BNZ Research

NZD/EUR: Cross slumps after EU wakes up

NZD/EUR has been in a downward trend since 2017 based on its 200-day moving average. On 11-March, the cross rate reached a five-year low of 0.5215 on an intraday basis. If we exclude the volatile period at the height of the COVID19 shock, the level reached was the lowest since 2011.

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NZD Corporate FX Update

Trump’s tariff policy overhangs the FX market over the next month or so, but we assess downside risk for the NZD to be fading.

President Trump’s policy agenda has been a key influence on currency markets, most notably for European currencies (see next page). The NZD and AUD have been range trading this year, after their big hit in Q4. Of note, there has been no further downside despite US tariffs on China increasing by 20%, with China’s government keen to encourage yuan stability and policy support to achieve 5% growth in 2025.

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NZD/AUD: Downside risks fading with time

• While NZD/AUD is trading below average and our short-term models suggest 0.85 is a fairer level, we see less downside risk to the cross rate compared to our view last year. If clear macro forces in favour of Australia relative to NZ haven’t triggered a much weaker cross rate, it is becoming increasingly difficult to see a trigger for a final lurch down.
• Our projections for the cross rate have remained around 0.89-0.90 over the past year and the risk assessment was clearly to the downside. Looking forward, we see those risks fading. Macro forces are beginning to move in favour of NZ relative to Australia.
• Rather than disregard the message of the models, we’re inclined to interpret them as a reason to believe there is a high hurdle for the cross rate to recover strongly.
• We think it is probably going to be difficult to crack above 0.93 this year and we see that as a potential resistance level. Meanwhile 0.89 is looking more like a support level than a central forecast as we progress through the year.

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NZD Corporate FX Update

President Trump’s tariff policy overhangs the NZD outlook in the first half of the year.

Early in President Trump’s second term we have seen him stretch legal boundaries to exude considerable executive power, threaten/impose/delay tariffs, and offer frequent daily soundbites to reporters, driving intraday volatility in FX markets.

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

The NZD in 2025

The NZD ended 2024 on a very weak note, with the currency plunging nearly 12% in Q4 after reaching its highest level for the year at the end of Q3 (0.6379). The NZD traded at its low for the year on the last day of the month (0.5588). The election of Trump as President and ongoing resilience of the US economy, against a backdrop of a poorly performing NZ economy, were key drivers of the NZD’s demise.

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

Job ads slip in February

Job ads declined 1.8% m/m in February, acting as a reality check after their 4.0% lift in January. Job ads are down 16.8% compared to a year ago. The labour market is still deteriorating, albeit the pace of decline is slowing. The Prime Minister recently noted the areas of the economy which he expects to support growth. We take a brief look at job ads in three of these sectors below.

Recovery begins

The NZ economy finished an abysmal 2024 with a lift in the final quarter. That was the main message from today’s Q4 GDP figures.

GDP grew 0.7% in the final quarter of last year. That was much stronger than expected. The market consensus was looking for 0.4%, we had 0.2%, and the RBNZ had 0.3%.

Confidence shattered, external accounts not so

Today’s economics note was meant to be all about the positive aspects of a rapidly reducing current account deficit. But any positive thoughts about our economy have been completely drowned by the release, this morning, of Westpac’s Consumer Confidence reading, which was simply awful.

Ups and downs

New Zealand’s services sector slipped back into contraction during February, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for February was 49.1 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 1.3 points from January and further away from the average of 53.0 over the history of the survey.

BusinessNZ's CEO, Katherine Rich said that unlike its sister survey in the manufacturing space that kicked on in terms of expansion during February, the PSI reverted back to what the services sector had experienced from March to December. For the sub-index results, Activity/Sales (49.2) fell 4.6 points after displaying the highest sub-index value for the previous month. New Orders/Business (49.4) slipped back to the same level of activity that was seen in December, although Employment (48.9) did display its highest value since August, albeit still in contraction.

Despite a return to contraction, the proportion of negative comments for February (57.8%) was down from January (61.9%), although still up from 57.5% in December and 53.6% in November. The overall tough economic climate remained the key observation from comments made.

BNZ's Senior Economist Doug Steel said that "while one might have hoped that the PSI would move higher again, we know that economic turning points can be messy. The brief foray above 50 in January remains the only month in the last year the PSI hasn’t been in contraction".

Fuel Prices Sticky

Weighting together the range of selected prices released this morning from Stats NZ shows their annual inflation pulled back to 1.6% in February, from 2.6% in January.

On the face of it, this looks encouraging for further easing in overall CPI annual inflation. However, we do not believe this to be the case. Prior to today’s data we thought annual CPI inflation would push higher over coming quarters including in Q1. Today’s data adds to the case.

Lift off

New Zealand’s manufacturing sector displayed its highest value for expansion since August 2022, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for February was 53.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 51.7 in January and the highest level of expansion since August 2022. The February result is also above the average of 52.5 for the survey since the survey began.

BusinessNZ’s Director, Advocacy Catherine Beard said that the February result was a welcome sight to see with the result building on the return to expansion in January.

“All sub-index values were again in expansion during February. The key sub-index results for both Production (52.4) and New Orders (51.5) were both the highest values recorded since August 2022. Employment (54.0) rose a further 3.2 points from January and at its highest value since September 2021. In addition, both Finished Stocks (54.1) and Deliveries (56.2) experienced notable improvements in expansion, with the latter displaying the strongest level of expansion of the sub-index values for February".

