By Jason Wong*
It has been a typically quiet start to the week, with investors keeping their powder dry ahead of a busy week. Currency markets barely have a pulse, with tiny net movements, while US rates have pushed up to flirt with fresh highs for the year. US equities are up 0.8%.
Policy meetings by the Bank of Japan (BoJ) and US Federal Reserve (Fed) are the headline acts this week, with meetings from the Reserve Bank of Australia (RBA) and Bank of England (BoE) also thrown into the mix. Ahead of these key events, the market is off to a quiet start and the general theme has been an extension of recent price trends.
On that note, US Treasury yields continue to push higher, as the market reluctantly accepts that the extent of any Fed easing this year is likely to be less than previously thought, not helped by some recently uncooperative inflation data and the US economy not showing signs of enough cracks to worry about at this stage. The first rate cut is not priced until July, which seems like an eternity compared to expectations at the start of the year which had priced in four rate cuts by then.
Overnight, the US 2-year Treasury yield broke above the February high, reaching 4.75% while the 10-year rate remains just shy of setting a fresh peak, currently sitting at 4.34%. Net rate movements have been small, up 1-4bps across the curve. The economic calendar has been light. US homebuilder confidence on the NAHB index continued to push higher, rising 3 points to an eight-month high of 51, the uplift explainable by the fall in mortgage rates from their October peak, with the small lift this year yet to impact sentiment.
Currency markets have been quiet, with minuscule net movements, the key majors we follow less than 0.2% away from last week’s close against the US dollar (USD), albeit all slightly weaker as the USD continues to nudge higher. The NZ dollar (NZD) has traded about a 20pip range and is currently near its low for the day of 0.6080 after a brief look at 0.6100. The AUD(Australian dollar) sits at 0.6555 and NZD/AUD is flat at 0.9275.
Yesterday, the slightly positive reaction by the NZD, AUD and yuan to generally better than expected China monthly activity indicators proved temporary. China industrial production and investment for the first two months of the year were much stronger than expected, at 7.0% year-on-year (y/y) and 4.2% y/y respectively, the latter weighed down by a 9% fall in property development. The data suggested some traction of stimulatory policy in building economic growth momentum, although there was mild disappointment that consumers aren’t stepping up, with retail sales of 5.5% just shy of market expectations.
US equity markets are having another good session, with the S&P500 currently up 0.8% and gains broadly based, with all sectors contributing. Oil prices are up over 1½%, building on last week’s 4% climb to reach fresh four-month high, with Brent crude piercing the USD86.50 mark. More drone strikes over the weekend aimed at Russian oil refineries hit the mark and have helped support prices, alongside the more positive Chinese activity data.
Yesterday, the domestic rates market was quiet with little net movement in swap rates, although by the close the 10- year rate was down 1 basis point (bp) to 4.46%. Lower Australian yields supported the NZ Government Bond market, seeing rates down 1-3bps across the curve with a slight steepening bias. Lack of interest in the long end of the curve sees NZ Debt Management not looking to tender any bonds beyond the 10-year mark for a second consecutive week, with new supply focused at the 7-9 year mark.
In the day ahead, the BoJ’s policy update will be the headline act, where there has been heightened speculation of the central bank ending its negative interest rate policy, even if by only a small 10bps step. The only question is whether the BoJ ends the negative rate regime today or waits until next month. At a minimum, the BoJ is expected to officially end its yield curve control regime and stop ETF purchases. Market reaction to the policy pivot on the day should be contained to the extent that the BoJ will likely be cautious about the policy outlook and is unlikely to feed expectations that this is the start of a long series of rate hikes if it does kick off a tightening cycle. The Bank is likely to take a pedestrian approach toward normalising policy.
The RBA’s policy statement should pass with little market reaction, with the central bank on hold and unlikely to be cutting rates anytime soon. The Statement should reflect that tone. Tonight sees the release of Canadian Consumer Price Index and US building permits and housing starts.
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*Jason Wong is Senior Markets Strategist at BNZ. David Chaston will return on Thursday.
46 Comments
He remains though electable.In excess of 70 mill last time, undoubtedly more now added. Once president the first act will be a pardon of himself, for all that he has done, hasn’t done and is yet to do and all will be reimbursed. Of course if Biden beats him again, the opposite, probable ruin. Meanwhile back in the jungle, the USA & its folk wonder what’s going to happen next given their political system provides two candidates of almost risible worth to lead supposedly the greatest nation on Earth.
“We will not deliver to all our commitments in the budget” - Willis, yesterday on RNZ with Dann.
Basically “never an expectation that commitments will be delivered in this budget”.
