BNZ Research

NZD Corporate FX Update

We see NZD risks weighed to the downside through the first half of 2025. FX volatility and uncertainty are likely higher under the new US government.

In early November, post the US election, we made a significant downward revision to our NZD/USD projections. While the change in US economic policy direction with Trump as President was a key motivation for the revision, the stronger for longer US economy supported the change in outlook.

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Factoring Trump 2.0 into our NZD projections

Over recent months we have warned that our prevailing FX projections were based on a US political status quo and we would likely have to revise down our NZD/USD projections on a Trump victory. That time has come.

Our new baseline assumption is that a moderate Trump 2.0 scenario evolves. For the NZD, the most significant impact will be the increase in tariffs and spillover effects on China and global growth.

We now project further NZD downside from here but restrained by the fact that a Trump victory was already partially priced. Furthermore, compared to the period when the tariff war with China began under Trump 1.0, the starting point is a more richly priced USD.

Our new NZD projections imply that the currency could trade down to as low as 0.55 next year. But on a more aggressive US policy stance, downside potential is even greater. Without knowing policy details, there is wide uncertainty around our projections and we suspect that we’ll be doing more frequent revisions.

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Brace for impact

The US election is less than two weeks away and has been on our radar for some time. We have previously noted, on many occasions, that our FX projections – which embody a broadly weaker USD through next year enabling the NZD to show a steady recovery – assume some sort of US political status quo. If Trump won, we would be forced into reassessing that view. Our prior is that we might be forced into revising our USD projections higher, which would mean a revised lower NZD trajectory.

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NZD Corporate FX Update

Our (unchanged) projections are consistent with a 0.60-0.64 trading range over Q4. The November US election remains a key risk event that could get in the way of our 2025 projections for further NZD appreciation.

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

Should we be upgrading the NZD outlook?

The NZD has appreciated to a fresh high for the year above 0.6350. In recent weekly updates we have noted the NZD tracking slightly ahead of our projections. Our projections haven’t been updated since April – an unusually long period between revisions, given the nature of currency forecasting. We have been projecting a year-end target of 0.62, consistent with a 0.60-0.64 trading range in Q4, and an end-2025 target of 0.67, consistent with the trading range gradually climbing to 0.65-0.69 about a year from now. Current spot is already near the top end of our suggested trading range for next quarter, although still short of where we see it heading next year. The question is should we be upgrading?

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

Strong GDP Demands Rate Cuts

We knew today’s GDP data would be nigh on impossible to interpret because of revisions to historical data. And that is, indeed, the case.

While it is right for headline writers to focus on just how much the economy has collapsed over the last six months, we note that very few are acknowledging that economic activity, as at the end of the September quarter, was 0.6% higher than the Reserve Bank had estimated when it put together its November Monetary Policy Statement.

Employment Report: Stabilising at a low level

Job ads increased 1.1% m/m in November. While encouraging, the gain needs to be viewed in the context of the 1.4% decline the month before. Looking through month-to-month volatility, the trend appears to be stabilising at a very weak level. Job ads are down 21.4% on a year earlier. Excluding covid, they are at levels last experienced in 2013, and further back on a per capita basis to 2010.

NZ Debt Funding Requirements Soar

The big surprise in today’s Half Year Economic and Fiscal Update was the news that the Government bond programme will be $20bn higher over the next four years than was the case at the May Budget.

There are increases of: $2bn in the 2024/25 programme, $4bn 2025/26, $6bn 2026/27 and $8bn 2027/28. This is substantially higher than market commentators were expecting and has been reflected in a modest sell off in bonds.

Knocking on the door

New Zealand’s services sector showed contraction at a slower rate during November, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for November was 49.5 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 3.3 points from October, and very close to the no change mark of 50.0. However, the November result was still well below the average of 53.1 over the history of the survey.

BusinessNZ's CEO, Katherine Rich said that the November result was the highest since February 2024, with some encouraging signs. The two key sub-indices of Activity/Sales (48.6) and New Orders/Business (49.8) remained in contraction, although both were also at their highest level of activity since February. The Employment Index (46.8) rose 0.4 points from September, while both Stocks/Inventories (52.2) and Supplier Deliveries (52.2) were at their high levels since January 2024 and July 2023 respectively.

The proportion of negative comments for November stood at 53.6%, which was down from 59.1% in October, 58.5% in September and 60.8% in August. The general economic climate and the cost of living continued to dominate comments from respondents.

BNZ's Senior Economist Doug Steel said that "the November result is another case of things getting less bad before they get good. The direction of change is encouraging, but it’s important to remember the PSI remains well below its long-run average of 53.1”.

Retreat

New Zealand’s manufacturing sector continued to show contraction at a faster rate during November, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for November was 45.5 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 45.7 in October, and the lowest level of activity since July 2024. The sector has now been in contraction for 21 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that any momentum built over the July-September period has now reverted back to a retreat for the sector.

“The key sub-index result for Production (42.5) fell another 1.5 points from October to be at its lowest level of activity since June 2024, while New Orders (44.8) fell back 3.7 points to be at its lowest result since July 2024. Employment (46.9) has remained within a tight band of contraction for the last four months, while both Finished Stocks (49.3) and Deliveries (49.9) improved.

The proportion of negative comments from respondents stood at 56% in November. This was up from 53.5% in October, but down from 63.5% in September, 64.2% in August and 71.1% in July. Negative comments during October showed similar patterns to previous months, with a focus on a lack of orders and cost of living.

BNZ’s Senior Economist Doug Steel said that “the main message of a manufacturing sector still under significant pressure remains. Recent business surveys report that manufacturers are feeling more confident about the outlook, but there is scant evidence of a general turnaround in activity to date”.

Happier New Year

Forward looking indicators in the ANZ business survey maintained recent strength in November. Business confidence, activity outlook, exports, investment and employment intentions, and profitability expectations are all firmly positive.

