BNZ Research

NZD Corporate FX Update

Despite the strong recovery in the NZD it remains “cheap” and we maintain a positive outlook

After falling through the first four months of the year, the NZD staged a strong 4½% recovery in May and has extended gains into early June, to reach a three-month high just over 0.62. There have been multiple driving forces and, despite the strong recovery, the NZD remains fundamentally cheap against our short-term fair value model estimate, which has been hovering around 0.67 through most of 2024.

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NZD Corporate FX Update

The NZD continues to languish near 0.60. Our April forecast revision with a target of 0.60 by end-June allowed for the trading range to extend down to as low as 0.58 but, so far, the intraday low has been 0.5852.

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Delayed Fed easing = delayed NZD/USD recovery

For some time, the underlying assumption driving our FX forecasts has been the beginning of a US Fed easing cycle would drive broad-based USD weakness, allowing a sustained recovery for the key majors. The Fed kick starting a tightening cycle from March 2022 and expectations of tighter policy in the months leading up to that period, drove a significant upturn in the USD and a policy reversal was seen to be critical for any sustained USD downturn to prevail.

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QSBO says inflation beaten

In our humble opinion, today’s Quarterly Survey of Business Opinion (QSBO) screams cut rates sooner rather than later. Indeed, this is our central view. But we still think the RBNZ will want to see inflation within its target band before it pulls the trigger and that could be some time away.

Some More Progress

Inflation indicators are generally moving in the right direction. But they need to fall further to be consistent with the RBNZ desires.
Firms’ inflation expectations in this afternoon’s ANZ business survey eased a bit further to 3.46% from 3.59% in May. More progress toward the inflation target band. These levels are consistent with annual CPI inflation printing in the 3s in Q2, as seems to be the consensus view (no official polls yet).

Economic Weakness Continues

The economy grew 0.2% in Q1, to be up 0.3% on a year ago. The quarterly rise was marginally above market expectations of +0.1%.
The positive sign on quarterly growth might excite some with headlines of the country lifting out of recession. We think that would completely miss represent the big picture. Economic weakness prevails.

Narrowing But Large

The current account deficit stood at the equivalent of 6.8% of GDP in the year to March 2024. This matched market expectations, although was a little larger than the 6.6% we anticipated.

The annual deficit is still a touch narrower than the 6.9% reading in the previous quarter and is meaningfully smaller than the 8.8% it peaked at in 2022. The deficit is smaller than it was, but it is still relatively large. We suspect that combined with weak economic growth, the deficit will remain on the radars of rating agencies.

Bottom of the Barrel

Activity in New Zealand’s services sector dropped to its lowest level of activity for a non-COVID lockdown month since the survey began, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for May was 43.0 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 3.6 points from April and the lowest level of activity for the sector for a non-COVID lockdown month since the survey began in 2007.

BusinessNZ chief executive Kirk Hope said that the May result was as bad is it can get for the sector, reaching contraction levels greater than during the Global Financial Crisis of 2008/09. While most of the sub-index values didn't reach their lowest ever levels, combined they led the May result well below the long-term average of 53.3. The key index values for Activity/Sales (40.9) and New Orders/Business (42.6) were both in significant contraction, while the Stocks/Inventories (42.4) activity level was the lowest recorded for a non-COVID month.

The proportion of negative comments for May (65.4%) was similar to April (66.3%). Given the overall result, respondents continued to note the typical aspects of the current economic downturn.

BNZ's Senior Economist Doug Steel said that "the speed of decline is as worrisome as its size over the past three months. There is weak and then there is very weak. Overall, this tells of a services sector in reverse, at pace”.

Lack of orders

Activity in New Zealand’s manufacturing sector experienced a drop in May and ongoing contraction of the sector, according to the latest BNZ –BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for May was 47.2 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 48.8 in April, and means the sector has now been in contraction for 15 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that there was little in the May result to signal a positive turnaround in the sector is coming soon.

“The key sub-index result of New Orders (44.4) remains stubbornly in contraction, and a clear impediment to overall expansion in the sector. To put this into perspective, during the Global Financial Crisis of 2008/09 New Orders remained in contraction for 14 consecutive months. The current results are now a third more than that with New Orders now in contraction for 21 consecutive months. Production (44.5) reverted back to current trends after a surprise expansion in April, although Employment (50.6) did remain in expansion following the expansionary April result.

Despite the dip in the May result, the proportion of negative comments stood at 63.5%, which was down from 69% in April and 65% in March. The vast majority of negative comments focused on a general slowdown and the tough recessionary times at present".

BNZ’s Senior Economist Doug Steel said that “PMI readings to date this year are consistent with falling manufacturing GDP. We anticipate next week’s Q1 GDP figures to include a contraction in the manufacturing component. The latest PMI indicators suggests Q2 will also be weak and potentially weaker than we already anticipate”.

Trend Decline Extends

There has been no respite in the trend decline in job ads. Job ads fell 4.8% in May. This follows a similar sized drop in April, taking job ads’ annual decline to 30.5%. Aside from Covid lockdown periods, job ads are at their lowest level since February 2016.