Despite the lift in expansion, the proportion of negative comments from respondents stood at 59.5% in February, compared with 57.7% in January. It was also up from 59% in December and 56% in November. Negative comments during February focused on an ongoing issue around a lack of orders for some manufacturers, as well as sluggish sales.

BNZ’s Senior Economist Doug Steel said that “the sustained improvement is a welcome change. It is one of several indicators that suggests the broader economy is turning for the better. Indeed, it indicates the pickup may be a bit faster than we are currently forecasting”.

Tracking the Tourism Recovery

Increasing international visitor numbers back to 2019 levels is an immediate Government focus in its endeavour to support economic growth. As tourism is NZ’s second largest export industry (after dairy), its progress is vital to New Zealand’s economic success. With this in mind, we take a step-back to assess just how the international tourism recovery is tracking at the moment.

Trans-Tasman Comparison

Last week, the RBNZ reduced the official cash rate by 50 basis points to 3.75% as widely expected. In the details, the accompanying statement noted lower net migration in NZ was “partly in response to subdued labour market conditions relative to Australia.” We take a brief look at employment in both countries below.

RBNZ Cuts Another 50

The Reserve Bank of New Zealand lopped another 50 basis points off its cash rate today, reducing it to 3.75%. And projected more easing ahead.
This was very much as we and the market expected. We went into this meeting with three broad expectations. First, the Bank would lower the OCR by 50 basis points. Second, it would significantly bring forward its projected low point in its forward rate track. And third, it would maintain that low point near 3%. It did all three.

Over the line

After 10 consecutive months of contraction, New Zealand’s services sector exhibited slight expansion during January, according to the BNZ –BusinessNZ Performance of Services Index (PSI).

The PSI for January was 50.4 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 2.3 points from December but still well below the average of 53.1 over the history of the survey.

BusinessNZ's CEO, Katherine Rich said that like its sister survey, the PSI has also waited an extended period of time to get back into expansion mode. For the sub-index results, Activity/Sales (54.0) led the way in January with its highest value since March 2023. Although New Orders/Business (50.0) showed no change for January, it was still its highest value since February 2024. In contrast, Employment (47.1) and Supplier Deliveries (47.8) remained in contraction during the month.

The proportion of negative comments for January stood at 61.9%, which was up from 57.5% in December and 53.6% in November. The economic downturn and uncertainty featured heavily amongst respondents.

BNZ's Senior Economist Doug Steel said that "the PSI is consistent with stabilisation rather than elevation, but its latest move upwards is encouraging”.

Food and Fuel Prices Higher in January

The balance of January’s selected price indices suggests a bit more upside to Q1 CPI calculations. The monthly prices are heavy on tradeable goods and that is what drove the generally firmer looking outcome.

Expansion

New Zealand’s manufacturing sector displayed expansion for the first time in 23 months, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for January was 51.4 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 46.2 in December and the highest level of expansion since September 2022. However, the January result is still below the average of 52.5 since the survey began.

BusinessNZ’s Director, Advocacy Catherine Beard said that after the longest continued period of contraction, the manufacturing sector has finally broken the trend and started 2025 on a positive note.

“All sub-index values were in expansion during January. The key sub-index results for both Production and New Orders both stood at 50.9, with the latter at its highest level of activity since August 2022. Employment (50.2) rose 2.5 points from December, while Finished Stocks (51.9) recorded its highest level of activity since May 2024.

The proportion of negative comments from respondents stood at 57.7% in January. This was down from 59% in December, but still up from 56% in November and 53.5% in October. Negative comments during January focused on the holiday break, as well as the ongoing effects of the soft economy. Positive comments displayed no strong pattern, with many focusing on specific business opportunities.

BNZ’s Senior Economist Doug Steel said that “it’s a positive start to 2025, with the manufacturing sector shifting out of reverse and into first gear. While the PMI still sits below its long-run average of 52.5, the improvement is welcome news for manufacturers after a very challenging two years”.

Unemployment continues its climb

New Zealand’s labour market continues to deteriorate. As anticipated by most, the unemployment rate rose to 5.1% in the December quarter from 4.8% a quarter earlier. This is now the highest unemployment reading since December 2016, if you exclude the COVID blip.

Business Inflation Indicators Nudge Up

Headlines around today’s ANZ business survey concentrated on a dip in business confidence and firms’ expectations for their own activity. But the dips do not look material and even less so once seasonally adjusted. We could say similar things about reported activity. There was very little change there either.

New Zealand at a Glance

Against a volatile international setting, New Zealand’s recession rolls on. Growth is moribund and the unemployment rate will continue to rise for some time. However, there are signs that the trough in activity might soon be behind us, and leading indicators have turned positive aided by ongoing easing in monetary conditions. Inflation is broadly contained but rising oil prices and a weakening NZD are causing some angst. Nonetheless, further cash rate cuts are still expected, the only real debate is how far the OCR will need to fall to generate the requisite economic response. Meanwhile the fiscal position is deteriorating and will do so for at least another year.

