BNZ Research

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.

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

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.

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

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.

NZD Corporate FX Update

After a strong recovery through August, the NZD is due for a breather although our (unchanged) projections maintain a constructive medium-term outlook.

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

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.

Return to Trend-Decline

Job ads in August are down 28.2% on a year earlier, and excluding Covid, are at their lowest level since 2013. They fell 1.3% in August, unwinding some of their 3.5% lift in July. The August outturn continues the general downwards trend of the last two years.

External deficit reduction stalls

The current account deficit stood at the equivalent of 6.7% of GDP in the year to June 2024. This is of a size that is likely to keep the external accounts on rating agency radars.
Today’s result was a larger annual deficit than the market (6.5%) or we (6.3%) expected, although a touch smaller than the 6.9% seasonally adjusted figure the RBNZ projected in its August MPS. For us, the known revisions to exports of services were offset by other factors and revisions.

Slow Crawl

Activity in New Zealand’s services sector inched its way higher during August, although still firmly in contraction territory, according to the BNZ –BusinessNZ Performance of Services Index (PSI).

The PSI for August was 45.5 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was up 0.3 points from July, but still well below the average of 53.2 over the history of the survey.

BusinessNZ’s Director, Advocacy Catherine Beard said despite two consecutive months showing a lift in activity levels, the key index value for Activity/Sales (43.9) remains lackluster, while New Orders/Business (46.6) dipped slightly from July. On a more positive note, Employment (49.2) lifted to its highest result since March.

The proportion of negative comments for August stood at 60.8%, which was down from 67.0% in both July and June. Respondents continued to note the high cost of living and general economic conditions as reasons for ongoing tough times.

BNZ's Senior Economist Doug Steel said that "smoothing through monthly volatility, the PSI’s 3-month average remains deep in contractionary territory at 43.9. The PSI has been in contraction for six consecutive months which is the longest continuous period of decline since the GFC”.

Incremental improvement

New Zealand’s manufacturing sector showed further signs of improvement during August, although still in contraction, according to the latest BNZ –BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for August was 45.8 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 44.4 in July, but still significantly below the long term average of 52.6. The sector has now been in contraction for 18 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that the PMI is heading back in the right direction, but the pathway to eventual expansion after a year and a half being firmly in contraction mode means there is still some way to go.

“The key sub-index results for Production (46.3) and New Orders (46.8) were both the strongest they have been in a few months, with the former improving significantly from June. Employment (46.6) recovered somewhat from its June/July dip, while Finished Stocks (46.2) was all but unchanged from July".

Given the ongoing improvement in activity for August, the proportion of negative comments stood at 64.2% for the current month, compared with 71.1% in July and 76.3% in June. Negative comments typically focused on the general economic recession, including lack of demand and cost of living.

BNZ’s Senior Economist Doug Steel said that “while business confidence and building consent indicators have ticked up from their very low levels offering potential for improvement over the coming 12 months, the PMI is an indicator of outcomes and continues to show that current conditions remain challenging”.

Monthly Prices Affirm Q3 CPI View

Today’s selected prices data for August gives us no cause to alter our general thinking for Q3 CPI. There was a range of ups and downs in the details, which is usually the case for these wobbly monthly indicators, but the overall net result was close to our priors.

Relief

We thought there would be a bounce in economic confidence following the dovish tones, subsequent interest rate reduction and projection of more from the RBNZ. Today’s ANZ business confidence survey confirmed a bounce. It was sizeable.

Business confidence lifted to a 10-year high, punching up to 50.6 in August, from the 27.1 in July which was already up from a low 6.1 in June. It is interesting that the August business survey details suggest a bounce was well under way before the RBNZ cut the OCR at its August meeting. This suggests the confidence swing was well underway following the dovish pivot in July, as we suggested last month. In any case, it just goes to show what a difference a few months and some relaxation in tight monetary conditions can do following a period of tightness.