Painful

Most interest in today’s ANZ business survey was in its inflation gauges. Inflation expectations have been steadily and consistently falling each month for well over a year, but firms’ pricing intentions had become a bit sticky. Both eased in May.
Inflation expectations fell to 3.59% from April’s 3.76%. This is at a level consistent with annual CPI inflation falling into the mid-3s in Q2. Indeed, a further decline in the final month of the quarter would raise some downside risk to the RBNZ’s (and our) current Q2 CPI inflation forecast of 3.6%.

Retail Wriggle

It has not been seen for more than two years. A lift in real quarterly retail sales. The lift might surprise a few or at least have them wondering how sales can increase in the current economic climate. It’s noisy data. The retail sector remains under significant duress.

RBNZ Hawkish

The Reserve Bank of New Zealand has today delivered a clear warning it is still thinking about raising rates. We don’t think this will happen, but a shot has been clearly fired across the bow.

The RBNZ left the cash rate at 5.5% at today’s Monetary Policy Statement but, contrary to popular opinion, raised its modelled cash rate track. And, in the summary record of meeting, the tone was unequivocally hawkish. Indeed, it was noted that the Monetary Policy Committee contemplated raising rates at this meeting. To cap things off, the rate track has a peak of 5.65% implying there is a greater than even chance of a rate hike.

Struggle street

New Zealand’s services sector continued to contract further in April, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for April was 47.1 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 0.1 points from March and the lowest level of activity for the sector since January 2022.

BusinessNZ chief executive Kirk Hope said while the April result was all but the same as March, the sub-index results outlined a difficult time for the sector as a whole. Although Activity/Sales (46.5) improved slightly, New Orders/Business (47.1) continued to fall backwards, while Employment (47.1) dropped to its lowest result since February 2022. Supplier Deliveries (47.6) also dropped to its lowest point since November 2022.

The proportion of negative comments from businesses continued to march upwards over April (66.3%), compared with 63.0% in March and 57.3% in February. A noticeable proportion of respondents noted the current difficult economic times, along with lingering inflationary issues.

BNZ's Senior Economist Doug Steel said that "combining today’s weak PSI with last week’s PMI yields a composite reading that would be consistent with GDP tracking below year earlier levels into the middle of this year. That is what we expect and, if anything, the combined index suggests some downside risk to our forecasts”.

Another fall

Job ads fell 4.4% in April. It extends the downtrend that started in mid-2022. The trend measure itself suggests the rate of decline has slowed over recent months. Job ads are 29.6% lower than a year ago. Aside from Covid lockdown periods, job ads are at their lowest level since April 2016.

To and Fro

Activity in New Zealand’s manufacturing sector experienced a pick up during April, although still remained in contraction, according to the latest BNZ –BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for April was 48.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up from 46.8 in March, although still lower than the 49.1 recorded in February. The sector has now been in contraction for 14 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that despite ongoing contraction in the sector, there were a few positive aspects to the April result.

“The key sub-index result of Production (50.8) returned to expansion for the first time since January 2023, as well as Employment (50.8) and Finished Stocks (50.4) also both returning to slight expansion. In contrast, New Orders (45.3) remained firmly in contraction, although showing a slight improvement from March. Despite the small improvement in April, the proportion of negative comments again increased to 69%, compared with 65% in March and 62% in February. An overall lack of sales and orders was the dominant theme in comments, along with a struggling economy".

BNZ’s Senior Economist Doug Steel said that “the PMI this year to date is consistent with manufacturing GDP trailing year earlier levels. However, the details were a bit more mixed in April, rather than uniformly weak as has been the case over recent months”.

Labour market softens

In totality, today’s labour market data were a smidgen softer than we anticipated. The 4.3% unemployment rate for the March quarter was bang on our expectations but both employment (-0.2%) and the participation rate (71.5%) surprised to the low side. Capping things off, the underutilisation rate rose to 11.2% from 10.7% to be more than two percentage points higher than where it stood this time last year.

Growth Optimism Unwound

This afternoon’s ANZ business survey had two key messages. First, the previous post-election bounce in real activity is rapidly unwinding and is outright weak, if not negative. Second, inflation indicators are mixed.

CPI Nothing to Write Home About

There was nothing in today’s CPI release that should have changed anyone’s view of the world. The 0.6% increase in the March quarter was bang on consensus as was the 4.0% annual reading. Sure, the numbers were greater than the RBNZ projected when it produced its February Monetary Policy Statement but, in our opinion, it’s not enough to spook the Bank.

Lost momentum

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

The PSI for March was 47.5 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was down 5.1 points from February and well below the long-term average of 53.4 for the survey.

BusinessNZ chief executive Kirk Hope said that the drop back into contraction halted the momentum that the sector had experienced for the first two months of 2024. Both Activity/Sales (44.8) and New Orders/Business (48.3) fell back into contraction, although Employment (50.1) did manage to show the smallest amount of expansion since November 2023.

The proportion of negative comments from businesses rose to 63.0% in March, compared with 57.3% in February and 53.0% in January. A number of respondents noted the current recession, as well as ongoing inflationary/cost of living effects.

BNZ's Senior Economist Doug Steel said that "combining today’s weak PSI activity with last week’s similarly weak PMI activity, yields a composite reading that would be consistent with GDP falling below by more than 2%compared to year earlier levels. That is much weaker than what folk are forecasting”.

One step back

Activity in New Zealand’s manufacturing sector experienced stronger contraction during March, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for March was 47.1 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 49.1 in February and the lowest result since December 2023. The sector has now been in contraction for 13 consecutive months.