Labour market likely to lag

Job ads declined a further 2.1% m/m in December. The latest outturn is a return to declines after the 1.0% lift in November, as the labour market continues its trend deterioration. December rounds out a difficult 2024 for job seekers, with ads down 21.9% on a year earlier. With interest rates falling, we take a brief look at employment in three key interest-rate sensitive sectors below.

Inflation no threat to further rate cuts

With almost half the data that goes into the CPI now published on a monthly basis, there is little room for surprise when the quarterly data are released. And so it proved to be the case today. The 0.5% increase in prices reported for the quarter was bang on market expectations and a rounding error 0.1 below our own projection.

No Christmas Joy

New Zealand’s services sector exhibited a faster rate of contraction during December, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for December was 47.9 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 1.2 points from November and well below the average of 53.1 over the history of the survey.

BusinessNZ's CEO, Katherine Rich said that the sector has now been in contraction for ten consecutive months, which has meant a tough 2024 for those businesses trying to keep their heads above water during the wider economic recession. The key sub-index of Activity/Sales (46.2) displayed increased contraction during December, although New Orders/Business (49.5) remained at the same value as November. The Employment Index (47.4) displayed its highest value since August 2024, while both Stocks/Inventories (48.8) and Supplier Deliveries (47.7) both fell back into contraction.

The proportion of negative comments for December stood at 57.5%, up from 53.6% in November but down from 59.1% in October. Respondents' comments were heavily focused on the cost of living and the general economic climate/recession.

BNZ's Senior Economist Doug Steel said that "comparing across our key trading partners, New Zealand has the only PSI in contraction. Our neighbour Australia is the closest comparison, but their equivalent PSI is sitting more comfortably at 50.8”.

December doldrums

New Zealand’s manufacturing sector remained in contraction for the last month of 2024, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for December was 45.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). Although this was up from 45.2 in November, it was still well below the average of 52.5 since the survey began. The sector has now been in contraction for 22 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that 2024 was the first time in the survey's history that all 12 months were in contraction. The next closest was 2008 during the height of the Global Financial Crisis when nine of the twelve months were in contraction.

“The key sub-index result for Production (41.9) fell another 0.4 points from November to be at its lowest level of activity since June 2024, while New Orders (46.5) increased 2.0 points from November. Employment (47.6) lifted to its highest value since May 2024, while Finished Stocks (45.9) were at its lowest activity level since October 2023.

The proportion of negative comments from respondents stood at 59% in December. This was up from 56% in November and 53.5% in October, but down from 63.5% in September. Negative comments during December showed similar patterns to previous months, with a focus on the cost of living and general economic climate. Those mentioning the Christmas/holiday break saw manufacturers somewhat split between whether it had a negative or positive influence.

BNZ’s Senior Economist Doug Steel said that “the PMI is yet another New Zealand economic indicator that suggests parts of the economy are suffering the most they have since the GFC (excluding the COVID-turmoil)”.

QSBO Not Earth Shattering

There was nothing in today’s QSBO to change our view on anything. Our main themes for 2025 are that the economy will witness a slow recovery as the year progresses, the labour market will continue to deteriorate but at a slowing pace, inflation will remain contained (though not dead and buried), allowing the cash rate to keep falling.
From what we can tell the QSBO ticks all the boxes.

NZD falls in February as Trump teases on tariffs

• February was peppered with various threats by Trump to raise import tariffs, with the only ones enacted being those for China
• Heightened policy uncertainty overhung the market, while weaker US data and lower US rates were a drag on the USD
• Still, the yuan weakened, and the NZD underperformed; NZD/USD fell 0.7% and the NZD was weaker on the major crosses

January jitters as Trump threatens tariffs

• Currency markets were jumpy in January, reacting to Trump’s soundbites on tariffs, but without any material reaction overall.
• NZD/USD recovered from a nearly 12% plunge in Q4 to show some signs of stability through January and a modest net gain.
• The NZD was up on most crosses; net moves in global rates were modest; global equity markets reached a fresh record high.

Rates Strategist: Pace of RBNZ easing to slow

• After three consecutive 50bp reductions in the OCR, the pace of RBNZ easing is expected to moderate going forward. We expect sequential 25bp cuts to 2.75% by the August MPS. Our forecast is below market pricing for the terminal cash rate, and we maintain a modest downside bias for front end rates. Governor Orr’s unexpected resignation doesn’t materially alter the outlook for monetary policy.
• Bank balance sheet pay side flow in the swap market is picking up as 2-year fixed mortgage rates reach a fresh low for the easing cycle. Even accounting for the large skew in the aggregate mortgage book towards short tenors, we are sanguine about the potential market impact. Monthly data going back over twenty years doesn’t suggest a significant relationship with 2Y swap spreads when there are large composition shifts towards longer fixed rate mortgages.
• NZ Debt Management will launch a tap syndication of the May-2032 nominal line before the end of April. The execution window aligns with technical NZGB demand associated with the April-2025 maturity alongside coupon flow. The swap spread widening trend paused after the announcement, with the market again focussed on upcoming supply, relatively soon after the May-2035 tap in February.