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

August ascent after July Jolt for NZD

• After a volatile start, calm was restored to markets in August; by month-end the episode was long-forgotten.
• Despite the RBNZ significantly bringing forward the rate cutting cycle, the NZD outperformed, rising 5% against the USD.
• NZD crosses were all stronger, making up for the poor performance over July; NZD/JPY traded a range of over 8 big figures.

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.

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.

Trade Subdued

Today’s August trade figures looked a lot like the economy overall, weak. Both exports and imports were marginally lower than a year ago. The annual trade deficit continues to narrow, despite an aircraft import boost and export dent from energy sector issues appearing. A strong dairy season outlook will support exports ahead. Job ads continue to trend lower. Consumer confidence update due.

GDP to confirm economic struggle

This week’s GDP figures are expected to confirm economic weakness in Q2. It seems probable that the economy contracted in the quarter, and seems likely the contraction is no more than the -0.5% q/q built into the RBNZ’s August MPS. Something along these lines would support the case for further easing in monetary restraint but no reason for the Bank to see the need to quicken the pace of easing restraint beyond what it has already outlined. Of course, other factors may yet do so. We see the annual current account deficit narrowing to 6.3% of GDP from Q1’s 6.8%.

Partial Indicators To Guide On GDP

Forward-looking and timely high frequency data have tended to be ‘less bad’ of late and some have even turned outright positive. But this week’s backward-looking Q2 figures for manufacturing, wholesale trade, and services are expected to back our view that GDP contracted in that quarter. The PMI and ECT will give guidance on activity in August, while Selected Prices for that month will further shape thoughts on Q3 CPI.

GDP looking sick

It comes as no surprise to us that both business and consumer confidence were reported to have risen in August. The drop, and expected further falls, in the OCR were undoubtedly going to engender a widespread sigh of relief. Rate cuts are almost always a harbinger of better times ahead. The problem, of course, is that the set of circumstances that allows rates to be cut in the first place is usually an indication of economic malaise. And it will take some time for that malaise to be assuaged by easing monetary conditions.

A confidence bounce?

With interest rates falling it’s likely confidence, both consumer and business, will start to move higher. In the first instance just removing the fear of higher rates from those who are under the pump will be a huge weight off the shoulders of many. For others it will not be long before there are genuine cash flow impacts as their mortgages reset at lower levels. For corporates this will be a while longer but future rate relief will still be greeted with open arms.

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.

BNZ Markets Today

Weaker euro area PMI data drove down rates in the region and dragged down the euro. UK PMI data weren’t as soft, while the US services PMI remained robust and inflation indicators were stronger. A move higher in US Treasury yields proved temporary and rates are now slightly lower across the curve. Commodity currencies have outperformed, with the NZD up to 0.6280 and NZD/EUR up 1% towards 0.5650. Equity markets show modest gains.

BNZ Markets Today

Global equities couldn’t extend the previous Fed-inspired rally on Friday night with the S&P closing modestly lower while European stocks made larger declines. The Euro Stoxx index fell 1.5%. There was limited first-tier economic data to provide the market with direction. Global bonds ended the session marginally higher in yield while the dollar was generally firmer against G10 currencies. Gold hit a fresh record high above US$2600 per ounce.

BNZ Markets Today

In the afterglow of the Fed’s jumbo 50bps rate cut, US equities show a strong lift to fresh record highs while the US Treasuries curve has steepened further, with longer term yields pushing higher, not helped by jobless claims falling and higher oil prices. The USD is broadly weaker. Against a backdrop of higher risk appetite, the NZD has recovered to 0.6250. GBP outperformed after the market pared rate cut expectations following the BoE’s on-hold decision.

BNZ Markets Today

Global asset markets were generally stable overnight ahead of the widely anticipated US Federal Reserve’s (Fed) interest rate decision. The Fed began its easing cycle with a 50bps cut in the Fed Funds Rate. This was larger than the economists’ estimates for a 25bps reduction, but market pricing implied around a 70% chance of a larger 50bps cut. It was not a unanimous decision with Governor Michelle Bowman dissenting in favour of a 25bps reduction. The US dollar fell alongside treasury yields while equity markets gained immediately following the decision.