BusinessNZ’s Director, Advocacy Catherine Beard said that it was a case of two steps forward, one step back with improving activity levels for the first two months of 2024 being undone somewhat by the March result.

“The key sub-index results for New Orders (44.7) and Production (45.7) both experienced a noticeable drop, while Employment (46.8) was at its lowest level since October 2023. In addition, the proportion of negative comments increased to 65% in March, compared with 62% in February and 63.2% in January. A lack of orders was again mentioned by numerous respondents, along with the general economic slowdown".

BNZ’s Senior Economist Doug Steel said that “the PMI’s average for the first quarter of the year is consistent with manufacturing GDP posting another quarter that is below that of a year earlier”.

RBNZ Sticks To The Script

The RBNZ held its cash rate at 5.50% this afternoon. This was as we expected and expected by all and sundry. It was fully priced by the market. So, no surprise there. In fact, in the big picture there was no surprise whatsoever to us in the very short statement issued today.

Job ads still trending lower

Labour market conditions continue to show softening trends. Job ads eased 0.4% in March, to be down 27.2% on a year ago. There is more evidence of some moderation in the pace of decline, but still nothing to indicate any material improvement is likely any time soon.

QSBO Soft

A weak economy and broad disinflationary pulse were writ large across this morning’s NZIER Quarterly Survey of Business Opinion (QSBO). Inflation gauges themselves are generally heading in the right direction but remain higher than would be consistent with annual inflation at the RBNZ’s target midpoint.

NZD consolidates in June

• After the strong performance in May, NZD/USD consolidated in a tight range in June, closing the month down less than 1%.
• NZD/AUD fell just over 1% after a weak run of NZ economic data and stronger than expected Australian inflation data.
• JPY was the worst performer, reflecting the BoJ’s reluctance to tighten policy; NZD/JPY traded at its highest level since 1986.

Kiwi flies through May

• After a poor run through the first four months of the year, NZD/USD bounced back strongly in May, up 4½%.
• A broadly weak USD, higher risk appetite, higher commodity prices and a more hawkish than expected RBNZ were factors.
• The NZD’s outperformance saw it higher on all the key crosses, including reaching a 17-year high against the beleaguered yen.

NZD remained soft in April

• Positive inflation surprises in the US drove higher rates, spilling into other markets, and a broadly stronger USD
• The NZD hit fresh lows against the USD and AUD, but with modest net depreciation overall
• JPY was the weakest major by far, following higher global rates and the BoJ remaining dovish; NZD/JPY rose almost 3%

NZGB bond programme increased at BEFU

New Zealand Debt Management (NZDM) updated the borrowing programme alongside the Budget Economic and Fiscal Update (BEFU). Government funding requirements have increased by a further NZ$12 billion compared to the Half Year Economic and Fiscal Update (HYEFU) in December, reflecting a weaker fiscal outlook than previously expected. The further increase in the bond programme takes place against a backdrop of already elevated issuance from a historical perspective.

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Outlook for Borrowers: Post April MPR

The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady at 5.5% at the Monetary Policy Review (MPR) on Wednesday. The statement, accompanying the expected ‘on hold’ decision, indicated there is little change in the Bank’s assessment of the economy and inflation outlook from the February Monetary Policy Statement (MPS). The Monetary Policy Committee is ‘confident that maintaining the OCR at a restrictive level for a sustained period’ will return inflation to target this year.

RBNZ MPR Preview

We believe the RBNZ will ultimately ease much earlier than it currently assumes. But, equally, there are a number of conditions that will have to be met before it springs into action. We still reckon February 2025 is the most likely starting point but think that by November of this year the necessary conditions will be met for the RBNZ to give a clear indication of its intent to move early in the New Year.

More Slack Ahead

Lead indicators point to weak economic conditions continuing. That promises more economic slack opening up this year. Recent RBNZ research suggests that could have a bigger downward influence on inflation that before. But the Bank also sees opposing risk of inflation remaining persistent. Interest will be on inflation gauges in this week’s confidence surveys, but we’ll be watching the growth and labour market indicators too.

One After Another

We think this week’s Q1 GDP figures will be weak, but noisy. Even if growth can manage a positive sign in Q1, the latest run of indicators including the PMI and PSI suggest increasing downside risks to growth ahead. Softer demand indicators raise the chance that the RBNZ reduce the OCR earlier than projected. But components of inflation may keep the RBNZ wary in the near term. RBNZ Chief Economist to talk on inflation this week. A weak economy and a large current account deficit will remain on the radars of rating agencies.

GDP Preview: Still Struggling

The economy still looks like it is bumping along the bottom and contracting on a per-capita basis. The ‘partial’ indicators suggest GDP struggled to grow in Q1. A flat to negative outcome would be a touch lower than what the RBNZ had factored into its May MPS. On the inflation front, Friday’s selected prices for May will be assessed for guidance on Q2 CPI.

Oil, Power, and Growth Indicators

Any major deviation from our priors for this week’s range of GDP ‘partial’ indicators could have implications for our pick for Q1 activity, although shouldn’t change the main message of softness. OPEC+ and ComCom decisions suggest opposing forces for energy prices. The aluminium smelter deal looks growth positive.