RBNZ Delivers Another 50 Point Cut

The Reserve Bank of New Zealand today slashed another 50 basis points off its cash rate today, reducing it to 4.25%. We think this was the right thing to do and is what we thought was by far the most likely outcome. Nothing to change our view of more easing to come.
We have been of the view that economic spare capacity continues to grow and will do so for some time. Inflation is well contained, so too inflation expectations, and the unemployment rate is set to rise further over coming quarters. This allows room to reduce the OCR.

Labour market still deteriorating

Job ads are down 26.2% on a year ago, after a decline of 1.4% m/m in October. This is consistent with ongoing loosening in the labour market. Last week, the Treasury noted that “recent second-tier data has been suggestive of a turning point in the economy.” That might well be true, and employment intentions have improved in some recent business surveys, but we continue to expect the labour market to lag the broader economic recovery. October’s job ads support that view.

Stuck in a rut

New Zealand’s services sector result for October remained in contraction, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for October was 46.0 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 0.3 points from September, but activity has varied by only 0.7 points over the last four months, which has kept the sector within a tight band of contractionary results. The October result is also still well below the average of 53.1 over the history of the survey.

BusinessNZ's CEO, Katherine Rich said that the October result showed mixed results when broken down by sub-index values. While the New Orders/Business Index (48.1) was at its highest level since February 2024, the Activity/Sales Index (44.3) lost some momentum during October. The Employment Index (46.4) recovered some of its fall after a sizeable drop in September.

The proportion of negative comments for October stood at 59.1%, which was up from September at 58.5%, but down on 60.8% in August and 67.0% in both July and June. The cost of living and the general economic climate continued to dominate comments from respondents.

BNZ's Senior Economist Doug Steel said that "although it is contracting at a much slower pace than it was in June (when the PSI was 41.1), the PSI has been hovering between 45 and 46 over the last four months. The activity outlook for the sector has improved in recent business surveys, but the here and now remains extremely challenging”.

Lost momentum

New Zealand’s manufacturing sector showed contraction at a faster rate during October, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for October was 45.8 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 47.0 in September, and the lowest level of activity since July 2024. The sector has now been in contraction for 20 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that despite some momentum over the previous few months that saw the results for the sector getting progressively closer to the no change mark of 50.0, October's result halted that.

“The key sub-index result for Production (44.5) fell 3.4 points from September, while both Employment (45.8) and Deliveries (44.6) dropped one point. In contrast, Finished Stocks (47.4) lifted 0.7 points, while New Orders (49.0) rose 1.1 points and at its highest level since May 2023.

The proportion of negative comments from respondents stood at 53.5% in October. This was down from 63.5% in September, 64.2% in August, 71.1% in July and 76.3% in June. Negative comments typically focused on the general economic downturn.

BNZ’s Senior Economist Doug Steel said that “despite lower interest rates, the manufacturing sector continues to face significant headwinds. Recent business surveys have shown a sharp contrast between improved expectations for activity and weak current conditions”.

Q4 CPI Forecast Stays Put

Today’s Selected Prices data for October were generally close to our expectations. There were no major surprises, although the net of all the monthly price indicators put together was marginally on the softer side.

It is not enough to change the rounding on our estimate for Q4 CPI annual inflation which stays a 2.3%, but gives a whiff of downside risk to it. The RBNZ forecast 2.3% y/y for Q4 CPI in its August MPS. So, we see nothing here to materially to alter the RBNZ’s view of the world.

Labour market deterioration gains pace

Those looking for a sharp jump in unemployment to justify the RBNZ cutting its cash rate by 75 basis points at its November 27 MPS will be sorely disappointed with the news today that the unemployment rate rose less than expected to 4.8% in September from 4.6% in June. The RBNZ was expecting a 5.0% headline reading.

Nonetheless, while the unemployment rate may have hinted at a relatively resilient labour market, not much else did.

Growth Expected Next Year

Businesses remain very upbeat about the outlook over the coming year, according to this afternoon’s October ANZ business survey. Indeed, business confidence hit its highest level since March 2014.

One can’t help but feel a chunk of this reflects an exceptionally weak starting position in a ‘things will surely get better than now’ kind of way. Regardless, the positivity is a supporting signal for some pickup in growth next year.

September Still Struggling

Job ads declined a further 0.5% m/m in September as the labour market continues to deteriorate. They are down 29.1% on a year earlier and weakness remains broad-based across the economy. Their general trend has been in decline since July 2022, and, while falling interest rates will be supportive, we expect the labour market to lag the broader economic recovery.

Inflation beaten into submission

The Reserve Bank of New Zealand should be overjoyed with today’s inflation outturn. One can never claim that inflation is dead and buried but, for the time being, it’s as near as dammit.
Consumer prices rose just 0.6% in the September quarter, delivering an annual increase of 2.2%. This is the first time annual inflation has been within the Bank’s target band since March 2021. Moreover, it’s not just inside the band but sits close enough to the 2.0% midpoint to be immaterially different.

Same same

September's result for New Zealand’s services sector remained the same as August, although still firmly in contraction mode, according to the BNZ –BusinessNZ Performance of Services Index (PSI).

The PSI for September was 45.7 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was the same as August, and shows the results in a tight band for the last three months. However, this is still well below the average of 53.1 over the history of the survey.

BusinessNZ's CEO, Katherine Rich said that after seven consecutive months in contraction, the sector seems to be stuck in a rut and struggling to get out of contraction. Looking at the key sub-index values for September, it is encouraging to see the Activity/Sales Index (45.6) continue to improve, although the New Orders/Business Index (46.7) stagnated and the Employment Index (45.7) reversed back to its lowest result since February 2022.

On a brighter note, the proportion of negative comments for September stood at 58.5%, compared with 60.8% in August and 67.0% in both July and June. A significant proportion of respondents noted the overall economy as a key negative influence on activity levels.

BNZ's Senior Economist Doug Steel said that "movements in the PSI sub-indices were mixed in September, but all of them have been below 50 for seven consecutive months. While falling interest rates will be supportive in time, the sector continues to face significant headwinds at present”.

