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NZ Morning Focus

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Contributor:
Fuseworks Media
Fuseworks Media

HIGHLIGHTS

- US manufacturing data stronger but the overall data pulse overnight was generally more neutral. Beige Book elicits a yawn from markets.

- USD slips amidst yen strength. NZD firm.

- GDT prices rise but whole milk powder prices down.

OUTLOOK

UPCOMING TODAY: Nothing on the domestic calendar today. April trade and retail figures are due for release in Australia.

CURRENCY: The NZD remains hostage to diminishing prospects for the RBNZ cutting (only 6 points is now priced for June and 14 points by August) and prospects of the Fed hiking. Until the tenor of data rolls in New Zealand, dips will be bought.

RATES: The local curve should open lower, following the global rally.

REVIEW

GLOBAL MARKETS OVERVIEW: Global markets were mixed on a day where US ISM bucked a slight moderation of the global growth pulse. In the run-up to the ISM release, US Treasuries were rallying, oil was down 2%, the USD was under pressure, and equities were lower. The stronger-than-expected US ISM hit front-end yields instantly, with the 2 year jumping 3bps, which extended through the afternoon. Oil recovered earlier losses in the run up to the OPEC meeting, to be largely unchanged on the day. Elsewhere in commodities, gold is down smalls, while the CRB index lifted. Equities in Europe were lower with Euro Stoxx -0.8%; FTSE 100 -0.6%; DAX -0.6%. US bourses were flat at the time of writing. USD/JPY was heavy following PM Abe’s pledge that he will "mobilize fiscal policy to achieve strong growth" and delay the tax hike. The EUR appreciated and is settling around the 1.1180 level. The pound declined with Brexit concerns weighing (one poll giving exit a lead). One month implied volatility for the GBP spiked to a seven year high.

DATAPULSE

THIRD GEAR. US manufacturing data were stronger, but the data pulse was a tad weaker overall, with JP Morgan’s global manufacturing PMI easing from 50.1 to 50.0. The Fed’s Beige Book flags "modest" economic growth across much of the US and price pressure growing slightly in most districts.

COMMENTARY - KEY THEMES AND VIEWS

LITTLE TO GET EXCITED ABOUT. Reasonable, or should we say "modest", economic signals out of the US set the tone and maintain the market erring towards rates moving up, but not really excitable enough to buoy the USD. Investors are also wary of chasing equities, which are bumping up against highs. Caution looks set to remain supreme ahead of this week’s payrolls report, with the market reaction to the Fed’s Beige Book (zippo) saying it all, not that there was much in it to get excited about anyway!

BOBBLE BOBBLE. Little to report in the GDT auction; a rise in the headline index of 3.4% including skim milk powder 12.1% but a fall in whole milk powder of 1.7%. In aggregate things are moving in the right direction, but how the market handles the stronger seasonal uptick in supply from July will be key (which is likely a factor already weighing on WMP).

KIWIS CAN FLY. The NZD on a TWI basis is 73.60 and the NZD/AUD is back at 0.94. This is a factor that complicates the picture for the RBNZ next week. However, the bird should be up; the economy is looking solid and yesterday saw a 4.4% rise in the terms of trade, which is one of many "fundamentals".

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