Bolshy Labour Market

Stephen Toplis -

We reiterate our view that today’s release will have come too late for the RBNZ to fully incorporate it into the Bank’s MPS. While it will provide a source of discussion about future decisions, it should not divert the RBNZ from cutting interest rates tomorrow. And while the data are positive, whichever way you look at it, global risks are likely to dominate RBNZ thinking ensuring that an easing bias is maintained. The only real question is the extent to which the tug-of-war between the domestic real data and international risk determines the extent of what is now an easing cycle.

BNZ Lowers Forecast OCR Track

Stephen Toplis -

Today’s ANZ business opinion survey was the straw that broke the camel’s back. It joins a long list of leading indicators that suggest growth in New Zealand is likely to slump to levels well below that which the Reserve Bank is expecting. The RBNZ has already cut interest rates once because of the risk of a slowdown. We think it will do so again next week and now concede an August cut is unlikely to be the last. Accordingly, we are now formally forecasting a further 25 basis point reduction at the Bank’s November meeting taking the OCR down to 1.0%.

NZD Corporate FX Update

Jason Wong -

The NZD has trended higher over the past month from the sub-USD0.65 levels touched in May/June – moving from an oversold level to one more in line with our fair value model estimate.

Core Inflation Converging Up Close To 2%

Craig Ebert -

The news in morning’s June quarter CPI was that core
inflation was converging up close to 2% per annum, if it
wasn’t there already. This is important given annual
headline CPI inflation itself is likely to dip to 1.4% in Q3,
and 1.5% in Q4 this year. This, after the 1.7% it printed at
today, based on a quarterly result of 0.6%.

Firms Struggling With Cost Pressures

Craig Ebert -

Today’s NZIER Quarterly Survey of Business Opinion (QSBO) was, to be euphemistic, not encouraging. But its central message needs to be understood. Far from suffering a slump in demand, the local business sector looks very much to be struggling with significant cost pressures. For whatever reason, this is not being passed on to end-purchasers, which is whittling profitability and casting a cloud around the CPI outlook. The latter – by definition these days – would tend to encourage central banks to ease monetary policy. We have to ask, where is the end point to all of this?

Business Momentum Still Not Looking Good

Craig Ebert -

Overall, today’s ANZ business survey was disappointing, if not surprisingly so. While key activity elements improved to an encouraging extent, overall the survey remained consistent with GDP growth lower than we forecast. Hopes that the government’s abandonment of its capital gains tax proposals would buoy the business sector have proved a fancy. As will OCR “stimulus”, we suspect. New Zealand’s business survey is obviously bedevilled by deeper concerns.

RBNZ Dovish But Not Aggressively So

Craig Ebert -

We believe the RBNZ has done the right thing today, in buying some time to see how the downside risks play out, or are perhaps arrested to a meaningful extent. We remain of the view of another cut in August. But we also reiterate the potential for the next run of economic data to have a strong sway – one way or another.

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.

Financial Markets Wrap

NZD falls against a strong USD in July

Jason Wong -

• The USD made broadly based gains in July, reversing losses in June, seeing NZD/USD down 2½%
• Against a backdrop of higher US Treasury rates, NZ and Australian rates fell to record lows
• GBP under pressure with Boris Johnson now in charge

NZD Recovers Lost Ground

Jason Wong -

A key theme for June was dovish pivots by the US Fed and ECB, helping drive global rates down to fresh lows and record-low levels in some cases. The prospect of easier monetary policy buoyed risk appetite, driving up equity markets, even as the flow of data remained on the soft side. In currency markets, the USD was under pressure, while the NZD recovered some lost ground.

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...

Interest Rate Strategy

Negative Interest Rates A Real Possibility

Nick Smyth -

As the RBNZ’s cash rate moves ever lower, the possibility of a negative cash rate, or unconventional monetary policy, gets ever higher. Investors, borrowers and savers alike need to start pondering the implications of this now because, if we are to head into this uncharted territory, the process may evolve much sooner than many expect.

Basis risk with NZ OIS under unconventional policy

Nick Smyth -

In a recent media interview, Governor Orr expressed a preference for negative interest rates over QE, and our working assumption at this stage is that this will be the initial unconventional policy option, if the need arises.