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Swap spread recovery to be tested by supply

• The RBNZ is expected to reduce the OCR by a further 50bp at the February Monetary Policy Statement. Beyond this, the pace of easing will likely moderate and become increasingly data dependent. On-target inflation and still weak activity, suggest the RBNZ will cut rates to at least the mid-point of its 2.5% - 3.5% estimate, for the long-term neutral OCR.
• We have a modest downside bias for front end rates, though note the easing cycle is increasingly well priced. Longer end rates are likely to trade in a broad range. The 2y/10y swaps curve looks set to extend beyond the 70bp January high, as the RBNZ easing cycle progresses, and term premia build.
• Strong investor demand for NZGBs in January, after the seasonal issuance lull, has contributed to a sharp recovery in the 10y swap spread. Confirmation that the tap syndication of the May-2035 nominal line will take place in February, should contain the move higher in swap spreads, with the current level near -45bp likely to mark the top end of the trading range.

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

Trade Transmission

Commodity prices are higher, but the NZD hasn’t followed. This is altering the transmission of a rising terms of trade. Exports are significantly higher than a year ago, but consumer confidence is weak. We get another update on the latter this week, along with filled jobs for February as a partial guide to Q1 employment.

Chaos Reigns!

Two key macro aggregates are due for release this week: Q4 GDP (Thursday) and Q4 Balance of Payments (Wednesday). They are both critical to our understanding of how the economy has evolved. Well, that’s the theory. In practice, the data are ancient history, subject to significant revision (especially in the case of GDP) and pale into insignificance with regard to prospective monetary policy having been completely usurped by shifts in our high frequency indicators, the antics of the Trump regime in the United States and potential changes of style at the RBNZ.

Orr’s Abdication Hawkish?

In our opinion, the departure of Adrian Orr from the Governorship of the RBNZ may signal that New Zealand’s cash rate has less downside than would otherwise be the case. However, there are many moving parts. We won’t be changing our rate cut expectations solely on the back of the current ructions down at the Reserve Bank, but we warn strongly that the direction of risk to those forecasts is clearly upward. GDP partials are expected to confirm a weak Q4, PMI/PSI to give a timelier guide on activity, while pricing indicators are expected to suggest rising annual CPI inflation.

More Signs of Recovery

The economic recovery we forecast for 2025 continues to take shape. Last week’s data printed mostly for the better. But consumers remain pessimistic, and world worries remain. The terms of trade has charged higher and has further to go. It will support domestic activity. Today’s trade volumes look GDP positive. More Q4 GDP partial indicators are due this week and next.

Activity Rising; Uncertainty Heightened

The RBNZ met our and market expectations with last week’s 50 point cut and commentary. The Bank displayed comfort with looking through a near term forecast lift in inflation, as a negative output gap weighs on core inflation. However, activity indicators are improving and need to be watched closely. Today’s Q4 retail sales surprised on the high side, nudging up our estimate of Q4 GDP. Meanwhile, uncertainty measures are elevated and need to be respected.

All Eyes on the RBNZ

We expect the Bank to lower its cash rate by 50 basis points to 3.75%, at Wednesday’s meeting. Such a cut is the very widely held consensus view. And markets are pricing a 50-point cut as all but a done deal. It would be a massive surprise if the RBNZ did anything but deliver. The big interest for markets is what the Bank will intimate about its future rate track. Meanwhile, the PMI and PSI have finally shown some signs of life. Near term inflation looks a bit higher on tradeable prices, while non-tradeable inflation looks to be easing sharply.

February MPS Preview

Immediately following the November Monetary Policy Statement Governor Orr (MPS) suggested that if New Zealand’s economic evolution turned out broadly as expected the Bank would deliver a 50 basis point cut at the February MPS. While uncertainty has risen (largely thanks to the installation of one Donald Trump), domestic data has been revised (sometimes aggressively) and domestic government policy changes are flying thick and fast, it still seems to us that the broad trajectory of the economy is where the Bank expected it to be. Additionally, financial markets are pricing a 50 point cut as almost a done deal. On these bases, it would be massive surprise if the RBNZ did anything but deliver.

Labour Market Still Softening

As the world watches the opening salvos of a trade war, initiated by the US, there is an obvious risk that domestic proceedings play second fiddle. Nonetheless, there are some important releases to monitor. Q4 labour market data is expected to show a further softening in the labour market, including a lift in the unemployment rate.

Exports Lifting; Labour Market Lags

There is no top tier data due in the week ahead, but a decent smattering of timely monthly indicators and an RBNZ speech to pique some interest. Labour market indicators are expected to remain soft, while a lower NZD and higher commodity prices are improving export prospects. We nudge our milk price forecasts higher. Confidence and inflation expectation updates due.

Inflation Close To Target, But

Domestic focus this week will be on the Q4 CPI due out tomorrow. We think inflation is under control but there are areas to watch. More so regards 2025 than in this week’s figures, although the starting point is always relevant. The PMI and PSI remain moribund suggesting the output gap continues to widen, while electronic card transactions add to thoughts of a turn upward in spending. Globally, eyes are on the US as Trump is sworn into office.

Economic Turning Points Are Messy

Economic growth is expected to start recovering this year. But we caution that it might not feel like recovery for a while because even as activity increases it is likely to remain below potential for some time yet. Nothing there to stand in the way of more monetary easing. However, there is more upward pressure on near term inflation via a lower NZD and higher oil prices over the NZ summer break. We don’t think a 50-point cut by the RBNZ in February is a done deal, but there is still a lot of water to go under the bridge yet. This week’s QSBO, Selected Price Indexes, and PMI are the key releases still to come.