Long and slow road

New Zealand’s manufacturing sector continued to show higher levels of activity for September, although remained in contraction, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for September was 46.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 46.1 in August, and the third consecutive month showing a higher level of activity compared with the previous month. However, the sector remains firmly in contraction that now extents to 19 consecutive months, and well below the average of 52.6 since the survey began.

BusinessNZ’s Director, Advocacy Catherine Beard said that the good news was that the PMI is now at its highest result since April. The bad news though was that it appears to be a long and slow road to get the sector back into positive territory.

“The key sub-index results for Production (48.0) and New Orders (47.8) were the highest since April 2024 and November 2023 respectively, while Finished Stocks (46.6) also nudged up from the previous month. However, both Employment (46.6) and Deliveries (45.6) were slightly down from August".

The proportion of negative comments from respondents stood at 63.5% in September, which was down from 64.2% in August, 71.1% in July and 76.3% in June. Negative comments typically focused most heavily on a lack of orders and sales.

BNZ’s Senior Economist Doug Steel said that “while all sub-indices remain well below their historical average, four of the five series have moved closer to breakeven in the last three months since June”.

RBNZ accelerates easing cycle

The Reserve Bank of New Zealand today slashed its cash rate by 50 basis points to 4.75%. We think this is exactly the right thing to do and stick with our view that there is much more to come. As we have said before, the RBNZ will not relax until monetary conditions are no longer restraining the economy. We are still some way from this.

RBNZ to accelerate rate cuts

We have been increasingly pointing to the fact that October’s Monetary Policy Review could be a line ball call between a 50 basis point cut and a 25. Not cutting at all has never entered our minds. And a line ball call it is. We’d hoped that the ANZ Business Opinion Survey and today’s QSBO would deliver the same message, and in so doing settle the argument. But they haven’t, with the ANZ survey delivering a hawkish message and the QSBO a starkly dovish tilt.

Business survey questions RBNZ acceleration

If you were looking for a reason why the RBNZ should cut rates 50 basis points at its October meeting, this wasn’t it.

The September ANZ Survey of Business Opinion was unequivocally strong.

A net 45% of businesses now expect their activity to increase over the next 12 months. On a seasonally adjusted basis this was the strongest reading since August 2017 and is consistent with GDP growth approaching 4.0%.

Comparing Across the Ditch

While Australia’s economy faces headwinds, they pale in comparison to New Zealand’s. In Q2, NZ annual GDP contracted 0.5%, much weaker than annual growth of 1.0% across the ditch. While NZ is in the midst of a rolling recession, Australia’s economy has remained relatively more resilient. But, given the extent of the downturn, there is at least a lower hurdle rate for NZ to achieve positive growth as we head into 2025.

Dollar dances to tune of Trump’s triumph

• USD broadly stronger in November, following Trump’s victory and signs of a stronger for longer US economy
• NZD falls to a fresh 2024 low below 0.58 before finding support; ends down less than 1% for the month
• EUR underperforms, JPY the strongest of the majors; global equities up strongly to a record high; global rates lower

NZD slumps in October

• Stronger than expected US economic data and rising odds of a Trump victory drove higher US rates and a higher USD
• The NZD was the worst performing of the majors, down nearly 6%
• Lower NZ-global rate spreads added to NZD downside pressure, contributing to weaker cross rates

NZD rises to a fresh 2024 high in September

• The Fed opted to kick-start its easing cycle with a 50bps cut; China ramped up policy stimulus to drive an economic recovery
• High risk appetite and lower US rates drove a broadly weaker USD; most FX majors made fresh 2024 highs against the USD
• Rates curves steepened as the global easing cycle gained traction; global equities pushed up to a fresh record high

Rates Strategist: Easing cycle to support a further fall in terminal OCR pricing

• The front loaded RBNZ easing cycle is set to extend into 2025. Weak activity and on-target inflation opens the way for the OCR to decline toward the RBNZ’s 3% estimate for the long-term neutral OCR. Short end rates are likely to make fresh cycle lows.
• A resilient economy and uncertainty about the impact of the new administration’s economic policies, point towards a cautious Fed easing cycle, and limits the downside for UST yields. Already tight 10Y NZGB-UST spreads to constrain NZGB performance.
• The NZ curve flattening over the past two months appears complete. Curve valuations, which were significantly stretched have now normalised, and we expect the curve to resume steepening as the RBNZ easing cycle progresses.
• Commentary from government officials has set the scene for increased funding requirements when the NZGB borrowing programme is updated alongside the HYEFU. 10-year swap spreads have returned to the multi-year lows. Bonds appear cheap, but lack a catalyst for a reversal, amid heavy issuance from the fiscal deficit and quantitative tightening.

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

Rates Strategist: NZ curve steepening overextended short term

• The NZ economy remains an outlier with very weak activity and inflation back at target. The RBNZ is expected to follow up its 50bp cut with a similar magnitude adjustment in November. A 75bp cut is being debated by market participants, and is partially priced, but is unlikely from our perspective.
• The back-up in global yields, related to US election uncertainty and a paring of Fed rate cuts, is creating value in NZGBs. Real yields are approaching the levels from late 2023 and cyclical signals are also supportive for duration.
• The NZ yield curve has bear-steepened, with 2y/10y trading to a fresh cycle high above 50bp. The recent steepening is showing signs of overshooting, both on an outright basis, and relative to comparison US and Australian curves.
• NZGBs are screening positively on a cross-market basis, contributing to a narrowing in spreads.

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

Rates Strategist: NZGB swap spreads near historic low

• Despite the positive price and cyclical signals from our objective duration framework, the extent of central bank easing already embedded in the curve makes us cautious about extrapolating recent moves lower, particularly at the longer end of the curve. We have a neutral view on duration and expect 10-year NZGBs to consolidate near 4%.
• NZGBs have continued to underperform relative to swaps and are approaching historic lows. Swap spreads represent medium term value, but a durable reversal will likely require a decrease in the government’s funding requirements. A pause or slowing of the pace of RBNZ QT could alter the trajectory for swap spreads.
• The 10y/30y NZGB curve steepening above 60bps appears to be an overshoot, relative to comparison markets and 10-year NZGB yield levels, with market technical indicators pointing towards a lack of investor demand for the ultras.