Outlook for Borrowers: Post-August MPS

Nick Smyth -

RBNZ Monetary Policy Outlook
Against economist expectations and market pricing for a 25bp rate cut, the RBNZ sprung a big surprise by cutting the OCR by 50bps, to 1%, at the August MPS. The RBNZ cited the slowing domestic economy and global growth as the reasons behind the OCR cut. In the press conference, Governor Orr said the committee had weighed up cutting 25bps now and signalling another cut in the future versus an immediate 50bp move at this meeting, and said the “path of least regret” was “more, sooner” rather than the risk of “doing too little and too late.”

RBNZ cuts 50bps – Initial thoughts and possible trade ideas

Nick Smyth -

RBNZ springs massive surprise
Against consensus expectations and market pricing for a 25bp rate cut, the RBNZ sprung a massive surprise by cutting 50bps at the August MPS. The RBNZ cited the slowing domestic economy and global growth, recently exacerbated by deteriorating trade tensions between the US and China, as the reasons behind the OCR cut. In the press conference, Governor Orr said the committee had weighed up cutting 25bps now and signalling another cut in the future versus an immediate 50bp move at this meeting, and said the “path of least regret” was “more, sooner” rather than the risk of “doing too little and too late.” In the event the aggressive OCR cut delivers higher inflation expectations in a year’s time, this was seen as a “quality problem” to deal with.

Negative rates in Europe and Japan: what does it mean for NZ?

Nick Smyth -

Negative yields in large sections of global fixed income
The massive rally in global rates this year has driven government bond yields to record lows in many developed markets, including New Zealand. Over 25% of the market value of the commonly followed Bloomberg/Barclays Global Aggregate bond index now trades with negative yields (see Chart 1). This is mainly a reflection of Europe and Japan, two of the largest bond markets in the world, having negative central bank cash rates and markets having increased their expectations of more easing. Table 1 shows that over three quarters of nominal JGBs by face value and the entire German yield curve trade with negative yields. In this note we discuss what impact this growing stock of negative yielding bonds in Europe and Japan might mean for the NZ market.

Domestic search for yield driving long-end LGFA tighter

Nick Smyth -

Sharp move tighter in long-end LGFA spreads
Long-end LGFA-NZGB spreads have compressed sharply this year. The 2033 spread has moved from 124bps at the end of December to just 82bps now, the tightest spread since the bond was issued over two years’ ago. Shorter-dated LGFA has also tightened, but by notably less than the long-end (see Chart 1). We outline some of the drivers and our view on the outlook for spreads in this note.

Trade Idea - NZ AU 1y1y Spread compression

Nick Smyth -

Risks to RBNZ pricing to the downside
We expect the RBNZ to cut the OCR next week to 1.25% and retain some form of easing bias. In the absence of a material turn-around in the data, we think market pricing of the RBNZ terminal OCR (currently around 0.9%) will be capped around 1% (i.e. with an easing bias, the market is likely to attribute at least as great a chance to a 0.75% or lower OCR than the risk that 1.25% represents the trough in the cash rate). In contrast, with domestic activity indicators at subdued levels and leading indicators of the labour market pointing to the risk of a turn in the unemployment rate, there is scope for RBNZ rate cut expectations to extend further in the event hard data weakens. Likewise, the RBNZ is cognisant of the potential upward pressure on the NZD if it doesn’t maintain cash rate relativities with other key central banks, suggesting more easing abroad may trigger deeper RBNZ cuts. In the current environment, we see the risks to the short-end of the NZ curve to the downside.

NZ BEIs – still cheap, still waiting

Nick Smyth -

NZ breakevens (BEIs) have traded a very narrow range so far this year (just 15bps for the interpolated 10 year BEI). While not terribly exciting, we think this represents a relatively positive result over what has been a challenging environment for inflation markets globally. The stability in NZ BEIs stands in contrast to the decline in Australian BEIs to all-time lows.

Outlook for Borrowers: Post-June OCR Review

Nick Smyth -

The RBNZ kept the OCR at 1.5% at the June OCR review, as expected by all economists. The market had priced a 20% chance of a rate cut immediately prior to the meeting.

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.