Economy Pressuring Budget

A structural deficit and cyclical pressures make for an awkward backdrop for a Budget. But that is the current situation, leading into the Government’s Budget on Thursday. Given the economic pressures, we expect to see larger fiscal deficits and funding programme than published in the Half Year Economic and Fiscal Update (HYEFU).

Holding Tight

The RBNZ Monetary Policy Statement (MPS) is due for release on Wednesday. We expect the OCR to be held at 5.50%. On the outlook, we wouldn’t be surprised to see the RBNZ broadly repeat its previous messaging as it weighs up mixed data and ahead of known unknowns like the details of the Government’s Budget. Large net migrant inflows are cooling rapidly with implications for growth and inflation.

May MPS Preview

We expect the Reserve Bank’s view of the world, as espoused in its upcoming Monetary Policy Statement, will be largely unchanged from what it said back in April. Sure, inflation has been higher than it had anticipated and risks of further near-term upside remain but growth is surprising to the low and unemployment to the high indicating that any near term inflationary issues should dissipate in time.

Softening Affirmed

Last week’s Q1 labour market data affirmed our view of a softening market, and we see further softening ahead. Understandably, the RBNZ gave no sense of material surprise to last week’s information. Inflation information and the Budget look the more important events on the local calendar to shape the Bank’s view.

Employment Outpaced?

We expect this week’s HLFS to show an increase in employment and unemployment. We think labour supply is expanding faster than labour demand such that we think the unemployment rate will rise. This will put downward pressure on wage inflation. This week’s business survey looks prone to some general softening, but will the pricing indicators follow others downward? RBNZ’s FSR is due Wednesday.

A Peak Into Next Week’s Labour Market Data

Next week’s labour market reports are the next domestic data focus. We think they will generally confirm softening in the labour market, although not substantially different from what the RBNZ anticipate. Data this week is expected to show the annual trade deficit continuing to narrow, while consumer confidence is expected to remain weak.

Plain miserable

The last seven days has produced a simply miserable set of real economy data which has us questioning whether our expectations for an end-year turnaround are premature. The only redeeming feature is that the economic weakness supports our expectation that inflation will continue to trend lower. Indeed, we have revised down our Q1 pick for CPI inflation, published this Wednesday, to 0.6% delivering an annual 3.9%. It’s still above the RBNZ’s pick but not enough to cause it any great worry.

RBNZ In Wait and Watch Mode

We expect the RBNZ to hold the OCR at 5.50% this week. In our opinion, the Bank could easily cut and paste the policy assessment it delivered back in February. No change is the unanimous view of those in market polls and is fully priced by the market. Datawise, Tuesday’s QSBO will be well worth a look. We expect the business survey to confirm slack in the labour market, but we also have interest in its near-term indicators for pricing, activity, employment, and investment. Friday’s March price indexes will complete their guidance for Q1 CPI.

BNZ Markets Today

The S&P powered to a fresh record high close, in a shortened trading session, ahead of the July 4 US holiday. A series of weaker than expected economic prints, headlined by services ISM, strengthened the case for Fed rate cuts this year. European equities also had a strong session with the Euro Stoxx gaining more than 1%. Global bond yields fell led by a rally in treasuries and the US dollar made broad based losses against G10 currencies.

BNZ Markets Today

US equity markets eked out modest gains in a continuation of the recent narrow trading ranges as the market consolidates the strong rally in June. The S&P is up 0.4% in early afternoon trading, and recovered off the session lows, after Fed Chair Powell made comments that disinflation appears to be resuming. European equities closed lower with the Euro Stoxx falling 0.5%. Global bond markets are marginally lower in the yield.

BNZ Markets Today

US treasury yields moved higher despite the manufacturing ISM coming in below expectations. The S&P lacked strong directional bias and continued to consolidate above 5,500, just below the record highs. Risk premia on European assets reduced on indications that the far-right victory in the French election was less decisive than some had expected.

BNZ Markets Today

Global equity markets ended the last trading session for the quarter marginally lower. An initial rally for the S&P, which gained close to 1% and reached an intra-day record high, faded and the index closed 0.4% lower. European stocks also declined modestly with investor sentiment impacted by ahead of France’s legislative elections. US treasury yields ended higher, after a temporary dip following benign inflation data.

BNZ Markets Today

In contrast to the dull market conditions earlier this week, there has been a bit more price action to talk about. USD/JPY marched up through 160 with ease, to a fresh 38-year high, raising the chance of forthcoming yen intervention. The PBoC continues to allow a slightly softer yuan, while the AUD outperformed after a strong monthly CPI print that caught the market off guard. Against a backdrop of broad USD strength, the NZD has fallen to just below 0.6080, underperforming on NZD/AUD cross selling pressure.

BNZ Markets Today

Market movements continue to be well contained. US equities are up modestly, US Treasuries yields are up slightly and the USD index is slightly stronger. Canadian inflation figures positively surprised, but this had more sustained impact on rates than the CAD. The NZD has traded a tight range and is down slightly to 0.6120.

BNZ Markets Today

It has been a quiet start to the week in what could be a quiet week overall. Market movements have been well-contained. The S&P500 is down slightly, US Treasury yields show little net change and the USD is broadly weaker, with the NZD slightly higher around 0.6130. Oil prices continue to push higher.