BNZ Markets Today

The S&P reached a new record high intra-day, before paring its gains to be little changed in afternoon trade, as investors look ahead to the September FOMC. US retail sales for August was broadly in line with expectations and didn’t provide the market with additional guidance for the size of the Fed’s first rate cut in the easing cycle. Stocks in Europe gained with the Euro Stoxx advancing 0.7%. Global bond yields are modestly higher, and the US dollar is generally stronger against G10 currencies.

BNZ Markets Today

US rates are lower across the board on rising bets that the Fed will front-load the easing cycle, starting with a 50bps rate cut later this week. Lower rates have supported US equities but have worked against the USD, which is broadly weaker. The NZD has recovered to 0.6190 and USD/JPY made a brief foray below 140. Domestic rates continue to follow the lead of the US market, with substantial easing priced in over coming meetings, much closer to a run of 50bps rather than 25bps cuts.

BNZ Markets Today

Markets closed on Friday with the pricing for the Fed’s first easing for the cycle this week at a toss up between 25bps and 50bps, with media reports adding to the “confusion”. The US Treasuries curve steepened further, with a short end-led rally in bonds. Lower rates supported US equities, adding to the strong gains for the week. Commodity currencies slightly underperformed, seeing the NZD close the week just below 0.6160.

BNZ Markets Today

US equities traded higher despite data which showed US wholesale inflation picked up in August. The S&P is up 0.7% while the Euro Stoxx closed more than 1% higher following a 25bp rate cut by the European Central Bank (ECB). Treasuries moved higher in yield and the US dollar was generally weaker. Oil prices gained almost 2% after a storm disrupted production in the Gulf of Mexico. Brent crude has rebounded above US$72 per barrel. Gold prices hit an all-time high above US$2550 per troy ounce.

BNZ Markets Today

There has been some volatility in markets overnight. US equities recovered early losses to now show a decent gain. US CPI data drove a swing in US Treasury yields and slightly higher core inflation sees the curve flatter and slightly higher. Trading in the yen has been choppy but less so for the NZD, which shows some modest underperformance, with NZD/USD down to 0.6135 and NZD/AUD falling below 0.92.

BNZ Markets Today

The key market move has been a further chunky fall in oil prices, down in the order of 3½-4%, taking Brent crude below USD69 per barrel. Lower oil prices have supported lower interest rates, with US Treasury yields probing fresh lows. US equities are modestly higher while in currency markets JPY has outperformed, against the backdrop of lower global rates. The NZD is up slightly around 0.6155 and higher on the key major crosses apart from a fall in NZD/JPY.

BNZ Markets Today

Newsflow has been light to start the week. US equities have rebounded after last week’s hefty loss but otherwise market movements have been well contained. US Treasury rates show net movements of 3bps or less from last week’s close, while the USD shows a modest broadly based gain. The NZD trades around 0.6150 this morning.

BNZ Markets Today

Weaker than expected US labour market data contributed to volatility across financial markets on Friday night. Growth sensitive assets traded lower with large falls across global equities. The S&P fell 1.7%, extending its weekly decline to 4.3%, the largest since March last year. US treasury yields whipsawed but ultimately ended lower in yield. The US dollar index made modest gains. Oil remained soft – Brent crude traded below US$71 per barrel – which is the lowest level in eighteen months.

BNZ Markets Today

Global equity markets remain soft with the S&P modestly lower in afternoon trade, and facing its third consecutive daily loss, as investors look ahead to the key US payrolls data later this evening. European equities fell – the Euro Stoxx declined 0.7%. Treasury yields are modestly lower in choppy trade and the US dollar is weaker against G10 currencies.