Markets Outlook

Hanging On

BNZ Research -

The better-looking PSI in July offers some hope that GDP growth in the service sector can hang together in the second half of the year. That’s our forecast, albeit with downside risk.
By the same token, we can’t ignore the messages from July’s weak PMI. Combining this with the solid PSI, the combined measure (PCI), while clearly positive, continues to cast doubt on whether real GDP as a whole can grow at a 2% annual pace, never mind the 3%+ that the RBNZ is forecasting for next year.

BNZ Markets Outlook

BNZ Research -

The Reserve Bank forecasts a pickup in spending through to the end of next year. But today’s data shows spending is struggling. Also, out this week is the PMI and inflation indicators via rent and food prices.

Unemployment Rate May Have Troughed

BNZ Research -

All eyes will be on the RBNZ this week as it releases its August Monetary Policy Statement. The market would be gobsmacked if the RBNZ didn’t deliver the 25 basis point cut that is now almost fully priced in. The real interest lies in the Bank’s forward messaging. We’re not entirely sure how they will do it but we believe the Bank will want to maintain an easing bias without opening the floodgates to a significant rally.

RBNZ MPS Preview: Nothing to Stop Further Cut(s)

BNZ Research -

It’s almost certain the RBNZ will cut its cash rate to 1.25% when it delivers its Monetary Policy Statement on August 7.

BNZ Markets Outlook

BNZ Research -

We expect annual growth in merchandise exports of 8% for June, and a flat y/y result for imports. This would generate a slight surplus, of $105m, further lessening the annual deficit, to $5,102m. However, it’s not so obvious that a reducing trade deficit will mean that net exports are boosting quarterly GDP. Indeed, we think merchandise export volumes will slip a bit in the June quarter.

Inflation Low and Stable

BNZ Research -

What’s the problem with low and stable inflation? That’s the question we throw out there, with tomorrow’s June quarter CPI report likely to confirm New Zealand’s inflation is…low and stable. We don’t hear too much complaint about this from the real economy. We are still listening for the street protest chants of “what do we want, higher inflation, when do we want it, now”. For the meantime, it seems a worry mostly in the minds of central bankers (with the markets positioning around this).

Near-term GDP and CPI Prone to Appear Insufficient

Craig Ebert -

With potential for near-term slowness in GDP, and the CPI, we can see the markets, and the RBNZ, convincing themselves of the need for further easing in monetary policy. Not that this will address the fundamental issue facing the economy…a relative lack of resources to get anymore done.

Are Capacity Pressures Easing?

Craig Ebert -

We will not be at all surprised to see tomorrow’s NZIER Quarterly Survey of Business Opinion (QSBO) remaining slow. What we’re not sure about is what’s driving it. Is the torpor still mainly a matter of (severe) supply constraints limiting growth? Or is it a case now of aggregate demand easing? The salient news in the QSBO will thus be in its numerous capacity, cost and pricing measures.

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?

Markets Today

BNZ Markets Today

Jason Wong -

Currency markets remain listless. The NZD shows a slight downward bias and trades near 0.64, while the other majors show modest movements as well. The US 10-year rate is up 1bp at 1.57% after a peek above 1.60%, while US equities have been boosted by some decent earnings reports.

BNZ Markets Today

Jason Wong -

There hasn’t been much news for markets to trade on overnight, with Italian politics and Brexit making some headlines. Global equity markets have fallen after the previous session’s solid gains, while global rates have also reversed course and show falls across the board. Currency markets remain unexciting, with the NZD still tightly range-bound.

BNZ Markets Today

Jason Wong -

The new week has begun with a positive vibe, with some US companies allowed to do business with Huawei for another 90 days, and further speculation that Germany’s government will ease fiscal policy to pull its economy out of recession. Global equity markets have bounced higher and global rates are higher, while currency markets remain fairly unresponsive and the NZD has drifted down regardless.

BNZ Markets Today

Nick Smyth -

Equities rebounded and long-dated bond yields moved higher after Der Spiegel reported that the German government would relax its fiscal rules in the event of a recession. Still, government bond yields and equities were lower over the course of what was a very volatile week. Fed Chair Powell’s annual address at the Jackson Hole symposium is the highlight for the week ahead.

BNZ Markets Today

Nick Smyth -

Global bond yields have continued to head sharply lower overnight after an ECB Governing Council member signalled a large package of stimulus measures at the central bank’s meeting next month. US equity markets have been whipsawed by headlines on China’s response to the latest US tariffs but, net-net, are close to flat on the day. Safe haven currencies have given back some of their recent outperformance overnight and the NZD and AUD have appreciated modestly, the latter boosted by a strong employment report.