BNZ Markets Today

US equity markets are little changed in afternoon trade, after President Trump pressed ahead with tariffs on car manufacturers as part of a widening trade war, which weighed on share prices in the sector. The S&P oscillated around flat in the absence of first tier economic data. European indices closed lower with the Euro Stoxx falling 0.7%. Treasuries edged higher in yield while the US dollar is mixed against G10 currencies.

BNZ Markets Today

There was a soft risk tone overnight with US equities reversing some of the gains from earlier in the week. The S&P is close to 1% lower in early afternoon trade amid further tariff uncertainty. It was reported that President Trump will announce taxes on US car imports this morning, ahead of the broader imposition of tariffs, next week. Treasury yields moved modestly higher, and the US dollar was mixed against G10 currencies.

BNZ Markets Today

Market movements have been modest, with flat US equities, a small fall in US Treasury yields and small broadly-based gains for major currencies against the USD.

After the latest talks in Saudi Arabia between the US and Russia regarding the war in Ukraine, the US said Russia and Ukraine have agreed to a ceasefire in the Black Sea and to work out mechanisms for implementing their ban on strikes against energy infrastructure. The Kremlin confirmed the Black Sea ceasefire and said it was dependent on sanctions relief for banks and companies involved in agriculture exports. The agreement resulted in oil prices falling after some gains were made overnight, with the net result being Brent crude showing a modest fall for the day to just below USD73 a barrel.

BNZ Markets Today

The new week has begun with higher risk appetite, supporting a strong lift in US equities and pushing up US Treasury yields. However, there has been no positive spillover into the NZD, which shows a modest fall, while JPY has underperformed.

BNZ Markets Today

Friday saw an uneventful end to the trading week, with a lack of newsflow to drive market prices. Markets look to be in a holding pattern ahead of 2 April, which President Trump calls “Liberation Day”, the day when his reciprocal tariffs begin to take effect. Speaking at the White House, Trump said there will be flexibility on the forthcoming tariffs. “I don’t change, but the word flexibility is an important word”.

BNZ Markets Today

In the wake of the Fed’s policy update yesterday, US Treasuries are well supported, with the market comforted by Chair Powell seeing the impact on inflation of higher tariffs as “transitory”. We thought Powell might have avoided that word, given the Fed’s view of inflation being transitory during the COVID episode proved to be wrong, but the market seems to be buying into the narrative.

BNZ Markets Today

In the lead up to the US Federal Reserve’s rate decision this morning, US equities advanced while treasury yields and US dollar moved higher, in the absence of first tier economic data. Commodity markets were subdued with gold prices consolidating near record highs above US$3000 per troy ounce and brent crude was stable near US$71 per barrel.

BNZ Markets Today

After two positive days, US equities are back in the red, with the S&P500 down 1% in early afternoon trading, weighed down by the mega techs. US Treasury yields continue to consolidate. The 10-year rate has traded a 4.27-4.33% range and currently sits at the bottom end, down a touch from the NZ close.

BNZ Markets Today

Global equity markets are on a positive footing to start the week, following on from the strong recovery in US markets on Friday. The S&P500 is up 0.6% in early afternoon trading, with the IT sector a laggard. The Euro Stoxx 600 index rose 0.8%.

President Trump will speak with President Putin on Tuesday, with Trump saying “a lot of work” had been done over the weekend ahead of the planned conversation. Putin has so far pushed back against the US-brokered plan for an immediate ceasefire in the Ukraine-Russia war.

BNZ Markets Today

Investor risk appetite recovered into the end of last week. After the S&P had previously entered a correction, following the 10% fall from its February peak, the index rebounded strongly and closed the session 2% higher. The announcement of a deal by German politicians to proceed with a massive fiscal expansion supported European stocks. Chinese equities also advanced, led by consumer shares. Policy makers have outlined steps to boost consumption. US treasury yields moved higher while the US dollar was broadly weaker against G10 currencies.

BNZ Markets Today

More tariff threats, a possible US government shutdown and doubts over a Ukraine-Russia peace deal are all overhanging the market, resulting in weaker risk appetite – US equities are down significantly again, US Treasury yields are lower, and the yen has outperformed. The NZD is flirting with the 0.57 level.

BNZ Markets Today

Ongoing global trade tensions remain a focus for markets. The White House confirmed 25% tariffs on steel and aluminium would come into effect yesterday, without exemptions for any US trading partners. This prompted a response from the European Union which launched countermeasures on €26 billion of US imports. US equity markets are higher in afternoon trading though price action remains volatile. There was a muted response to softer than expected US CPI data.

BNZ Markets Today

President Trump’s tariff agenda continues to dominate market price action, with a ratchetting up on pressure against Canada driving further weakness in US equities and a weaker CAD.

BNZ Markets Today

Newsflow has been light to start the week but increased anxiety over President Trump’s policy agenda, particularly tariffs and slashing Federal government spending, continues to impact the market, with much lower equities and Treasury yields falling. Of note, President Trump wouldn’t rule out his policies causing a recession. On a Sunday Fox news interview he said “I hate to predict things like that. There is a period of transition, because what we’re doing is big”.