BNZ Markets Today

Softer than expected preliminary PMI data across Europe set the tone for markets into the weekly close. European equities underperformed with Euro Stoxx falling 0.8%, partially reversing gains from earlier last week, as the risk premium related to the fiscal backdrop in France stabilised. The S&P ended a largely directionless session marginally lower. The US dollar advanced against G10 currencies and global bonds were little changed, rebounding from an earlier move lower in yields.

BNZ Markets Today

There has been plenty of news to digest but market movements have been well-contained. A string of softer US data releases didn’t perturb the market, with US equities flat, US Treasury yields slightly higher and the USD broadly stronger. The BoE opened the door for a first rate cut this cycle in August while the Swiss National Bank cut rates again. NZ rates rose yesterday after NZ GDP showed a small increase and against a backdrop of higher global rates. The NZD is around 0.6125 while a weaker yen has pushed up NZD/JPY to fresh highs.

BNZ Markets Today

Global markets were confined to narrow ranges with the US observing a public holiday. US equity, bonds, and most commodity markets were closed. European equities traded lower with the Euro Stoxx falling 0.6%. The Hang Seng had a strong session and advanced nearly 3%. The move was attributed to further market-friendly reforms such as allowing Chinese investors to buy Hong Kong stocks using the yuan. Currency markets were subdued, and European bond yields ended marginally higher in yield.

BNZ Markets Today

A weaker than expected US retail sales report supported US Treasuries, dragging the 10-year rate down to as low as 4.20% and pushed down the USD, reversing earlier strength. The AUD has outperformed after a more hawkish than expected RBA update. The NZD recovered to 0.6140 after a test of 0.61, while NZD/AUD is modestly weaker at 0.9230.

BNZ Markets Today

European markets have settled after last week’s selloff, with French assets recovering somewhat. US equities have continued their record-breaking run while, after last week’s strong rally, US Treasury yields are modestly higher. Currency movements have been small, with the NZD giving up a little of last week’s gain and the euro being the best performer, albeit up only 0.3%.

BNZ Markets Today

A risk off tone dominated global markets into the end of last week as concern about the political crisis in France deepened. European equities were under pressure with the Euro Stoxx falling 2% and the spread between French and German 10-year bonds increased to 77bps, the widest level in more than 10 years. The impact on US equities was more muted with the S&P recovering from an early session dip to close unchanged. Global bond yields declined, and the dollar was broadly stronger.

BNZ Markets Today

Much softer than expected US PPI data and a further increase in jobless claims supported US Treasuries, taking yields down 7-8bps across the curve. Concerns around France remain the focus in Europe and with spillover impact for currency markets, with the NZD stuck near 0.6170 despite the weaker US data. NZD/EUR rises to its highest level since early January.

BNZ Markets Today

Softer than expected US CPI data contributed to large moves across global markets ahead of the FOMC. Bond yields fell sharply as investors increased the amount of easing expected by the Fed this year. The US dollar declined. Equity markets advanced with the S&P making a fresh all-time high. The US Federal Reserve (Fed) left rates unchanged as expected. The Fed’s forecasts signalled one 25bps rate this year, down from 75bps in March.

BNZ Markets Today

There has been continued fallout from French President Macron’s decision to call early parliamentary elections, with a flight to quality within European assets. EUR underperformed again and NZD/EUR is at a four-month high. US rates have pushed lower ahead of the key US CPI report tonight, followed closely by the Fed’s policy update. The NZD has outperformed, lifting to 0.6145.

BNZ Markets Today

The outcome of European Parliament elections has been the key driver of markets to start the week, with French President Macron’s call for a snap election after his party’s poor result negatively impacting French assets in particular and dragging down the euro. Elsewhere, the focus is on US CPI data and the Fed’s policy update later in the week, with markets in a holding pattern until then. The US 10-year rate is up 3bps, US equities are slightly higher and the NZD and AUD have recovered modestly after Friday’s heavy loss.

BNZ Markets Today

An upside surprise to US nonfarm payrolls and strong wage growth contributed to sharply higher global bond yields and a broad-based gain for the US dollar. The S&P, which had initially traded to a fresh intra-day record high ahead of the data, dropped close to 0.5% before rebounding and ending the session little changed. Equity markets were generally softer in Europe and Asia. Global credit markets were little changed with spreads remaining close to the tightest level in several years.

BNZ Markets Today

Net market movements have been mostly small, with signs of consolidation across equities, bonds and currencies. European rates are slightly higher after the ECB’s “hawkish cut” and Treasury yields are little changed. The NZD has consolidated around the 0.62 mark and cross movements are negligible. Oil has been the biggest mover, up 2%.

BNZ Markets Today

Buoyant investor risk sentiment contributed to strong rallies across major equity indices. The S&P is up close to 1% in early afternoon trade, retesting the record high of 5342 reached back in May. The move was underpinned by gains in technology stocks. European stocks also had a strong session with the Stoxx up 1.6% ahead of the European Central Bank (ECB) meeting this evening. Price action was choppy in currency and bond markets amid mixed economic data. Global bond yields are lower.

BNZ Markets Today

US Treasury yields have fallen for a fourth successive day, seeing the 10-year rate down towards 4.3%, supported by safe-haven flows after some surprising EM election results, lower oil prices, and softer US labour market data. The USD is broadly stronger overnight, seeing the NZD slightly weaker after its run towards 0.62 yesterday. The yen has outperformed as the market anticipates less BoJ bond buying ahead.