BNZ Markets Today

Nick Smyth -

Equity markets have fallen sharply and government bond yields have experienced another large move lower overnight. The ongoing protests in Hong Kong and concerns about the global economy, reinforced by weak Chinese and European activity data overnight, continue to weigh on market sentiment. In a possible recessionary warning, the US 2y10y Treasury curve inverted for the first time since 2007, although it has since returned to marginally positive territory. The yen and Swiss franc have outperformed while commodity currencies have fallen.

BNZ Markets Today

Nick Smyth -

Equities and bond yields moved sharply higher overnight after the US announced it would delay the imposition of 10% tariffs on some consumer goods until mid-December, the first sign of some compromise since the trade war re-erupted several weeks ago. The Japanese yen fell sharply and the Australian dollar and Chinese renminbi outperformed. The positive market reaction has been kept somewhat in check by the ongoing clashes in Hong Kong, with Trump saying that he had been told the Chinese government had moved troops to the border.

BNZ Markets Today

Nick Smyth -

It’s been a risk-off session for markets overnight, after Hong Kong’s airport was shut down by protestors, Argentina’s currency got hammered after President Macri lost primary elections by a large margin and Chinese credit data was weaker than expected. Equities and government bond yields fell sharply. The safe-haven Japanese yen and Swiss franc have outperformed while the NZD has fallen amidst the risk-off backdrop.

BNZ Markets Today

Jason Wong -

Market sentiment ended the week on a softer note, with the US-China trade war at the centre of attention. Equity markets were weaker, with the S&P500 falling 0.7%, while US Treasury 10-year rates nudged higher, closing a volatile week. The NZD and AUD weakened Friday night, but GBP was the biggest loser after data showed the economy contracted in Q2.

BNZ Markets Today

Jason Wong -

Market sentiment has improved, helped by the stronger than expected CNY fix yesterday. Global equity markets show strong gains and global rates pushed higher, but as we go to print, US rates are heading lower again. Commodity currencies have outperformed overnight and the NZD is on track to break a 10-day losing streak.

BNZ Markets Today

Jason Wong -

Market jitters continue around the US-China trade war escalation and a trio of surprise policy moves by central banks, including our own RBNZ, got the market’s attention. US equities plunged around 2% soon after the open, but have since pared that loss to sit flat for the day. Global rates around the world have made fresh lows. The NZD and AUD have recovered strongly overnight after big losses during local trading hours.

BNZ Markets Today

Jason Wong -

Market sentiment has improved slightly, helped by the PBoC’s actions yesterday, while the US-China trade war remains in focus. US equities are stronger and UST yields are slightly higher across the curve. The NZD has lost all its post labour market data strength, while CAD has been the worst performer, playing catch-up to market movements after a public holiday.

BNZ Markets Today

Jason Wong -

Concerns around the US-China trade war and the weaker yuan to trade at more than 7 to the US dollar have dominated the market. Global equities and US Treasury rates have shown some significant falls. The USD has come under pressure overnight, which has helped contained any fallout for the NZD.

BNZ Markets Today

Jason Wong -

Trump’s plan to raise tariffs on Chinese imports from 1 September reverberated through markets on Friday, seeing a shift to safe haven JPY and CHF currencies, lower equity markets and global bond yields falling to new lows. The NZD found some support just above 0.65 but threatens to make fresh year-to-date lows over coming weeks.

BNZ Markets Today

Nick Smyth -

President Trump announced a short while ago that he would place 10% tariffs on the remaining $300b of Chinese imports as of 1st September. Global rates have fallen sharply – the 10 year Treasury yield is now at its lowest since 2016 – equities have spiked lower and the AUD has underperformed as the fragile trade war ceasefire looks to have come to an early end. Nonfarm payrolls is released tonight.

BNZ Markets Today

Nick Smyth -

Good Morning
As widely expected, the Fed cut rates 25bps a short while ago, its first rate cut in over 10 years. The policy outlook suggests the Fed retains an implicit easing bias. But Powell said in the press conference that the cut wasn’t necessarily the start of an easing cycle. Equities have fallen sharply, the USD has risen and the US Treasury curve has flattened, with the market interpreting the decision and comments as more hawkish than expected.