BNZ Markets Today

US equity markets rebounded from initial losses to close 0.5% higher with US labour market data closely matching expectations. US treasury yields moved higher as equities recovered while European bond markets ended little changed after the large selloff in previous sessions. The US dollar extended its decline against European currencies. Brent crude stabilised above US$71 per barrel and gold prices were stable, with data revealing China has expanded its reserves, for the fourth consecutive month in February.

BNZ Markets Today

News on tariffs continues to inject volatility into markets. Soon after we went to press yesterday the White House announced a one-month exemption for automakers that comply with the North American trade agreement known as USMCA, which drove stronger US equities into the close. In overnight news, Commerce Secretary Lutnick told CNBC that President Trump is likely to defer his 25% tariffs on Canada and Mexico for all goods and services covered by USMCA and President Trump confirmed this an hour later for Mexico, and we await any announcement for Canada. Trading in US equities has been choppy, and the market is falling rapidly as we go to print, with the S&P500 down around 2%.

BNZ Markets Today

There have been large moves across European markets after Germany revealed plans to reform its debt brake to allow for more defence and infrastructure spending. This contributed to a significant increase in European yields, a stronger euro and large gains for European equity indices. The Dax closed more than 3% higher. This provided a contrast with more subdued price action in US markets where the S&P is modestly higher.

BNZ Markets Today

Hey Grok, President Trump has just imposed new tariffs on Canada, Mexico and China. Give me a witty limerick to begin my daily report:
“A tariff from Trump, oh so bold,
On Canada, Mexico, and China bestowed,
With trade in a spin,
The markets begin,
To dance to a tune yet untold!”
Yesterday morning President Trump confirmed that 25% import tariffs on Canada and Mexico (with Canadian energy products enjoying a reduced 10% tariff) and an increased 10% tariff for China would indeed take effect from 4 March, as proposed. The news sent markets into a tailspin, with a weak close for US equities, lower Treasury yields, and the CAD and Mexican peso capturing the brunt of the FX reaction.

BNZ Markets Today

There is increased optimism in Europe after UK PM Starmer hosted European leaders at the weekend in a bid to support Ukraine. The UK and France said they would lead a European effort to forge a peace plan to present to President Trump. There was discussion of taking more responsibility for funding Europe’s defence. French President Macron proposed a one-month ceasefire “in the air, sea and on energy infrastructure”, but the word is that Europeans do not agree with this plan.

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US equities staged a late-session rally on Friday to close 1.6% higher and edge back to positive returns for 2025. The market rebound was set against several macro cross currents including rising geopolitical tensions between the US and Ukraine, soft US consumption data and further developments on trade policy. Treasury Secretary Bessent said that Mexico had proposed matching US tariffs on China and urged Canada to do the same. US treasuries rallied and the US dollar closed higher.

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Equity markets are weaker and the USD is broadly stronger after Trump will impose an additional 10% tariff rate on Chinese imports next week and, after all, the proposed tariffs on Canada and Mexico will also take effect. The NZD and AUD have underperformed, with spillover from a weaker yuan. The NZD is down 1% from this time yesterday to 0.5640.

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Newsflow has been light but in breaking news Trump said Canada and Mexico tariffs – proposed at 25% – would go into effect 2 April. This is yet another pushback, from the original 1 February start date that was subsequently pushed out to 4 March. The timing of 2 April would coincide with the proposed start date for a whole host of other tariffs, subject to the various trade reports that will land on Trump’s desk due 1 April. Trump also said tariffs on products from the EU like autos and “other things” will be 25%. Other details will be forthcoming.

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Risk sentiment has weakened further, evident in price action across most markets. US equities are weaker for a fourth day, US Treasury yields have fallen to fresh 2025 lows, with the 10-year rate down some 10bps. JPY has outperformed and commodity currencies have underperformed, although falls have been modest, with the NZD tracking down towards 0.57.

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After the selloff into the end of last week, US equity futures recovered in Asian trade, but the earlier rebound wasn’t sustained after a soft regional manufacturing survey. The S&P is little changed in afternoon trading. Stocks in Europe also declined with the Euro Stoxx index closing 0.7% lower. US treasuries rallied and the US dollar made gains against G10 currencies. Brent crude prices edged higher towards US$75 per barrel.

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US equities fell sharply, and treasuries rallied amid rising investor risk aversion, after weaker than expected activity in the services sector raised concerns that political uncertainty is weighing on growth. The S&P closed 1.7% lower. The US dollar was generally stronger against G10 currencies despite the weaker data. Oil prices fell with Brent trading back towards US$74 per barrel, 3% lower on the day.

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US and European equity markets are weaker, retreating from recent record highs. The US S&P500 is down 0.7% in early afternoon trading, driven by financials and consumer discretionary stocks. Lower than expected revenue and earnings forecasts for the year ahead from consumer bellwether Walmart got the market’s attention as the company gave a cautious outlook. Management cited “stretched” consumer wallets and, ahead of tariffs, said “we are in an uncertain time”. Walmart’s stock price is down over 6% for the day. The Euro Stoxx 600 index fell 0.2%.

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US equites are flat in afternoon trade in the absence of first-tier economic data or other catalysts to provide direction. US treasuries are little changed, and outperformed European fixed income markets, which moved higher in yield after hawkish comments from an ECB official. President Trump said he would likely impose tariffs on cars, semi-conductors and pharmaceutical imports of around 25%. An announcement is expected in early April. European stocks retraced from a record high with the Euro Stoxx index falling 1.3%.

