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NZ Morning Focus

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Fuseworks Media
Fuseworks Media

HIGHLIGHTS

- BoE surprised by keeping rates on hold, but most of the Committee expect easing at the4 August meeting.

- RBNZ gets some currency follow through, but where to from here?

OUTLOOK

UPCOMING TODAY: REINZ housing data (June) will be strong. China’s data dump (GDP, industrial production and retail sales) in the afternoon.

CURRENCY: Weakness overnight as the market responded to news the RBNZ would be providing an economic update, suggesting some dissatisfaction with market pricing. Will the move be sustained? Valuations remain stretched, but not unless the RBNZ plans to take the OCR well below 2% or the Fed hikes.

RATES: There was stronger payside interest evident in the London session, which should see the curve open a little higher.

REVIEW

GLOBAL MARKETS OVERVIEW: The MSCI all-country index climbed for a sixth-day, the longest stretch since October 2015. US equities continued to rise. European bourses were led higher by the DAX +1.4%, while the CAC 40 gained 1.2% and Euro Stoxx rose 1.3%. Currency markets were bumpy after the BoE kept rates on hold. GBP instantly appreciated 2.5% before paring gains to 1.2%. The USD was generally weaker. Emerging market currencies climbed higher. JPY fell on news that the government may issue perpetual bonds that the BoJ would purchase, effectively helicopter money. NZD was another outlier, holding onto yesterday’s losses. The move was exacerbated by stretched valuations. US Treasury yields rose, particularly at the long-end. In commodities, oil (WTI) rallied 1.7%, while gold was off 0.8%.

DATA PULSE

CARRY ON. US PPI came in at 0.5% m/m (mkt: 0.3%), from 0.4% the previous month. Ex-food and energy PPI was up to 1.3% y/y, from 1.2%, the quickest pace of growth since January. Jobless claims were flat at 254k.

COMMENTARY - KEY THEMES AND VIEWS

BE CALM. The BoE voted 8-1 to kept rates on hold overnight. A surprise to the market (a cut was 80% priced) though somewhat offset with most members expecting monetary policy to be loosened in August. The August meeting is only three weeks away.

SOME NIGHTS. The RBNZ got some bang for its buck, with the NZD (TWI) down more than a big figure on news it will provide an economic update next Thursday, something the market has taken to mean grumblings with market pricing and an attempt to rein things in following the reaction to the Deputy Governor’s speech two weeks ago. Now that it has the market’s attention, the question is where to from here? The economy certainly doesn’t need more stimuli. Data is strong. The problem remains low inflation, compounded by the high NZD. Unless it is planning to take the OCR well below 2%, the NZD will remain high. It means more ‘Fun’ for homeowners.

ALL ALRIGHT. The Fed’s Lockhart noted that "I’m comfortable with a cautious and patient approach to policy in the near term," though "I still can imagine circumstances in which at least one policy move could take place [in 2016], and possibly two". He also noted that Brexit is "a storm that has clouded the economic waters". While offering a bit for all, the real message is we’re doing nothing for a while. Cheap money on offer equals more ‘Fun’ for equities, although speculation the IMF might be downgrading global growth estimates (again) is a reminder that the fundamentals tell a different story.

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