BNZ Markets Today

US equity markets have started the new month on the back foot, following weaker than expected ISM data, which also led to lower treasury yields and a weaker US dollar. Major European indices advanced while Asian markets made solid gains. Oil prices fell sharply after OPEC+ announced plans to phase out its production cutbacks.

BNZ Markets Today

US Treasury yields reversed course after their rise this week, encouraged by weaker data releases overnight. The 10-year rate is down 6bps to 4.55% with a slightly flatter curve. The USD also reversed course and is broadly weaker, seeing the NZD recover overnight to 0.6125 after a brief dip below 0.61 just after the NZ close yesterday. Market reaction to the NZ Budget was minimal.

BNZ Markets Today

A continued move higher in global bond yields and further tepid demand for US treasury supply weighed on investor risk appetite. Major European equity indices fell close to 1% lower while the S&P is down 0.5% in early afternoon trade. There was limited economic data to provide the market with direction. The US dollar advanced alongside higher bond yields and made broad-based gains against developed market currencies.

BNZ Markets Today

A surprise jump in US consumer confidence and weak demand for US Treasuries at the 2 and 5-year auctions have driven up US rates, the 10-year rate rising over 7bps. This reversed earlier weakness in the USD, resulting in small net currency movements for the day. After reaching a fresh 11-week high of 0.6170 overnight, the NZD has fallen back down to 0.6140.

BNZ Markets Today

It has been a quiet start to the week with US and UK markets closed for holidays. Of note, some dovish comments from key ECB members pushed down European yields but with limited impact on the euro. US equity futures are slightly higher, and US 10-year Treasury futures are little changed. The NZD pushed up to fresh two-month highs just over 0.6150.

BNZ Markets Today

Global equity markets were mixed into the end of last week. Major European indices were marginally lower, closing at the weakest level in two weeks and the Hang Seng dropped 1.6%, extending the correction after the sharp move higher over the past month. The S&P gained 0.7% after data showed US inflation expectations had receded. Trading volumes were below average ahead of the US public holiday. Tech stocks led the rally and the Nasdaq closed at a fresh record high. Treasuries were little changed, while the US dollar was weaker.

BNZ Markets Today

Much stronger than expected US PMI data drove US rates and the USD higher and US equities lower overnight. This saw the NZD lose earlier gains, and it trades back just under 0.61. The spillover from Wednesday’s hawkish RBNZ policy update continued, with domestic rates higher, led by the short-end, NZD/AUD rising to a fresh five-week high, and NZD/JPY up to a 17-year high.

BNZ Markets Today

Global equity markets are modestly lower as investors look ahead to Nvidia’s quarterly earnings that are published after the US close. The size and volatility of Nvidia makes it an important bellwether for the broader market. The FTSE100 fell 0.5%, its largest drop in more than a month, after stronger than expected inflation data reduced the prospect for rate cuts from the Bank of England (BOE). Global bond yields are higher, and the US dollar was marginally stronger against the majority of G10 currencies.

BNZ Markets Today

More hawkish commentary from Fed speakers hasn’t perturbed the rates market, with US Treasury yields down slightly on the day. US equities are flat and currency movements have been small, with the NZD trading just below the 0.61 mark. Domestic focus will be on the RBNZ’s MPS this afternoon, with expectations of little change in tone from previous messages.

BNZ Markets Today

It has been a quiet start to the week for most markets, with US Treasury yields up slightly, US equities up modestly and modest currency movements. After last week’s outperformance, the NZD is trading softer, just above 0.61 after a brief dip below the figure overnight.

BNZ Markets Today

Global equity markets were little changed into the end of last week in the absence of fresh market catalysts or first-tier economic data. The exception was Chinese stocks which continued to push higher, despite mixed activity data, with investors focused on new measures from policy makers aimed at stabilising the housing market and boosting consumer sentiment. The Hang Seng was close to 1% higher on Friday taking its weekly advance to nearly 4% and is easily the best performing major market in May.

BNZ Markets Today

The key market move overnight has been a retracement of US Treasuries, with yields steadily higher, reversing the fall seen following the US CPI release the previous night. This hasn’t perturbed equity markets, with the Dow Jones index breaking 40,000 for the first time, but the rates-sensitive JPY is the weakest major overnight and NZD/JPY reached 95. The NZD is flat around 0.6120.

BNZ Markets Today

Global asset markets made strong gains following the widely anticipated US CPI data, which along with softer than expected retail sales, contributed to markets bringing forward expectations of when the Federal Reserve will begin its easing cycle. The S&P rallied close to 1% which took the index to a fresh all-time high above 5300 and European stocks also closed at record levels. US treasury yields moved sharply lower, and the US dollar was significantly weaker.

BNZ Markets Today

Markets remain in a holding pattern ahead of tonight’s key US CPI release. There was some sticker shocker from a higher PPI print overnight, but on further reflection the data were mixed, and the spike in the USD and rates was very short-lived. US equities are up modestly, US Treasury yields are down slightly, and the USD is broadly weaker, seeing the NZD push up to 0.6040.