Both Willis and Luxon still in campaign mode. Looking forward to my $3.17 tax relief and to what new tax I can look forward to spending it on.
They are doing austerity. That means dwindling government incomes from less and less people in less well paying jobs plus higher unemployment.
Going down that route means no tax cuts AND less services. A cursory look at almost any country that has done it could tell them such. But they live in denial and think they are diffrunt and it won't happen to them cos running a country is like running a household.
So you don't rate preventing climate destabilisation as sensible? I guess as the world polarises and the poor you are concerned about increasingly live in uninsurable sacrifice zones, it makes sense to keep burning, so another branch of "the rich" can keep their dividend stream pumping.
We will all pay for it in the long term in electricity prices either caused by higher demand, price gouging by gentailers, or flow through costs of adding capacity to the network and transmission costs. It is easy to say that one can simply set a timer to charge their EV at times of off peak or low demand, until demand gets too close to capacity for that time and a small drop in wind causes chaos, and we have to rely more and more on dirty coal powered electricity. Not particularly better for the environment if that's an angle that you adhere to. I foresee, however, plenty of opportunity for those who have ideas on how to reuse old EV batteries for other purposes. If they're build to have high demand on them at any time, then theoretically even one at 30% max capacity could be useful to repurpose for home solar power storage etc.
If there is a small increase in business tax, together with the threat of more, businesses may be less inclined to immediately raise prices through one-off events.
Too many NZ businesses immediately raise prices in the face of short term, one off events. And once the prices have been raised - they are very, very slow to reduce them down again. Rocket & Feather Pricing. Taught to NZ businesses by the behavior of our terrible and under-regulated banks.
Come on mate. Banks have the same intentions of any business. Make money. They should be admired for being so successful. If you’re not happy with what they offer, don’t use them. Same as NZ businesses raising prices. If you don’t like it, don’t buy their offerings.
LOL, seriously? Don't use bank services? Sounds like you view pushing a shopping trolly between the doorway where you collect your change in a hat and your cardboard box abode as a viable living arrangement, until the banks totally dispense with physical cash that is?
We're going cashless Frank. There is no way to legally operate in a cashless society without banks, their success is enforced. It's nothing like businesses who compete and either succeed or fail. Even if crypto becomes more prevalent in local transactions, tax still needs to be paid in NZD through the banking system.
It's not an offering, there is no alternative. At least until it all fails.
Don Farrell 'not sure' if United States is Australia's most trusted ally
Australia's Trade Minister Don Farrell has come under fire from the opposition for saying he's "not sure" the United States is Australia's most trusted ally and instead arguing New Zealand is.
In response to criticism from the opposition, Senator Farrell said in a statement the Liberals were "just playing juvenile political games."
"Everyone knows the Kiwis are family," he said.
"Everyone also knows that [the] United States is our closest ally, trusted strategic partner, and largest two-way investment partner."
Are Oyster going under? Wouldn’t surprise me. I can’t read it as refuse to pay for granny. https://www.nzherald.co.nz/business/1b-oyster-group-fund-suspends-inves…
“To reduce bank debt and borrowing costs for the fund, selected directly owned properties are being marketed for sale,” the updated product disclosure statement said.
Holdings in property investment vehicles might also be sold, Oyster said, indicating it could quit much larger schemes.
But the fund signalled that selling in such a high-interest rate environment was challenging: “While the divestment strategy remains a key focus for the fund, current market conditions are impacting successful and timely divestments,” investors were told, in what one said was a worrying combination of circumstances.
From the article, “The fund’s redemption facility remains suspended to allow the fund to maintain appropriate working capital,”
So technically not broke. The fund is paying out more to investors than the fund is really worth.
Water cooler community and almost every spruiker I come across accept that the CRE sector is shaky globally, but not in Nu Zillun where bricks and mortar - commercial and residential - is as solid as gold.
Probably right. But who knows. Too many moving parts; too much debt; and too many flash Harrys flying by the seat of their pants.
I would guess the Ukrainians will never be able keep enough refining out of action such that the Russians couldn't supply their tanks and BMPs etc. But if Boris can't fill up the Lada, that might bring a bit of discontent that didn't shows in Putins "election" result.
'Apparently', Senator Elizabeth Warren and Bernie Sanders have urged Jerome Powell to lower interest rates. They want a “a clear and rapid timetable for reducing interest rates, ideally beginning at the May FOMC meeting,” according to a letter sent to Powell.
MSM sending smoke signals.
https://edition.cnn.com/2024/03/17/economy/stocks-week-ahead-fed-presid…
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