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

The Christmas Rush: GDP, HYEFU And All That

The week before Christmas traditionally brings a heap of economic news and data in NZ. This year is no different. Q3 GDP and the Government’s Half Year Economic and Fiscal Update (HYEFU) are headline grabbers. We see GDP at -0.4% q/q but warn of significant revisions. HYEFU will reflect economic pressures with deficits forecast and heightened funding requirements. November’s Selected Prices are already out and keep our Q4 CPI pick a bit above the RBNZ’s view. And there’s a ton of other data with PSI already out and the Balance of Payments, Merchandise Trade, and no less than three confidence surveys due. Merry Christmas!

Q3 Contraction Likely

As the ‘partial’ indicators for Q3 GDP tickle in, we haven’t seen anything yet to dissuade us of our long-held view that the economy contracted in that quarter. This week’s manufacturing, wholesale, and services data have the potential to fine tune Q3 GDP estimates, but it would take a material surprise to alter a general sense of softness. There’s a bunch of monthly indicators to monitor this week too.

First GDP Partials Arrive

The week ahead delivers two key indicators that will help us finalise our Q3 GDP forecast. Both are expected to support the view that economy activity contracted in the quarter. Net exports are forecast to make a negative contribution and we are anticipating a significant drop in building activity.

Will It Be 50?

The RBNZ is widely expected to cut the OCR by 50 basis points at its Monetary Policy Statement on Wednesday. A 50 point cut this week remains our base case, with further cuts expected ahead. Today’s Q3 retail sales, including another drop in core sales, underlines weakness in domestic demand. October’s consumption imports show signs of a turn, while stronger exports continue to support narrowing in the annual trade deficit.

November MPS Preview

Reasonable people could present sound arguments for rate cuts of 25, 50 or 75 basis points at the upcoming MPS. We’re sticking with a 50 point move but acknowledge the risks.

Trumped!

With all the noise surrounding the US election, we thought it worthwhile trying to summarise the likely impacts on the New Zealand economy following Trump’s resurrection. That said, we are very wary there may yet be a big void between what has been said in the run up to the election and what policy will actually be introduced so any predictions of likely outcomes, including this one, should be taken with a bucket load of salt.

Labour Market Loosening

This week’s data is expected to simply add confirming evidence of a loosening labour market. We expect the unemployment rate to rise to 5.0% in Q3, along with a quarterly decline in employment and the participation rate. Wage inflation is forecast to slow. None of this should come as a major surprise to markets, nor the RBNZ, with our forecasts similar to market medians and RBNZ’s projections. The RBNZ’s full Financial Stability Report is due out tomorrow, while Thursday’s Crown Financial Accounts for the 3 months to September will show how the fiscals are tracking against Budget baselines.

RBNZ Likes What It Sees

RBNZ Governor Orr’s speech, Q&A, and media interview last week made for some interesting reading and listening. It was good to hear the Governor’s thoughts. Data and events will continue to shape the policy outlook. Today’s filled jobs data for September were consistent with a deteriorating labour market and we expect more of the same in next week’s Q3 official figures. This week’s business survey will be mostly monitored for the latest on firms’ activity outlook, employment intentions, and inflation gauges. The RBNZ is scheduled to give an update on the housing market.

Next rate cut 75?

With recent market chatter of whether the RBNZ will cut 75bps or not in November, we thought we’d have a quick look at when previous RBNZ moves of 75bps or more occurred and why. We found three reasons. There is limited local data on the calendar this week, but a few RBNZ speakers to listen too.

CPI Preview: Back in the Band

The Q3 CPI is due out on Wednesday. It is highly likely to show another large drop in annual inflation putting it back inside the RBNZ’s target band for the first time since Q1 2021. We expect annual inflation to drop to 2.3% in Q3, from 3.3% in Q2. This matches the RBNZ’s published forecast. This would support further relaxation of monetary policy restraint. So do does ongoing subdued activity indicators with the latest PMI, PSI, and electronic card transactions data playing to that theme.

OCR Down But How Much?

The RBNZ is expected to lower the OCR on Wednesday. We favour a 50bp move, but it is a close call between that and a 25bp reduction. The latest incremental information has provided no more clarity. The Government’s full year accounts will reveal the exact size of the FY2024 deficit. Friday’s selected prices for September will add guidance to Q3 CPI, while the PMI will provide its usual guide to conditions in the manufacturing sector.

All Eyes On The QSBO

NZIER’s Quarterly Survey of Business Opinion (QSBO) tomorrow is the final major domestic data release scheduled ahead of the RBNZ’s October rate decision next week. It has the potential to change views. There are no polls for the QSBO, but it will be closely followed. Inflation and employment indicators will be among those of most interest to us.

BNZ Markets Today

US equities have recovered a little after the slump following the Fed’s policy update yesterday. The US 10-year rate has pushed higher and the curve has steepened. The USD DXY index has appreciated to a fresh two-year high, with the gain post the Fed meeting extended after a slump in the yen after a dovish BoJ update.

BNZ Markets Today

Global asset market markets were broadly stable ahead of the US Federal Reserve’s interest rate decision. The S&P was confined to a narrow range with the index consolidating just below its record high. Moves in European equity markets were also subdued with the Euro Stoxx closing 0.3% higher. The US Dollar remained well underpinned against G10 currencies and global bond yields are little changed with limited economic data or other catalysts to provide direction.

BNZ Markets Today

US equities are on the back foot, just over 24 hours ahead of the Fed’s policy announcement. The S&P500 is currently down 0.3%. Bank of America’s latest Global Fund Manager survey provides a warning sign for equities, with the cash weighting falling to just 3.9% in December and the equities indicator surging to a record high of a net 36% overweight, triggering a “sell” signal.

BNZ Markets Today

PMI data across Europe and the US showed increases for the services sector across the board, offsetting weakness in the manufacturing sector to support the composite indices. The euro area services index rose 1.9pts to 51.4, bouncing back from a weak November reading. For the UK, the services index rose 0.4pts to 51.4.