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Market movements have been modest, with global rates slightly higher and the USD modestly stronger. The NZD has been the weakest of the majors over the past 24 hours, in the lead-up to today’s RBNZ Monetary Policy Statement. US equities are relatively flat, while the Euro Stoxx 600 index rose 0.3% to yet another record high.

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Markets are quiet and newsflow is limited, with US markets closed for the President Day’s holiday.

Following moves by the White House to negotiate with Russia to end the Ukraine war and VP Vance’s forthright speech to European leaders over the weekend that signals less US involvement in European defence, EU leaders are convening in an emergency meeting to discuss the Ukraine war and ways to boost European defence spending. The Euro Stoxx 600 index rose 0.5% to a fresh record high, with strong gains in defence stocks. S&P500 futures are flat.

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A significant downside surprise to US retail sales data contributed to rally in treasuries and weighed on the US dollar. Equity markets were less impacted with the S&P oscillating in a narrow range and ultimately closing little changed as US investors looked ahead to a public holiday on Monday. European equities closed lower while the Hang Seng extended its recent strong run and advanced 3.7%. Brent crude prices were little changed near US$75 per barrel and gold prices were also stable after strong gains since the beginning of January.

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Markets are trading in the afterglow of President Trump’s chat with the Russian and Ukrainian Presidents to begin negotiations to end the war between Russia and Ukraine. Other market moving events have been the US PPI report, which was stronger than expected but with weak components that feed into the more important PCE deflator, and Trump’s forthcoming announcement on reciprocal tariffs. Equity markets are stronger, global rates are lower, and most currencies are stronger against the USD, although the NZD and AUD have lagged the move.

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Much stronger than expected US CPI inflation data were market-moving, driving higher US rates, a stronger USD and weaker US equities. Some of this reversed with the other market moving event being President Trump’s call with President Putin, with talk of negotiations to end the Russia/Ukraine war.

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US equity markets gained in the absence of economic data or other catalysts as the investors look ahead to key US inflation data and Fed Chair Powell’s testimony to US lawmakers later the week. The S&P is 0.7% higher in afternoon trading and there were decent gains for European equity indices with the Euro Stoxx advancing 0.6%. Global bond yields are modestly lower, and the US dollar was broadly stable against the major FX pairings.

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US equity and government bonds came under pressure after solid labour market data reduced expectations about the extent the Federal Reserve will be able to ease monetary policy this year. Weak consumer sentiment and concerns about inflation also weighed on investor risk appetite. The S&P fell to the session lows and ultimately closed 1% lower, after it was reported President Trump intended to issue reciprocal tariffs this week, in a further escalation of his trade war. The US dollar gained against G10 currencies.

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US equities continue to push higher with modest gains while the US 10-year rate is down 7bps from the NZ close before the Waitangi Day holiday, albeit modestly higher for the current trading day. GBP has been the weakest of the majors, JPY has been the strongest, and the NZD has been range-bound between 0.5650-0.57.

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Investor risk appetite has recovered since President Trump delayed the implementation of tariffs on Mexico and Canada by a month despite an escalation in trade tensions with China. The delay raised hopes that tariffs represent a negotiating tool of the new US administration rather than a final objective. The S&P is 0.7% higher, and more than 2% above the low, reached after the gap weaker on Monday morning. Treasury yields are modestly lower after US job openings fell while the US dollar is broadly weaker.

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The new week began with the fallout from President Trump’s announcement Friday on tariffs on the three largest trading partners of the US, under the auspices of a national emergency regarding illegal immigration and drugs entering the US. As markets opened, the USD soared and equity futures plunged, while the US Treasuries curve flattened. These moves have shown some reversal overnight after Trump agreed to delay the tariffs on Mexico by a month.

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Financial markets were volatile into the global close amid conflicting news on timing for the implementation of tariffs on US imports. Confirmation that tariffs would be set for Canada and Mexico at 25%, China at 10%, and begin this week, saw equities retrace earlier gains. The S&P closed 0.5% lower. G10 currencies also saw large swings. US treasuries were marginally higher in yield, while European bonds rallied, after softer than expected regional inflation data.

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US asset markets are little changed despite data showing solid economic activity in the December quarter. The S&P is marginally higher on the day while US treasury yields are unchanged. The Euro Stoxx gained more than 1% and Eurozone bond yields fell as the European Central Bank (ECB) cut its policy rate. Gold prices reached an all time high just below US$2,800 per troy ounce.

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US markets are broadly stable in the absence of first-tier economic data as investors look ahead to the Federal Reserve’s rate decision this morning (NZT). The S&P is modestly weaker and down close to 0.3% in early afternoon trade. Stock indices in Europe advanced with the Euro Stoxx closing 0.6% higher. Global bonds are little changed, and the US dollar is marginally stronger against G10 currencies.

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US equities recovered from the sharp fall the previous session, which was driven by concerns that cheaper artificial intelligence models, could impact US dominance in the technology. The S&P is up 0.6% in afternoon trade with a larger rebound in the Nasdaq index. Markets in Europe also gained with the Euro Stoxx advancing 0.4%. US treasuries edged higher in yield, partially reversing the sharp falls, from the start of the week. The US dollar consolidated gains against global currencies.