BNZ Markets Today

Nick Smyth -

Equity markets fell overnight after Trump hit out at China for continuing to “ripoff” the US and not buying enough agricultural goods, just as face-to-face trade talks between US and Chinese negotiators resume in Shanghai. The falls, at least in the US markets, have been modest with the market looking ahead to the FOMC meeting tonight. The GBP has stabilised overnight after falling further during the Asian trading session yesterday on no-deal/new election concerns, while the NZD and AUD have continued to move lower. Besides the FOMC meeting, there is a lot happening over the coming 24 hours with the official Chinese PMIs, Australian CPI, European GDP and the US ADP employment index all released.

BNZ Markets Today

Nick Smyth -

There has been little movement in most markets overnight as the investors await a series of key events this week, including the FOMC meeting tomorrow night. The exception has been the GBP, which has fallen sharply on growing fears of a no-deal Brexit and new elections.

BNZ Markets Today

Nick Smyth -

US equities ended last week at record highs, supported by generally stronger corporate earnings. The USD strengthened after a better than expected US GDP report and after White House advisor Larry Kudlow said that the US administration had ruled out FX intervention to weaken the dollar, albeit Trump’s later comments on the matter were more ambiguous. The NZD was the weakest of the G10 currencies last week as the market starts to toy with the idea of a 0.75% cash rate. It’s a big week ahead with the FOMC meeting (-25bps expected), nonfarm payrolls, the ISM surveys, Chinese PMIs and Australian CPI all released while US-China trade negotiations resume face-to-face in China.

BNZ Markets Today

Jason Wong -

Overnight the ECB held off adopting any fresh stimulus measures, but set the scene for some action at its next meeting in September. The lack of immediate action saw slightly higher European bond yields, while stronger US durable goods data helped drive US Treasuries yields slightly higher. In currency markets, the NZD and AUD have weakened against a backdrop of weaker equity markets and a dovish RBA speech.

BNZ Markets Today

Nick Smyth -

Global rates have moved modestly lower overnight after another batch of weak European PMIs. The market now awaits the ECB meeting tonight, where the central bank is expected to remain on hold but foreshadow easing measures in September. The S&P500 and NASDAQ have pushed higher, helped by generally better than expected US earnings results. Currency moves have been contained, with the AUD the notable underperformer over the past 24 hours.

BNZ Markets Today

Jason Wong -

The USD is broadly stronger and UST rates are higher, following the bipartisan debt ceiling agreement. Overnight, the NZD has added to losses seen during the local trading session, taking it down to just over 0.67.

BNZ Markets Today

Jason Wong -

It has been a deadly quiet start to the week, as expected. US equities are slightly higher, US rates are slightly slower and currencies are treading water.

BNZ Markets Today

Jason Wong -

The USD and Treasury yields were higher on Friday after a spokesman from the Fed provided some context to NY Fed President Williams’ dovish speech that had earlier caused a market reaction. This saw the NZD fall slightly ahead of the weekend, but remain solid on the crosses.

BNZ Markets Today

Jason Wong -

It was a fairly mundane overnight trading session until NY Fed President Williams brought the market to life with a dovish speech just after 6am this morning. US equities are higher, US rates have fallen and the USD has seen some broadly based selling pressure. The NZD has pushed up to a fresh 3-month high.

BNZ Markets Today

Jason Wong -

On a light news day, global equities and rates have drifted lower and the USD has showed broadly based losses. The NZD tops the leaderboard, up 0.6%, which is somewhat of a mystery.

BNZ Markets Today

Jason Wong -

The USD has made broadly based gains and US rates are higher across the curve, supported by stronger economic data, even as Chair Powell reiterated the risks about the outlook. This backdrop sees the NZD push back down to the 0.67 mark, retreating from a 3-month high.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week, with the NZD and AUD pushing higher, supported by positive monthly China activity indicators. US equities are flat after posting a record high at the end of last week while global rates have nudged lower after rising last week.

BNZ Markets Today

Jason Wong -

US equities closed the week at a fresh record high, buoyed by the prospect of rate cuts, which kept Treasury yields in check even as another inflation reading came in above expectations. The USD was weaker, seeing the NZD stretch out towards the 0.67 mark.