BNZ Markets Today

Global equities ended last week on a soft note with losses for major Asian indices and initial gains for US markets fading. The S&P ended the session flat and closed the week nearly 1% lower. The Hang Seng fell 2% after Chinese policy makers pledged to boost consumption, but failed to offer details on fiscal stimulus, which disappointed investors. Global bond yields moved higher, and the US dollar had a mixed performance against G10 currencies. Brent crude prices advanced to US$74.40 per barrel and extended its weekly gain to nearly 5%.

BNZ Markets Today

Movements have been modest across asset markets. The S&P500 is down 0.2% in early afternoon trading and the Nasdaq index is down 0.2% after closing above 20,000 yesterday for the first time. Deteriorating market breadth has been noted by some, with the S&P500 on track to record its ninth consecutive day of negative breadth (more stocks falling than rising), a rare feat and indicative of some underlying weakness in the market despite the headline indices that are widely quoted.

BNZ Markets Today

US equities advanced with CPI data matching expectations, which clears the way for a likely 25bp rate cut, by the Federal Reserve at the FOMC next week. The S&P gained 0.9% and the Nasdaq reached a fresh record high. Treasury yields oscillated in the period surrounding the CPI release but are little changed while the US dollar gained. The NZD fell sharply in early European trade, in line with other Asian currencies, after reports of a change in China’s currency policy but has since recovered.

BNZ Markets Today

The key market movement over the past 24 hours has been a whack to both the NZD and AUD following the RBA policy announcement yesterday afternoon. Surprising the market, the RBA made a dovish pivot, with Governor Bullock saying that the change in wording in the Statement was deliberate, following some softer data than expected and therefore “the Board is gaining some confidence that inflation is moving sustainably towards target”. The previous comment of not ruling anything in or out regarding policy was removed.

BNZ Markets Today

After a quiet start to the week, with the NZD (and AUD) and drifting lower and remaining out of favour, the market was brought alive after an announcement by China’s Politburo, following its December meeting. This meeting comes ahead of the Central Economic Work Conference later this week where the leadership announces key economic targets and priorities for the year ahead.

BNZ Markets Today

Markets are in a holding pattern ahead of the key US employment report tonight, with modest changes across equities, bonds and currency markets.
The only price action of note is Bitcoin smashing through the USD100k mark and reaching a high of USD103.8k before meeting resistance, continuing its storming run since Trump was elected. Earlier this week Trump nominated a crypto-friendly candidate Paul Atkins to replace the current SEC Chair Gary Gensler, seen to be hostile on crypto. Comments made by Fed Chair Powell, that he saw bitcoin not as a rival to the USD but to gold, helped fuel price gains in Bitcoin.

BNZ Markets Today

US equities made modest gains and treasury yields fell after the US labour market report, which saw pricing firm for a 25bp Fed rate cut, later this month. The S&P edged up 0.2% to close the week 1% higher. The US dollar ended on a firm footing, particularly against growth sensitive currencies, within the G10 basket. Brent crude prices traded towards US$71 per barrel. Official data revealed China’s central bank restarted gold purchases in November after a six month pause.

BNZ Markets Today

Global equities remained well supported with the S&P advancing to a fresh record high as investors looked ahead to comments from Fed Chair Powell. Stocks looked past economic data which revealed weaker than expected activity in the services sector. Treasury yields fell and the dollar is weaker against G10 currencies. The Korean won recovered after South Korean President Yoon lifted his order to impose martial law.

BNZ Markets Today

The big news overnight was a shock move by South Korea’s president to declare martial law on domestic political grounds. This follows months of wrangling and a deadlock in parliament between the president’s minority government and the main opposition Democratic party. Lawmakers voted 190 to 0 to request the lifting of martial law. South Korea’s military said it would uphold martial law until ordered to stop by the president. Korean assets tumbled, including the Korean won plunging nearly 3% at its low before recovering after a pledge of “unlimited liquidity” to support markets.

BNZ Markets Today

As the new week began, focus immediately turned to the bubbling political crisis in France. France’s Finance Minister said that “we will not be blackmailed” in response to Marine Le Pen’s threat to topple the government as soon as this week unless her party’s demands for changes to the Budget were met.

BNZ Markets Today

US equities ended the holiday shortened session on a positive note with the S&P gaining 0.6% and reaching a new record intra-day high. Reflecting the upbeat sentiment towards equities, EPFR data revealed that investors have allocated US$141 billion into US stocks over the past four weeks, which is the largest inflow on record. Euro Stoxx closed nearly 1% higher. Global bonds rallied while the yen appreciated and ended the week as the best performing G10 currency.

BNZ Markets Today

With US markets closed for the Thanksgiving holiday, news headlines overnight are Europe-centric. ECB President was interviewed by the FT and she urged Europe’s political leaders to co-operate with Donald Trump over tariffs and buy more products made in the US, warning that an acrimonious trade war risks wiping out global economic growth. Lagarde said that Europe should deal with a second Trump term with a “cheque-book strategy” in which it offered “to buy certain things from the United States”, such as liquefied natural gas and defence equipment. “This is a better scenario than a pure retaliation strategy, which can lead to a tit-for-tat process where no one is really a winner”.

BNZ Markets Today

US equity markets declined set against the backdrop of economic data, which was consistent the cautious pace of easing, outlined in the November FOMC minutes yesterday. The S&P is down 0.6% in afternoon trade, but remains close to its record high, reached earlier in the week. The US dollar fell sharply, which is likely attributable to month-end rebalancing flows, although lower treasury yields were likely a factor as well.

BNZ Markets Today

US equities are marginally higher in afternoon trade while treasury yields increased as investors digested President-elect Trump’s announcement that he would impose tariffs on Mexico, Canada and China at the beginning of his term. There was limited market reaction to upbeat US consumer confidence data. European equities declined with the Euro Stoxx closing 0.6% lower.

BNZ Markets Today

The US dollar opened the week lower on the major crosses and treasury yields fell sharply in response to President-elect Trump’s selection of Scott Bessent for Treasury Secretary. The nomination of Bessent, who is seen as a pragmatic pick given his deep familiarity with financial markets, is expected to prioritise economic and market stability.