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Weak risk sentiment has dominated markets to begin the new trading week. US equity market futures fell in Asia, and saw further losses overnight, before staging a partial recovery from the lows. The losses were led by technology stocks reflecting concerns that unexpected advances by a Chinese AI company DeepSeek, could challenge the US’s technical edge in artificial intelligence. The S&P dropped close to 3% at one point with larger falls in the Nasdaq. Global bond yields declined, and defensive currencies outperformed.

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Markets navigated the first week of Trump’s presidency unscathed, with little net change in Treasury yields and the S&P500 up 1.7% for the week, reaching a fresh record high in early trading before ending Friday down 0.3%. The main casualty was the USD, with the DXY index down 1.7% for the week, its largest weekly decline in 14-months.

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Market movements for the day were uninspiring until President Trump spoke virtually to an audience at the World Economic Forum in Davos. His comments saw Treasury yields nudge down, a weaker USD and lower oil prices. After closing at a fresh record high yesterday, the S&P 500 shows a small gain in early afternoon trading.

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It has been an uneventful trading session overnight, with no key economic releases and nothing new to drive the market.

The S&P500 is up 0.8%, on track to break the early-December record high, powered by a 2.3% gain in the IT sector. This followed yesterday’s “massive” announcement of President Trump unveiling a $100b AI infrastructure project that could rise to $500b, in partnership with Softbank, Oracle, OpenAI and others. However, there are already doubts about the scale of the project or whether it will get off the ground, with Elon Musk saying “they don’t actually have the money” referring to some of the partners. Gains for the S&P are narrow and most sectors show falls.

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On day 1 of Trump’s presidency the market got a taste of things to come over the next four years, with some off-the-cuff comments during a signing of executive orders that jolted the market. When asked by a reporter about tariffs he said he was thinking in terms of 25% tariffs on Mexico and Canada and “I’ll think we’ll do it on February 1st”. In the hours ahead of his inauguration his advisors were feeding reporters that tariffs would be enacted in a managed way so this comment was surprising. It isn’t clear whether Canada and Mexico can stave off tariffs by negotiation over the next week or so. One positive factor though to come on day 1 was that China doesn’t seem to be in the crossfire for tariffs immediately and Trump said he wasn’t considering an immediate universal tariff.

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Donald Trump has just been sworn in as the 47th President. In the opening lines of his inauguration address he highlighted that he will be putting America first. He indicated his first measures as President, declaring a national emergency at the southern border with Mexico and thereby zeroing in on curbing illegal immigration. He next talked about addressing inflation to rapidly bring down costs and prices. He will declare a national energy emergency to “drill baby drill”.

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US equities ended the week on a strong note, with the S&P500 closing up 1.0%, taking the gain for the week to 2.9%. Themes for the week were a strong start to the earnings season, led by the banking sector, benign CPI inflation data, dovish comments from Fed Governor Waller and, while Treasury yields nudged higher on Friday, the 10-year rate still fell 13bps for the week to 4.63%.

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The biggest market moving event overnight was some dovish comments by Fed Governor Waller which triggered a fall in interest rates after an earlier lift. In an interview with CNBC, Waller said “the inflation data we got yesterday was very good…if we continue getting numbers like this, it’s reasonable to think rate cuts could happen in the first half of the year”. He added that he wouldn’t entirely rule out a cut by March and, based on the FOMC’s median estimate of the neutral policy rate, three or four cuts this year are possible, depending on incoming data.

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Weaker than expected UK and US CPI data have supported global bond markets, driving down rates and supporting equity markets. USD weakness after the CPI report reversed course, so a lift in the NZD to 0.5650 wasn’t sustained. The yen is the strongest of the majors, supported by lower global rates and the BoJ building the case for a possible rate hike next week.

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Global asset markets are little changed despite an unexpected slowing in US PPI data, with the market looking ahead to the more impactful CPI data, which is released this evening. Intra-day gains for the S&P after the PPI data have faded and the index has slipped into negative territory in afternoon trade. European equities closed higher with the Euro Stoxx up 0.5%. Treasury yields are marginally higher while the US dollar is weaker.

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This is the first Markets Today for 2025. We wish all our readers a Happy New Year.

Global equities began the week with a soft tone as markets extended the moves seen in the aftermath of the strong US labour market data on Friday. S&P futures traded lower in the Asian session, and the index dropped close to 1% on the open, before retracing some of its losses. Treasury yields continued to move higher, and the US dollar remained well supported. Oil prices reached the highest level in five months following fresh US sanctions against Russia’s energy industry. Brent crude traded up towards US$81.50 per barrel.

Outlook for Borrowers: Post February MPS

The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 50bp to 3.75% at the Monetary Policy Statement (MPS) on Wednesday. All 23 economists surveyed by Bloomberg forecast the reduction. The Bank had previously signalled the move in November, conditional on the economy evolving in line with its expectations. Pricing in the overnight index swap (OIS) market implied a near-certain chance of a 50bp cut.

Upswing Welcome

There has been a decent upswing in global prices for some of NZ’s major primary export products over the past year. For example, wholemilk powder prices are up 18%, the price of a leg of lamb is up 41%, and the US imported bull beef price is up 24%.