BNZ Markets Today

Further signs of cooling in the US labour market contributed to lower yields across bond markets and global equities remained soft after the sharp decline in the previous session. The S&P opened lower and is currently close to flat. Equities fell in Europe – the Euro Stoxx closed 1.3% lower – and Asian stocks also declined with the Nikkei falling 4%. The US dollar fell with the move concentrated against the yen. Brent crude traded below US$73 per barrel to fresh lows for the year. It was reported that OPEC+ members are close to agreement to delay a planned production increase amid weak global demand and increased supply.

BNZ Markets Today

Global equity markets came under pressure as US investors returned from the long weekend. The S&P fell more than 1.5%, the largest fall since the volatile period at the beginning of August. US equities extended their decline after a soft manufacturing ISM report. Equities in Europe also fell declined amid the rising risk aversion with the Euro Stoxx falling more than 1%. Global bond markets rallied, and the US dollar was broadly stronger.

BNZ Markets Today

Asset markets were confined to narrow ranges with limited economic data and the Labor Day holiday in the US weighing on market activity. European equities made modest gains with the Euro Stoxx index advancing 0.3%. US S&P futures are little changed since the open yesterday and have maintained the gains from the sharp rally into month end at the end of last week. Asian stocks declined reacting to the lacklustre Chinese PMIs released in the weekend with the Hang Seng losing 1.7%. European bonds moved higher in yield while the US dollar was mixed against G10 currencies.

BNZ Markets Today

After a volatile beginning to the month, the S&P gained 2% in August. The index rebounded from an earlier dip on Friday, to close 1% higher, supported by benign US inflation data. The Euro Stoxx was little changed while Asian equities ended higher. Chinese property stocks were underpinned by news that policy makers are considering allowing homeowners to refinance as much as US$5.4 trillion in mortgages. Global bonds ended higher in yield and the US dollar advanced. Oil prices fell sharply after it was reported that OPEC+ plans to proceed with previously announced output hikes in coming months.

BNZ Markets Today

US Treasury yields are slightly higher after an upward revision to US GDP, driven by consumer spending, and this has helped support the USD, with added support as EUR weakened following weaker German CPI inflation. Most US equities are higher, with a fall of 6% for Nvidia a drag on the S&P500. A stronger ANZ business outlook survey supported the NZD yesterday although it has slipped modestly overnight to 0.6260.

BNZ Markets Today

Newsflow remains light. US equities have edged higher, US Treasury yields show small movements but a clear curve steepening bias, and the US is broadly weaker. The NZD is probing a fresh seven-month high just over 0.6250 and is up for the day on the key crosses.

BNZ Markets Today

Markets are consolidating following the initial excitement following Chair Powell’s Jackson Hole speech at the end of last week. US equities are down modestly, US Treasuries show small changes, and the USD is slightly stronger. The NZD has given up some of its big gain last week and has settled just over the 0.62 mark. Oil prices surged 3% due to Libya domestic issues rather than rising geopolitical risk.

BNZ Markets Today

Fed Chair Powell’s Jackson Hole speech on Friday was much anticipated and his nod to commencing interest rate cuts from September and protecting the labour market were music to the ears of investors. Risk appetite increased, with US equities up over 1%, Treasury yields fell led by the short end, the USD was broadly weaker and commodity currencies outperformed as commodity prices rose. The NZD ended the week just over 0.6230, its highest level since January and it was higher on all the key crosses. The new week begins with increased tension in the Middle East after Israel and Lebanon exchanged missile attacks.

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.

Signs Of Change in Meat Prices

It is no secret that sheep and beef farmers have been facing very challenging economic conditions. But let’s start with some positive news. Beef and lamb prices have increased over the past four months, with the former up nearly 16% and the latter up 21%.

We say this not to suggest that prices are strong, far from it in lamb’s case, but rather to acknowledge some changing dynamics of late. Rising prices at this time of year is not unusual, but the gains over recent months have been a bit more than normal.