BNZ Markets Today

Surprising falls in UK and Euro area PMIs against surprising strength in the US PMI drove down European yields and currencies on Friday while supporting the USD. The euro was down over 1½% to a fresh two-year low before recovering. The NZD was caught in the cross-fire and traded at a fresh low for the year before ending the week around 0.5835. US Treasuries remained in a consolidation mode while equity markets were stronger.

BNZ Markets Today

Ukraine-Russia war escalation continues, after Russia fired an intercontinental ballistic missile for the first time. Market reaction was muted, although European currencies continue to struggle. The NZD is also languishing below 0.59 and NZD/AUD dipped below 0.90. US Treasuries continue to consolidate. There were mixed US second-tier data releases overnight.

BNZ Markets Today

Newsflow remains light. US equities are weaker for the first day this week, ahead of Nvidia’s earnings release. US Treasury yields pared an earlier lift, after reports that Ukraine fired British-made missiles into Russia, leaving the 10-year rate little changed for the day. The USD is broadly stronger, seeing the NZD back below 0.59.

BNZ Markets Today

There has been some market volatility overnight, on geopolitical news, following Russia’s publication of an updated nuclear arms doctrine and Ukraine firing long-range missiles into Russia. This caused a risk-off move, but markets quickly settled, and the net impact has been small. US equities are slightly stronger, US Treasury yields are slightly lower and commodity currencies have outperformed. The NZD has pushed up just over 0.59.

BNZ Markets Today

It has been a quiet start to the week with little newsflow. US equities have bounced back after last week’s losses. US Treasuries are little changed, with the 10-year note finding support just under 4.5%. For a change, the USD is broadly weaker, falling against all majors apart from the yen. The NZD hit a fresh 2024 low below 0.5840 before recovering to 0.5885.

BNZ Markets Today

US equities ended the week on a soft note with the S&P closing 1.3% lower. The index has retraced close to half of the 5% gains made following the election. Comments by US Federal Reserve Chair Powell that there is no need to hurry to cut rates given the strong economy, also weighed on sentiment, with the market reducing the chance of a 25bp cut at the December FOMC. An initial sell-off in US treasuries after the release of retail sales reversed, and the dollar index ended unchanged, with divergent performance across major currencies.

BNZ Markets Today

Looking at market movements, the easiest story to tell is one of exhaustion of the post-election Trump trades. US equities are down modestly, and US Treasury yields have fallen, despite stronger than expected US economic data. The USD reached a fresh high before turning down. The NZD found support at 0.5850 and has recovered a little to 0.5875.

BNZ Markets Today

After the selloff in the previous session, front end US treasuries recovered following CPI data that matched expectations and raised expectations of a December rate cut by the Federal Reserve. US equity markets are little changed with major indices continuing to consolidate after the strong post-election rally. The US dollar extended its recent gains against G10 currencies.

BNZ Markets Today

The post-election surge in US equities has lost some momentum, as major indices consolidate near record highs, and investors look ahead to key US inflation data this evening. The S&P is marginally lower in afternoon trading. There were larger falls in European stocks with Euro Stoxx closing more than 2% lower. Treasury yields have moved sharply higher supporting the US dollar index which extended its uptrend. OPEC cut its oil demand forecasts for the fourth consecutive month with weak demand noted in China. Brent crude prices were little changed near US$72 per barrel.

BNZ Markets Today

Equity markets remained well supported to start the week. Post-election rotations continued with the economically sensitive Russell 2000 index of small-cap firms hitting the highest level since 2021. The S&P has advanced 0.2% by early afternoon in the absence of first-tier economic data or other catalysts. European equities made solid gains with the Euro Stoxx closing 1.2% higher.

BNZ Markets Today

The euphoria of Trump’s decisive win continued to reverberate through US equity markets as they notched up fresh record highs. For the same reason, the market continued to pare Fed rate cut expectations, driving a flatter US Treasuries curve, with higher short-term rates and a small fall in the 10-year rate. The USD was broadly stronger, with the NZD and AUD underperforming as China’s policy package was focused on a local government debt swap rather than stimulating consumer spending. The NZD closed the week near where it started, just under 0.5970.

BNZ Markets Today

Ahead of the Fed’s policy announcement soon after we go to print, there has been some reversal of the Trump trade in currency and bond markets, while US equities have continued to power ahead. The USD is broadly weaker, seeing the NZD push up through 0.60. US Treasury yields are lower, and the curve is flatter. The BoE delivered a 25bps rate cut, as expected, with guidance of further gradual rate cuts.

BNZ Markets Today

In the wake of a decisive victory for Trump and the Republican party at the US elections, market movements have been significant. US equities are up over 2% to a fresh record high, US Treasury yields are higher led by the long end with the 30-year rate up 20bps, and the USD is broadly stronger. While the NZD is down just over 1%, it has outperformed, with the drag from EM currencies including the yuan offset by the higher risk appetite backdrop.

BNZ Markets Today

As Americans head to the polls, market pricing has been consistent with “risk-on”, with stronger US equities, higher rates and a broadly weaker USD. The NZD and AUD have outperformed, more so the latter, following an RBA update that gave a reality check of inflation still being too high to warrant following the path of other central banks in easing monetary policy. The NZD is hovering around 0.60.

BNZ Markets Today

The week has kicked off with a reversal of the Trump trade as investors pared bets on him winning the presidential race. The USD is broadly lower and US rates are lower across the curve led by the long end. The NZD managed to temporarily rise above 0.60, but has settled at 0.5980 this morning, up 0.3% from last week’s close. Oil prices are up on OPEC+’s delay to increase supply and talk of Iran aggressively retaliating against Israel.

BNZ Markets Today

Global equity markets began the new month on a positive note despite weaker than expect US labour market data. The S&P closed 0.4% higher while stocks in Europe also advanced as investors look ahead to the FOMC and US election this week. Global bond yields whipsawed but ultimately ended higher after dropping immediately following the data. The US dollar was generally stronger against G10 currencies. After markets were closed, OPEC+ announced it plans to delay its December output hike by one month.

