Rebound in ANZ business confidence positive influence on NZ yields; US 10-year treasuries rise on employment data, then fall back on PMI release; expectations for Chinese PMI to show contraction

By Kymberly Martin

There were only limited moves in the NZ market yesterday.

Overnight, US 10-year yields traded above 2.10% before returning to 2.06%.

NZ short-end swaps pushed a little higher intra-day, potentially assisted by the rebound shown in the early-afternoon release of the ANZ business confidence index.

However, the move was not sustained and 2-year swap later slipped to close virtually unchanged on the day, at 2.70%. The 2-10s curve closed at 79bps, as longer-dated swaps closed down 1bp.

Overnight, US 10-year yields pushed out above 2.10% ahead of the slightly above-consensus US ADP employment report.

However yields later drifted back down to 2.06% as the US Chicago PMI came in well below expectation, indicating activity had dipped back into contraction.

Today, local sentiment will likely be influenced by the release of China’s ‘official’ PMI and the final reading of the Caixin China PMI. Both are expected to confirm manufacturing activity in China remains firmly in contraction.

Any disappointment against already subdued expectations would likely encourage the market in its RBNZ rate cut expectations.

Currently the market continues to look for around a 2.43% trough in the OCR by mid next year. This appears a fair reflection of risks to our central view that the OCR will trough at 2.50% by year-end.

There are a smattering of PMI data due tonight on either side of the Atlantic. However, we expect the market will remain somewhat in limbo ahead of tomorrow night’s more important US payrolls report.

Kymberly Martin is on the BNZ Research team. All its research is available here.