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 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.

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

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.

Business Survey Not Weaker…But Still Weak

Craig Ebert -

Today’s ANZ business survey wasn’t really any weaker than it was last month. Sure, many of its headline results did drop. However, after we adjusted them for seasonality they were more in the realm of stable. Nonetheless, this left the survey languishing at poorly levels, indicating that the economy could well undershoot official forecasts, including (especially?) those of the Reserve Bank.

Softer spending an RBNZ headache

Stephen Toplis -

From an RBNZ perspective, today’s data should be no big deal as they appear in line with the Bank’s near term estimates. Our concern, however, is that the Bank expects consumption to pick up relatively strongly through the latter part of this year and into 2020. We are not so convinced. If we are right, then the possibility that the cash rate heads ever closer to zero becomes elevated.

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%.

Financial Markets Wrap

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

Trade wars and big rate cut drag down NZD

Jason Wong -

• In August the NZD underperformed, alongside the yuan, as the US-China trade war escalated
• Global and NZ rates fell to fresh record lows

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

Interest Rate Strategy

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%.

Limits to falling NZGB yields – a supply and demand analysis

Nick Smyth -

The NZ government is in a very strong fiscal position by international standards, with net core Crown debt of around 20% of GDP. The strength of the government’s finances is illustrated by the fact that the stock of total NZ government securities was lower in June 2019 than what it was three years earlier. The decline in nominal securities (bonds and bills) has been even more marked than the total, with the amount outstanding of inflation-indexed bonds having increased over that time.

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.

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.

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.

Markets Outlook

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.

GDP/OCR Preview: What’s To Stop The RBNZ Cutting?

BNZ Research -

We expect Thursday’s Q2 GDP figures will give a hint of the disappointment the RBNZ is likely to face as a medium-term proposition. With this, the Bank will probably feel under pressure to keep cutting its policy interest rate. Yet it also pays to think about what might stop the RBNZ along this inexorable path, if only temporarily. Like a still-tight labour market, strengthening CPI inflation, the weakening exchange rate, another flare up in the housing market, even global tides.

More Suggestion of Lessening Growth

BNZ Research -

It’s hard to know whether it’s still principally capacity problems, or weakening demand now coming in over the top. But the data are more and more questioning the pulse of New Zealand’s GDP. After this morning’s shaky manufacturing data we have pruned our pick on Q2 GDP growth to 0.3%.

Signs of Domestic Demand Weakness?

BNZ Research -

This morning’s June quarter Overseas Trade Indexes came in broadly as we expected…except for the greater weakness in import volumes than we imagined. Their 3.5% drop was not sheeted to lumpy items, instead reflected slippage in the range of core import categories. This piques our concern about how economic activity was travelling in Q2, and crucially with respect to elements of domestic demand.

BNZ Markets Outlook

BNZ Research -

We still struggle to see how yet-lower interest rates will transmit any durable stimulus to the economy, when interest rates are not perceived to be a key obstacle to growth in the first place. This is not from any model we are running, by the way, but from the vast majority of feedback we are getting directly from business audiences themselves.

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.

Markets Today

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.

BNZ Markets Today

Jason Wong -

On Friday, global bond yields continued to show sharp increases, with the US 10-year Treasury yield up 12bps to 1.90%. The big bond market sell-off still hasn’t perturbed US equity markets, with the S&P500 flat for the session and still flirting with record highs, although the rotation away from defensive sectors continued. The NZD was inexplicably weak against the backdrop of goodwill gestures on US-China trade relations and a stronger yuan, seeing it close the week below 0.64, while NZD/AUD closed below 0.93 for the first time since November.

BNZ Markets Today

Nick Smyth -

The ECB announced a 10bp rate cut and the resumption of its QE programme from 1st November at its meeting overnight. The EUR and German bond yields initially fell in response, but they quickly reversed course and now both are higher on the day. Market sentiment has been boosted by incrementally more positive news on the US-China trade front, which has boosted equity markets and the CNY, although the NZD is surprisingly lower on the day. The global bond sell-off has extended, despite the ECB’s actions.

BNZ Markets Today

Nick Smyth -

After rising sharply over the past week, global bond yields have stabilised overnight. The market is likely to remain in a holding pattern ahead of the eagerly awaited ECB meeting tonight at which the central bank is universally expected to announce new easing measures. Equity markets have moved higher while the USD has shown broad-based strength. The NZD continues to hover just above 0.64.

BNZ Markets Today

Nick Smyth -

Global bond yields have continued their recent resurgence overnight, helped by an MNI report that the ECB might delay, or make conditional, the resumption of QE. Reports that China had offered to buy more US agricultural goods ahead of the October trade talks also supported rates. Equity and currency market moves have been contained.

BNZ Markets Today

Doug Steel -

Overnight markets have seen a mildly risk supportive session, although not universally so. Global bond markets meaningfully extended last week’s sell-off, safe haven currencies slightly underperformed, while commodity prices edged higher. Not so ‘in-theme’ were equity markets, with major indexes either up or down smalls.

BNZ Markets Today

Nick Smyth -

Markets ended last week on a cautiously optimistic note despite the US payrolls report showing weaker than expected job growth. Global equities and US Treasury yields consolidated on Friday after their sharp rises the previous night. The NZD rose for the fifth consecutive day amid the more positive risk sentiment and ended the week above 0.64. NZ rates were up sharply across the curve on Friday, reflecting offshore moves the previous night.