BNZ Markets Today

There has been plenty of newsflow to digest. US equities are ending the month on a weak note, reflecting weaker forward guidance by companies rather than macro forces. The reaction to the UK Budget continues to reverberate, with higher UK rates and a weaker GBP. The BoJ’s update, leaving the door open for a possible December rate hike, supported the yen. The NZD continues to languish and sits at 0.5960.

BNZ Markets Today

US equity markets struggled to gain traction, as investors remained focused on company earnings including technology companies Microsoft and Meta and digested robust US GDP data. The S&P is modestly higher in afternoon trading while European stocks declined despite Euro-area growth beating expectations. The Euro Stoxx index closed 1.2% lower. US treasuries moved modestly higher in yield and the US dollar index declined.

BNZ Markets Today

US equities are little changed in afternoon trade, amid mixed economic data, and ahead of key results from large US technology firms. Equities in Europe made a modest pullback with the Euro Stoxx closing 0.4% lower. Global bonds continued to move higher in yield and the US dollar index is marginally stronger. Brent crude prices stabilised near US$71 per barrel, following the recent sharp sell-off related to a reduction in the geopolitical risk premium, after Israel avoided striking Iranian oil facilities.

BNZ Markets Today

Since locals left for the long weekend, key market movements have been a plunge in oil prices, with Israel’s limited attack against Iran over, a weaker JPY following Japan’s Lower House elections which resulted in the ruling coalition losing its majority, and the Trump trade extending, with higher US Treasury yields, higher US equities and a broadly stronger USD. The NZD fell to a fresh multi-week low yesterday and continues to languish below 0.60.

BNZ Markets Today

Market movements have been modest, with US equities currently showing a small gain, while global rates are lower after their recent steady rise. Global PMI data were mostly in line with expectations, with small changes in October. Political polls continue to show rising support for Trump. The NZD shows little net movement overnight, back to 0.6020, after a minor rally to just over 0.6030.

BNZ Markets Today

The recent softer tone for global equities continued overnight, with the S&P down 0.9% in afternoon trade, and setting up for the third consecutive day of declines. The lacklustre performance of equities comes as investors have pared back bets on rapid policy easing, though the S&P is only ~1.5% below its all-time high, reached earlier in the month. European equity indices also closed lower. Global bond markets were mixed while the US dollar extended its recent gains. Spot gold prices pulled back from a record high, set in the Asian session, just below US$2760.

BNZ Markets Today

Global asset markets are little changed in the absence of first-tier economic data or other catalysts. US equity markets are marginally lower in afternoon trade with investors focused on corporate earnings. If the S&P closes lower, it will be the first back-to-back decline in more than a month. European equities pared earlier declines but still edged lower at the close. Global bond yields moved higher, and the US dollar is modestly stronger against developed market currencies. Oil prices increased close to 2%, with Brent Crude trading above $76 per barrel.

BNZ Markets Today

Global rates are broadly higher without a satisfactory explanation. US Treasury yields are up 7-9bps across the curve with some even larger moves in many European countries. Higher rates have driven weaker equity markets, with a modest fall in US equities in early afternoon trading. The USD is broadly stronger, with 0.6-0.7% falls for the NZD and AUD from last week’s close, seeing the NZD down at 0.6030.

BNZ Markets Today

Last week ended on a quiet note, but that didn’t stop US equities extending their record-breaking run. There were only small moves in US Treasury yields and currency movements were modest. The NZD traded a tight range and closed the week around 0.6070.

BNZ Markets Today

Stronger than expected US retail sales data saw the market pare the scope for easier Fed policy and drove higher US Treasury yields. The ECB cut rates and the market added to bets that the ECB would step up the pace of easing going forward against the backdrop of lower inflation and downside risks to growth. Currency moves have been modest but JPY and EUR underperformed. The AUD was supported after a strong labour market report and the NZD has range-traded around 0.6060.

BNZ Markets Today

Newsflow has been light, but US equities are currently in positive territory after yesterday’s weakness. Much weaker than expected UK CPI data pushed down UK rates, which spilled over into lower European rates and Treasuries. The USD is broadly stronger as the Trump trade continues. The NZD regained some poise after a dip following soft CPI data that saw the market bring forward NZ rate cuts. While the NZD is languishing around 0.6060, NZD/AUD and NZD/GBP crosses are higher.

BNZ Markets Today

The S&P retraced from its all-time high following news that US officials were discussing capping exports of advanced AI chips. Technology stocks also weighed on European markets. Chinese equities declined as investors wait for more details of a stimulus package first announced by Beijing in September. Officials from China’s housing ministry, finance ministry and the Peoples Bank of China will hold a briefing tomorrow to outline measures to support the property sector and bolster growth. Global bond yields declined, and the US dollar is little changed.

BNZ Markets Today

US equities continue their record-breaking run on the US public holiday, with the cash treasuries market closed. Market reaction to the underwhelming weekend policy announcement by China’s MoF was well contained. The USD is broadly stronger, and the NZD has settled just below 0.61, with only small movements on the crosses.

BNZ Markets Today

Global equity markets were well supported into the weekly close. The S&P closed above 5800 at another record high as banking stocks gained after reporting solid earnings. The KBW Bank Index hit the highest level since April 2022, on the back of better-than-expected results from JPMorgan and Wells Fargo. Both banks provided a positive commentary on the economy which supported the soft landing narrative. Global bond markets ended modestly higher in yield and the US dollar was stable against major currencies.

BNZ Markets Today

US equity markets are little changed with the S&P consolidating near record highs. There was limited lasting impact from higher than expected US CPI data. Global bond yields were little changed overall, and major currencies were mixed against the US dollar. Oil prices gained with Brent crude trading back to US$79 per barrel. Chinese equities remain volatile, and posted strong gains yesterday, as investors look ahead to the weekend briefing on fiscal policy by officials from the Ministry of Finance.