BNZ Markets Today

It has been a typically quiet start to the week with little newsflow to drive markets. Global equity markets are flat, US Treasury yields are down slightly, and currency movements have been modest. The NZD is flat, consolidating just over the 0.60 mark.

BNZ Markets Today

Weaker than expected US consumer confidence data and higher treasury yields, following a rise in inflation expectations, contributed to the S&P retracing from earlier gains to close modestly higher on Friday. Across the Atlantic, UK and European stocks closed at record levels, with the former helped by stronger than expected GDP data. The Hang Seng – which is the best performing global index in May - rallied 1.5% following reports of a tax waiver plan for China domiciled investors that access Hong Kong shares via Stock Connect.

BNZ Markets Today

Global markets were generally confined to narrow ranges in the absence of first-tier economic data or other catalysts. After four days of consecutive gains, the S&P was little changed in early afternoon trade. Equities in Europe remained well supported with key indices extending recent gains to fresh record highs. The FTSE was up 0.5% matching the gains for the region wide Stoxx 600. Global bond yields are modestly higher while the US dollar index was little changed.

BNZ Markets Today

Against a backdrop of little fresh news, US Treasury yields continue to edge lower, with the 10-year rate down to a four-week low. The USD is stronger, although movements have been small to modest across the board and the NZD is close to 0.60.

BNZ Markets Today

It has been a quiet start to the week in what will likely be a quiet week overall, with a very light economic and event calendar. With UK and Japan holidays, trading conditions are lighter than normal. Global rates are slightly lower, with the US 10-year rate consolidating just below 4.5%. The NZD has spent most of the day consolidating just over 0.60, while the yen is weaker after last week’s strong recovery.

BNZ Markets Today

Global equity markets made solid gains on Friday. Weaker than expected US labour market data in conjunction with a soft services ISM pointed towards moderating economic activity, and rekindled hopes for rate cuts by the Federal Reserve later this year. The S&P gained 1.2%, the largest advance in more than two months. US treasury yields declined sharply after the data but rebounded off the lows while the US dollar was weaker against G10 currencies.

BNZ Markets Today

Markets have settled after the flurry following the Fed’s policy update yesterday and the moves have been in a similar direction, with US Treasury yields falling further and the USD weaker. JPY has outperformed, after another bout of official intervention shook out some more speculative positions. The NZD has pushed up through 0.5960.

BNZ Markets Today

The Fed’s policy update didn’t offer any surprises and there was little initial market reaction, but US rates and the USD fell during Chair Powell’s press conference, where the clear message was one of an easing bias, with a rate hike “unlikely”. As we go to print, US Treasuries are down around 10bps on the day and the NZD is trading at its highs, up towards 0.5940.

BNZ Markets Today

Investor risk sentiment was undermined into April month end by US economic data that revealed persistent wage pressures and a sharp fall in consumer confidence. The S&P fell close to 1% and looks set for its weakest monthly performance since September.

BNZ Markets Today

Risk appetite is slightly higher at the start of the new week. The key market movement has been yen volatility, with signs of official intervention after the currency cratered in early Asia trading. USD/JPY has traded within a 3.5% range and has settled around 156. The USD is broadly weaker, and the NZD has pushed up towards the 0.60 mark. Global rates are modestly lower.

BNZ Markets Today

Global asset markets advanced into the end of last week. The S&P gained more than 1%, underpinned by strength in technology companies, following upbeat earnings reports from Alphabet and Microsoft. Equities were also supported by personal consumption expenditure (PCE) data which revealed strong consumption and inflation, which was in line with expectations, and not as high as some investors had feared after the Q1 data released the previous day.

BNZ Markets Today

The US GDP report released overnight could be described as anti-Goldilocks, with both weaker growth and higher inflation than expected. The rates market was more focused on the latter than the former, seeing a further paring of US rate cut expectations, sending yields higher. A stronger USD reaction wasn’t sustained and the NZD is little changed at 0.5945 from where we left it ahead of the ANZAC day holiday. The yen continues to underperform, raising the spectre of official intervention. A better strategy would be for the BoJ to convey a more hawkish tone at today’s policy update.

BNZ Markets Today

Investor risk appetite has continued to recover underpinning global equities. The S&P gained more than 1% as the market looks ahead to corporate results from large technology companies. The FTSE 100 traded to a new all-time high before retracing amid a broad-based rally across European stocks. US treasury yields fell following weaker than expected preliminary PMIs for April, which contrasted with evidence of a recovery in Europe, and contributed to a weaker US dollar.

BNZ Markets Today

There has been little newsflow to kick-start the week but risk appetite is higher as Middle East tensions settle. US equities rebounded after a weak run, the UK FTSE100 closed at a fresh closing high and commodity currencies have outperformed. The NZD has consolidated above the 0.59 mark and is flat to higher on the key major cross rates. There have only been small changes in US Treasury yields.

BNZ Markets Today

Global equity markets traded lower on Friday, but pared the worst of the losses that came amid a sharp rise in investor risk aversion following news that Israel had launched retaliatory strikes against Iran. Risk sentiment recovered after Iran’s state media played down the damage from the attacks raising hopes that the hostilities wouldn’t escalate into a broader conflict. US treasuries ended little changed, reversing an earlier fall in yields, while the US dollar was stable. Brent crude ended the week at US$87.30, having jumped as high as US$90.75, earlier in the session.