BNZ Markets Today

Jason Wong -

An announcement that US-China trade talks will kick off again next month and some positive US economic data have driven some chunky gains in equities and a big bond market sell-off, with UST yields up over 10bps across the curve. The NZD and AUD have sustained their gains made during local trading hours, while GBP continues its recovery on Brexit optimism.

BNZ Markets Today

Jason Wong -

Risk appetite has improved after the reduction in some geopolitical risks, with better news out of Hong Kong, Italy and the UK. Global equity markets are stronger, with the S&P500 currently up 0.9%. The USD (and JPY) has shown broadly based falls, with the market still digesting the very weak ISM manufacturing report a day earlier.

BNZ Markets Today

Jason Wong -

Good Morning
US equities, rates and the USD are much lower following a weak ISM manufacturing report. The NZD has recovered over half a cent from its low point yesterday afternoon to trade about 0.6325.

BNZ Markets Today

Jason Wong -

It has been a quiet start to the week with the US public holiday. Currencies show modest movements apart from overt GBP weakness, with nerves ahead of Parliament re-opening and speculation about a new general election.

BNZ Markets Today

Jason Wong -

There was plenty of economic data to digest Friday, but month-end hedging flows dominated trading activity. The NZD fell below 0.63 for the first time since 2015 but ended the week just above that mark. EUR was the weakest of the majors, not helped by soft inflation data and negative Italian politics. US equities and Treasuries were relatively flat.

BNZ Markets Today

Nick Smyth -

Equities and bond yields have bounced higher overnight after China indicated it wouldn’t retaliate to the latest import tariffs announced by Trump. Safe haven currencies have underperformed, while the CNH has appreciated and the AUD has outperformed. The NZD fell to a fresh, post-2015 low after yesterday’s ANZ Business survey, which showed confidence and own activity indicators at their weakest levels since the GFC.

BNZ Markets Today

Nick Smyth -

The main news overnight has been UK Prime Minister Boris Johnson’s announcement that the Queen’s speech will take place on 14 October, effectively suspending parliament for almost five weeks in the run-in to 31st October. The GBP plunged on growing fears that MPs would find it harder to prevent a no-deal Brexit, but it has since recovered around half those losses and there hasn’t been any contagion to broader risk assets. Equities are higher overnight while bond yields have drifted lower once again. The NZD has underperformed and yesterday reached its lowest level since September 2015.

BNZ Markets Today

Nick Smyth -

Equity markets and bond yields have traded lower over the past 24 hours amidst growing scepticism about Trump’s claim of a weekend call between US and Chinese officials, although the moves have been reasonably modest. The GBP has appreciated on optimism that a no-deal Brexit might be prevented, while the NZD and AUD have underperformed against a mildly risk-off backdrop.

BNZ Markets Today

Nick Smyth -

Equity markets and bond yields have staged something of a recovery over the past 24 hours after some more conciliatory comments from Trump and Chinese Vice Premier Liu on trade. The NZD reached its lowest level since 2015 yesterday morning, but it has since recovered and has outperformed overnight alongside the AUD. Safe haven currencies have weakened.

BNZ Markets Today

Nick Smyth -

While the spotlight was expected to be on Fed Chair Powell at Jackson Hole on Friday night, his keynote address ended up being overshadowed by a further escalation in the US-China trade war. China announced it would retaliate with tariffs on $75b of US imports, followed by Trump announcing that he would add an additional 5% tariff on all $550b Chinese imports. Equity markets plunged, bond yields fell sharply, safe haven currencies appreciated and the AUD and CNH underperformed. The USD weakened after Trump complained about the strong USD, raising speculation that the US could consider unilateral currency intervention. The NZD performed well amidst the risk-off backdrop, and ended the week at 0.64, supported by comments by RBNZ Governor Orr that suggested the bar for a September OCR cut is quite high.

BNZ Markets Today

Jason Wong -

There has been generally little price action in markets overnight, with flat equities and US Treasury rates but the NZD has sustained the weakness seen during NZ trading hours, and it touched a fresh multi-year low overnight. Meanwhile, GBP is up over 1% on Brexit optimism.

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.

NZ At A Glance

New Zealand At A Glance

Stephen Toplis -

We still think the New Zealand economy can muddle through but it’s getting much more difficult. There is now a very real risk that rising uncertainty coupled with business frustration with rising costs and capacity constraints, results in much weaker growth than we are forecasting. If risk becomes reality then who knows just how low our activist central bank might push interest rates. Below zero is now a distinct possibility. With the RBNZ running out of effective policy options expect the Government to come under increasing pressure to ease fiscal policy and abandon its currently-forecast surplus track.

Rural Wrap

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.

Concern and Caution - August 2019

Doug Steel -

The latest survey of farmer confidence from Federated Farmers does not make pretty reading. To be sure, it is not all doom and gloom but there is no denying a mood of concern and caution among the farming community.

Milk Price Uncertainty - June 2019

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 - April 2019

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.

Food Prices In An Uncertain World - January 2019

Doug Steel -

World economic growth is slowing with concerns that it might turn into a slump. This raises downside risks to NZ’s primary product prices. We expect further deceleration in the world economy, but not a deep downturn. Uncertainty indicators are very high. Oil prices are lower; so too equity markets. But food prices have fared better. If the world economy can hold together well enough, NZ’s product prices are expected to be flat to up this year on average aided by pockets of supply side tightness.