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NZ Morning Focus

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Contributor:
Fuseworks Media
Fuseworks Media

HIGHLIGHTS

- The ECB kept rates on hold with neutral changes to forecasts

- The OPEC meeting failed to come to an agreement - oil dropped 2% before rebounding to positive territory on lower inventories.

- ADP employment matched expectations. NZD still supported.

OUTLOOK

UPCOMING TODAY: Two NZ indicators. Building Work Put in Place - Q1 (10:45am). ANZ Commodity Price Index - May (1:00pm).

CURRENCY: The NZD looks stretched up around these levels but lacks a catalyst to turn it around. The trend is still the market’s friend.

RATES: The local curve should open a tad lower in line with global moves.

REVIEW

GLOBAL MARKETS OVERVIEW: ECB decision, OPEC indecision, oil inventories, and ADP employment driving gyrations. The market let oil take the lead with leaks surrounding the OPEC decision not to cap production drove a circa 2% plunge in oil prices. This supported the USD, saw stocks decline and US Treasury bonds rally. The ECB decision had a much more muted reaction than recent meetings, with Draghi’s press conference seeing a narrow range for the euro. The release of low oil inventories data saw oil retrace initial losses and took equities with it. USTs bucked the trend and were able to hold bull-flattening gains. European equities closed mixed with the Euro Stoxx down 0.2%; DAX unchanged; and IBEX 35 up 0.5%. US equities rebounded from session lows, and are now up smalls. USD/JPY remains heavy. The NZD continued to outperform. In commodities, oil is now up smalls and gold is relatively unchanged. The broader Bloomberg Commodity Index is up 1%.

DATAPULSE

THREE OF A KIND. US jobless claims down a tad, ADP employment solid (+173k) and challenger job layoffs down.

COMMENTARY - KEY THEMES AND VIEWS

FED SPEAK. Kaplan (FOMC non-voter): makes sense to raise rates in June of July; pretty close to full employment; inflation has picked up in the last three months; needs to be a change made to fiscal and structural policy, not just monetary policy. Tarullo (FOMC voter): Brexit was a factor "I would consider" at the June meeting. Both speaking pretty sensibly.

WITHIN CUOY. While overnight saw some whipping around, nothing (ECB, ADP employment, jobless claims, OPEC) was within the realms of the unexpected. So apart from last night generating noise, tomorrow’s US labour market (payrolls) figures remain the key focus.

ECB decision. No change. A low growth (1.6% in 2016 and 1.7% in 2018) and low inflation script (1.3% in 2017 and 1.6% in 2018). Structural reform is what is required to lift the former and that’s not around the corner.

UP, UP, UP AND AWAY. The NZD continues to soar and NZD/AUD has pushed through 0.94. The author is of the view we’ll be popping parity champagnes corks sometime in the next three years. However, expect positioning to lighten up (profit taking) into next week as the market braces for no change (now largely fully priced) but dovish overtures from the RBNZ.

OPEC indecision. No agreement and no surprise to the author. Prices have lifted, so that lessens the burning platform to do something and self-interest dominates group interest. Though they did elect a new secretary general, which has been taken as a sign of harmony.

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