BNZ Markets Today

Newsflow has remained light, generating modest movements in asset prices. US equities are down modestly while US Treasury yields have pushed higher, with a stronger Philly Fed survey and hawkish Fed-speak not helping. The USD is broadly stronger, reversing the previously day’s loss, with the NZD nudging down to 0.59.

BNZ Markets Today

There is a modest risk-off tone in the air, with US equities weaker, US Treasury yields lower, credit spreads wider and oil prices weaker. Currency movements haven’t been affected by the risk-off move, with the USD broadly weaker overnight. The NZD and AUD have been the best performers over the past 24 hours, with higher rates post the NZ CPI supporting a move for the NZD above 0.59, which has been sustained overnight.

BNZ Markets Today

Global bond market remained under pressure. US treasuries yields made fresh highs for the year which constrained equity market performance. The S&P was marginally lower in early afternoon trade, with limited rebound from recent weakness, despite trading at one-month lows. The VIX gauge of US stock market volatility remained elevated reflecting the uncertain geopolitical backdrop. In currency markets, the US dollar was confined to a choppy range. Asian currencies were in focus after the PBOC set a weaker daily reference rate for the yuan and the yen was volatile amid intervention concerns.

BNZ Markets Today

Markets continue to trade with a cautious tone, with Israel vowing to retaliate against Iran’s weekend attack. US equities are down close to 1% and oil prices are barely lower, with Brent crude about USD90. US Treasury yields rose to fresh 2024 highs, with much stronger than expected US retail sales being a factor. The USD has been well supported, with the yen, NZD and AUD notable underperformers, weakening to fresh lows.

BNZ Markets Today

Risk aversion gripped global assets markets into the end of last week amid rising geopolitical tensions. There were growing concerns that Iran could launch a retaliatory attack on Israel following the air strike on the Iranian consulate in Syria. Over the weekend, Iran’s military seized an Israeli-linked container ship, and launched drones and missiles towards Israel, in a significant escalation of hostilities. These developments will weigh on investor rise appetite as Israel calibrates a response.

BNZ Markets Today

Markets have settled after the shock from the hot CPI print the previous night, helped in part by a more benign PPI print. US Treasury yields show only small movements, with a modestly steeper curve led by a retracement in the 2-year rate. The 10-year Treasury found support with yields just under 4.6% overnight. US equities have bounced back. The ECB’s in-line policy update had little impact on the market, while the NZD and AUD have outperformed with the NZD close to 0.60.

BNZ Markets Today

Stronger than expected US CPI data, contributed to a reassessment about how soon the US Federal Reserve might cut rates, and prompted large moves across global asset markets. US treasury yields surged higher contributing to broad based gains in the US dollar. The higher rates backdrop undermined equites. The S&P fell more than 1% to retest the lows near 5140 from last week.

BNZ Markets Today

It has been another uneventful day in financial markets, with the key move being a steady fall in US Treasury yields after the recent lift to 2024 highs, ahead of tonight’s key US CPI report. US equities are down modestly. Currency moves have been small in net terms although the NZD and AUD remain on the positive side of the ledger as global commodity prices continue to push higher.

BNZ Markets Today

Market movements have been well contained to kick off the week without any key catalysts to perturb pricing. There was a total eclipse of the sun in the US and a total eclipse of the year-to-date highs for US rates overnight, before they settled back down, seeing the 10-year Treasury yield little changed from the NZ close. US equities are slightly higher and the USD is slightly weaker. The NZD and AUD have outperformed a touch, supported by higher commodity prices.

BNZ Markets Today

US equities advanced following labour market data which pointed towards a resilient economy and intensified the debate about when the Federal Reserve might begin to ease monetary policy. The S&P gained more than 1%, rebounding from the weak previous session, which saw the index fall more than 2% from intra-day highs and the VIX spike to the highest level this year.

Outlook for Borrowers: Post May MPS

The RBNZ left the Official Cash Rate (OCR) steady at 5.5% at the May Monetary Policy Statement. However, the Bank upgraded its hawkish bias, referencing domestic inflation pressures, which have fallen more slowly than it had expected. The RBNZ raised its modelled cash rate track, which now peaks at 5.65% in December, implying a higher probability of a further rate hike, relative to the February Statement. As a result, the first projected rate cut has been pushed back to H2-2025. Although the Committee reached a consensus decision to leave rates on hold, a hike was discussed.

Outlook for Borrowers: Post April MPR

The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady at 5.5% at the Monetary Policy Review (MPR) on Wednesday. The statement, accompanying the expected ‘on hold’ decision, indicated there is little change in the Bank’s assessment of the economy and inflation outlook from the February Monetary Policy Statement (MPS). The Monetary Policy Committee is ‘confident that maintaining the OCR at a restrictive level for a sustained period’ will return inflation to target this year.

Forecasts and Outcomes

Fonterra put a wide, but realistic, range on its opening 2024/25 milk price forecast. The $8.00 midpoint came along with a range of $7.25 to $8.75 attached.
The new season midpoint forecast is higher than the current $7.80 forecast for the 2023/24 season. But it is lower than some might have expected. The SGX-NZX futures pricing for the 2024/25 season has been hovering around the $8.50 mark recently. That said, the latter is market pricing for the actual outcome not a forecast of Fonterra’s forecast.