BNZ Research

NZD Corporate FX Update

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

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

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The NZD in 2025

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

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NZD Corporate FX Update

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

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

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RBNZ Cuts Another 50

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

Over the line

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

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

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

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

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

Food and Fuel Prices Higher in January

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

Expansion

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

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

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

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

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

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

Unemployment continues its climb

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

Business Inflation Indicators Nudge Up

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

New Zealand at a Glance

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

Labour market likely to lag

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

Inflation no threat to further rate cuts

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

No Christmas Joy

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

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

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

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

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

December doldrums

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

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

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

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

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

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

QSBO Not Earth Shattering

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

Strong GDP Demands Rate Cuts

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

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

Employment Report: Stabilising at a low level

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

NZ Debt Funding Requirements Soar

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

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

Knocking on the door

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

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

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

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

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

Retreat

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

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

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

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

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

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

Happier New Year

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

RBNZ Delivers Another 50 Point Cut

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

January jitters as Trump threatens tariffs

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

NZ Dollar Dive Deepens in December

• The NZD made another hefty fall in December, extending its fall through Q4 to over 11%.
• Contrasting economic fortunes between the US and NZ economy remained notable, with robust US growth continuing against a deeper recession in NZ; NZ-US rate spreads went negative, including longer maturities.
• Anticipation of Trump’s polices remained a key driver for USD strength and NZD (and other currency) weakness

Dollar dances to tune of Trump’s triumph

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

Swap spread recovery to be tested by supply

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

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

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

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All Eyes on the RBNZ

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

February MPS Preview

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

Labour Market Still Softening

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

Exports Lifting; Labour Market Lags

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

Inflation Close To Target, But

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

Economic Turning Points Are Messy

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

The Christmas Rush: GDP, HYEFU And All That

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

Q3 Contraction Likely

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

First GDP Partials Arrive

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

BNZ Markets Today

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

Outlook for Borrowers: Post February MPS

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

Outlook for Borrowers: Post November MPS

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

Upswing Welcome

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