BNZ Markets Today

Nick Smyth -

The US yield curve continued to steepen overnight, with a higher than expected US core CPI release and a very weak 30 year US bond auction pushing up longer-dated rates while shorter-dated rates remained anchored by expectations of near-term Fed rate cuts. Fed Chair Powell’s Senate testimony didn’t break any new ground and the market prices 31bps (of cuts) for the Fed’s meeting later this month. Equities and currencies have consolidated overnight after moving sharply in response to Powell’s dovish testimony to Congress the previous night.

BNZ Markets Today

Nick Smyth -

Short-end US rates and the USD fell after a dovish testimony from Fed Chair Powell overnight, reinforcing market expectations that the Fed will cut rates at its meeting later this month. US equity markets rose to new record highs after the testimony. The NZD had a mini ‘flash crash’ yesterday afternoon but it has risen strongly overnight amid broad-based USD weakness.

BNZ Markets Today

Nick Smyth -

Markets continue to tread water as investors await Fed Chair Powell’s semi-annual testimony to Congress tonight. There has been little movement in either US bonds or equity markets over the past 24 hours. The NZD has drifted down to 0.66 against a backdrop of a slightly stronger USD.

BNZ Markets Today

Nick Smyth -

Markets are in a holding pattern ahead of Fed Chair Powell’s testimony to the House on Wednesday night. US Treasury yields have largely held onto their post-payrolls gains overnight while equity markets have fallen modestly. The NZD is little changed from Friday night’s close.

BNZ Markets Today

Nick Smyth -

US rates and the USD increased sharply on Friday night after stronger than expected payrolls led the market to scale back expectations of a 50bp Fed rate cut in July. US equities initially fell after the payrolls report, but bounced back to close only slightly lower on the day. Amidst the stronger USD, the NZD underperformed and fell almost 1%.

BNZ Markets Today

Nick Smyth -

Markets have been exceptionally quiet overnight, with the US cash market closed for Independence Day and no major data released. The NZD has reversed some of its outperformance from yesterday and has slipped back below 0.67.

BNZ Markets Today

Nick Smyth -

Global rates continued to head lower overnight as the market readies for a wave of central bank easing. The lower rate outlook has boosted equities, with the Dow Jones hitting a record high and across-the-board gains in Europe. The NZD has outperformed, alongside the AUD, and has risen back above 0.67.

BNZ Markets Today

Nick Smyth -

Global rates fell sharply overnight after BoE Governor Carney warned that an intensification of trade tensions had the potential to “shipwreck the global economy”. Equity markets have been steadier, supported by the prospect of monetary policy easing by major central banks. The RBA cut its cash rate yesterday to 1% and said it could cut further “if needed.” The RBA’s change to a conditional easing bias has given some modest support to the AUD. The NZD is unchanged from this time yesterday, despite a disappointing QSBO survey.

BNZ Markets Today

Nick Smyth -

The afterglow from the trade war ceasefire agreed by Presidents Trump and Xi over the weekend has already started to wear off. US equities have reversed most of their initial gains while US bond yields are modestly higher. The USD has performed strongly overnight, which has taken the NZD back below 0.67.

BNZ Markets Today

Nick Smyth -

At the G20 in Osaka over the weekend, Presidents Trump and Xi agreed to a ceasefire in the US-China trade war. In an unexpected move, Trump also raised the possibility that US firms may be able to sell equipment to Huawei while negotiations are ongoing. While existing tariffs on Chinese imports will remain in place, the outcome will be seen as positive for risk assets, the NZD and the AUD to start the week.

BNZ Markets Today

Jason Wong -

The NZD is top of the leaderboard yet again, hitting 0.67, although currency movements have been small ahead of the crucial Trump-Xi meeting tomorrow. US equities are up modestly, while UST yields have trended lower.

BNZ Markets Today

Jason Wong -

The NZD tops the leaderboard again, after the RBNZ left rates unchanged and supported by a tailwind for commodity currencies. Global rates are higher, with European rates bouncing off record lows.

BNZ Markets Today

Jason Wong -

Despite a risk-off session overnight with equities and global bond rates lower, the NZD has been the best performing of the major currencies, ahead of today’s RBNZ OCR review.

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.

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.