BNZ Markets Today

US equity markets remained well underpinned ahead of key inflation data with the S&P increasing 0.5% to a fresh record high. European equities also gained with the Euro Stoxx closing 0.7% higher. There was limited economic data to provide direction and Fed officials continued with the recent narrative of a gradual easing cycle. Treasury yields moved higher supporting the US dollar. The NZD remained heavy after the sharp fall following the RBNZ rate decision yesterday. Brent crude extended lower towards US$76 per barrel.

BNZ Markets Today

US equities have rebounded from the previous session with the S&P up 0.8% in afternoon trade, despite falls in Asia and Europe, after Chinese officials held off announcing more stimulus. The Euro Stoxx closed 0.4% lower. Global bond markets are little changed in the absence of first-tier economic data to provide direction. The US dollar was generally stable, and oil prices retraced from recent highs. Brent crude fell toward US$77 per barrel having traded above US$81 earlier this week.

BNZ Markets Today

Global bond yields continued to move higher with 10-year US treasuries trading back above 4%. This is the highest level since August, as investors continued to recalibrate the outlook for monetary policy, after the upside surprise to labour market data last week. US equities are marginally lower in afternoon trade while the Euro Stoxx index edged higher despite very weak German factory orders. The US dollar was mixed, and the NZD extended its recent fall.

BNZ Markets Today

Stronger than expected US labour market data contributed to large moves across financial markets into the end of last week. US treasuries led global bond yields higher as investors recalibrated expectations for easing by the Federal Reserve. The US dollar made broad based gains which saw NZD/USD trade below 0.6150. The prospect of a soft landing for the US economy outweighed concerns about escalating tensions in the Middle East and supported equity markets with the S&P advancing close to 1%. Brent crude prices reached US$79 per barrel before pulling back but are still ~9% higher over last week.

BNZ Markets Today

The market continues to trade cautiously, as it awaits Israel’s expected retaliation against Iran and key US employment data tonight. Oil prices are much higher on the fear on Iran’s oil facilities being a target. The combination of higher oil prices and a strong US ISM services survey has driven US Treasury yields higher. The USD is broadly stronger and GBP is the weakest of the majors, following dovish comments by BoE Governor Bailey.

BNZ Markets Today

Following yesterday’s volatile session, after Iran’s missile attack on Israel, markets are calmer as they await the next move. US equities are currently flat and US Treasury yields have pushed higher, a combination of some mean revision and a stronger than expected ADP payrolls figure. The yen is much weaker after dovish comments by Japan’s new PM and the BoJ Governor. The NZD has also underperformed overnight, probing lows near 0.6260.

BNZ Markets Today

Geopolitical factors have outweighed economic data releases in their market impact overnight. Iran launched a missile attack against Israel, resulting in a typical market response, with much higher oil prices, lower equities and lower rates. Safe haven currencies have outperformed. The NZD is down nearly 1½% from this time yesterday, including a 0.6% fall overnight, with underperformance following a soft QSBO, which supports the case for a more front-loaded RBNZ rate cut cycle.

BNZ Markets Today

China’s equity market continued to surge in the aftermath of last week’s policy stimulus announcement. The China trade has helped drive the NZD and AUD up to fresh highs for the year. Following last week’s soft euro area PMI data and sub 2% readings for regional inflation measures, ECB President gave a nod to another 25bps rate cut for the October meeting. A stronger ANZ business survey drove a turnaround in domestic rates yesterday and all eyes will be on the QSBO today.

BNZ Markets Today

Weaker CPI figures for France and Spain, following weak euro area PMI data earlier in the week, drove the market to price in higher odds of the ECB cutting rates at its next meeting. US PCE inflation metrics were also market-friendly, and added to the support seen for US Treasuries, with lower rates on Friday in the order of 5-7bps. The yen strengthened after an LDP candidate sympathetic to the BoJ’s tightening cycle got the nod to become the next PM. The NZD traded at a fresh high for the year in the afterglow of China’s smorgasbord of policy stimulus measures, while NZD/JPY fell over 1½% towards 90.

BNZ Markets Today

A pledge by China to provide further stimulus to promote growth has supported risk appetite and Asia-Pacific currencies. The NZD is up 1%, driving back up through 0.63. US and European equities have increased to fresh record highs. Stronger US economic data drove higher US Treasury yields, led by the short end, resulting in the curve flattening, a reversal of the pressure seen over the past week or so. Oil prices fell 3% after a report that Saudi Arabia is looking to raise production and accept lower oil prices.

BNZ Markets Today

Global equity markets are little changed in the absence of first-tier economic data or other catalysts. The S&P is marginally lower in afternoon trade while stocks in Europe also closed modestly lower. Global bond yields moved higher, and the US dollar bounced strongly off the recent lows. NZD/USD, which traded above 0.6350 yesterday, has fallen back below 0.6270.

BNZ Markets Today

Risk appetite has been supported by a smorgasbord of Chinese easing measures to support the economy, while the RBA update was seen as dovish and weaker US consumer confidence was also a market moving event. Equity markets are higher and global rates are lower as markets price in more Fed and ECB easing. Curves are steeper. Broad-based fall in USD evident, with NZD leading the charge, up to its highest level this year, above 0.6330 and NZD/AUD up to 0.92.

Outlook for Borrowers: Post November MPS

The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 50bp to 4.25% at the Monetary Policy Statement (MPS) on Wednesday. This aligned with consensus expectations - economists were unanimously forecasting a 50bp reduction in the OCR. The overnight index swap (OIS) market fully discounted a 50bp cut and was pricing a small chance of a larger 75bp reduction.

Outlook for Borrowers: Post October MPR

The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 50bps to 4.75% at the Monetary Policy Review (MPR) on Wednesday. This aligned with consensus expectations where most economists had anticipated a 50bps reduction in the OCR. The overnight index swap (OIS) market was pricing an approximate 90% chance of 50bps cut ahead of the decision.

More Milk Money

This season’s price outlook for dairy farmers has continued to strengthen. The early November GDT auction was buoyant, adding to the recent trend higher, seeing prices 23% higher than a year ago. Demand at the auction looked strong with the number of unsatisfied bidders above average, as was participation.