By Jason Wong*
It has been a very quiet start to the week in financial markets, with the US President’s Day holiday and little news. The US President spent the day visiting Kyiv, where he met Ukraine President Zelenskiy and pledged “unwavering support” for the country. While off the headlines and no longer a market mover, the war in Ukraine continues and there are signs that Russia is preparing for a larger offensive which will involve more air power than used to date. Almost one year after Russia’s invasion, there is no endgame in sight.
S&P futures are currently down 0.3% while Treasury futures are weaker as well, pointing to a modest lift in rates. Although early days, this extends the run of weaker equities and higher rates seen recently into another week, on rising fear that inflation will stay stronger for longer and this prolonging the US tightening cycle.
The economic calendar has been bare, with the only release of note being an as-expected lift in Euro area consumer confidence to minus 19, its highest level in a year, supported by a mild winter.
Currency markets have kicked off the week with mostly insignificant movements. The Australian dollar (AUD) is a notable outperformer, rising 0.5% from last week’s close to 0.6915, with the New Zealand dollar (NZD) only slightly higher at 0.6255. The NZD/AUD cross dipped to a fresh four-month low below 0.9020 overnight and is currently back near 0.9050. Narrower NZ-Australia rate spreads have been behind the weaker cross this year and futures suggest more to come as the Reserve Bank of Australia (RBA) plays catch-up with its rates cycle.
The domestic swaps market saw a 7 basis points (bps) reversal of Friday’s curve steepening, with the 2-year rate up 5bps and the 10- year rate down 2bps. There wasn’t much price action elsewhere, with the NZ Government Bond market showing little change in rates across the curve.
The government announced an initial fiscal package of $300 million to address the impact of ex-tropical cyclone Gabrielle, with $250m allocated to repair roads and $50m to support businesses and the primary sector, along with some tax relief to affected people and businesses. This is a small fraction of the total cost of the disaster.
When asked about the appropriate monetary policy response, Finance Minister Grant Robertson said that it was an independent decision for the Reserve Bank of New Zealand (RBNZ) and, within their mandate, the Bank can “look through current events”, so “that will be part of their thinking”. There is a strong consensus within the market that the Bank will deliver a 50bps hike on Wednesday. The disaster will add to the challenge of bringing inflation down to a more comfort level during the re-build effort and with ongoing pressure on food price inflation.
In the day ahead there will be plenty to chew over, with NZ Producer Price Index data and minutes of the RBA’s February meeting during local trading hours. Flash PMI (Services Purchasing Managers' Index) data for February are released tonight for the Euro Area, UK and US, with the market expecting to see a lift across the board in activity for both manufacturing and services sectors. The other key release will be Canadian Consumer Price Index data, where any large positive surprise would question the Bank of Canada’s “pause” guidance on the tightening cycle.
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*Jason Wong is Senior Markets Strategist at BNZ.
81 Comments
House prices have come down a bit in QT. Not a crash as yet. There may be a few opportunities by the end of the year. Anecdotally, a chap told me that he can only afford his 4 bedroom house mortgage if he has 3 other couples living with him and his wife. They only allow couples who are saving for their own house. No long term rental people need apply. As they leave, upon getting a house, they all help find another couple. He calls it his halfway house. So far, they have all become close friends, and help each other with improvement work, etc. Very positive and simple.
QTown used to be very boom bust, now just boom. I enjoy the Skiing but do not really enjoy the crowds or the tourists. To be honest if Ruapehu had a great future, I would be more happy in Turangi with fishing mates. In Spring skiing I have skied from 10am-2pm, come back and gone out and caught a couple of fish on the smaller side streams.
Scales has three of it's fifteen producers impacted by the flooding and the remaining are now harvesting. We've had gloom and doom from the media, more so than following the Christchurch and Kaikoura earthquakes. I am a glass half full kinda person, and I feel the resilence of New Zealanders is far greater than we give ourselves credit for.
Yesterday was a rough day for our sharemarket, but so far our companies have been reporting on average solid results. Let's see how the next while pans out and hope the South Island may be our backstop. But let's not discount the increased activity generated from the recovery.
How America Took Out The Nord Stream Pipeline
https://seymourhersh.substack.com/p/how-america-took-out-the-nord-stream
For anyone that's missed it in the news.
https://en.wikipedia.org/wiki/Seymour_Hersh
Though in a world where you might need your own AI to tell you if another AI is fooling you, who knows.
Any hegemony is repressive by it's very nature.
Saying the US is one of the most repressive is a bit of a long bow.
Remember when the poms held most of the world at gunpoint and stole their stuff?
Or when the Japanese took over much of Asia, impregnated women, infected them with viruses and cut them open alive to see how the unborn was affected?
All the special ops detail is not interesting.
But the Americans did it for sure. Or got some proxy to do it. A usual method.
They fought for years to block Nordstream. They promised to intervene. Nobody else wanted to. Blowing up the pipeline damaged the interest of everybody in Europe. Russia was damaged by the destruction.
The Americans did it.
If they, decide, that Russia did it, all of Europe will have to stop trading with the international terroist state, plunging Europe deep into recession. Thus no one can blame Russia.
I do not think Russia did this, looks American to me to drag Germany into the conflict. At the moment the Nato alliance can hardly supply the Ukraine enough ammunition to defend itself, and no one seems to want to ramp up manufacture. Never thought I would see such stupiditiy from two superpowers.... makes me way more worried about a China/US proxy war over Taiwan.
Chris Trotter on the money again
https://thedailyblog.co.nz/2023/02/21/adapting-to-climate-change/
I'd add that the world population trajectory - trebled since WW2 - will also make an overwhelming case for adapting over mitigating.
Before we go giving climate change too much credit, this appears to have all happened before.
https://hwe.niwa.co.nz/event/April_1938_Gisborne_and_Hawkes_Bay_Flooding
I notice many of the same place names showing up. The Esk Valley was apparently covered in up to 3m of silt as well. We are loosing our minds of two weather events in a row that may be worse because of over development. If it is going to happen more often of course there will be adaption.
Yeah good article. I've been a greenie since the late 80s, but by the late 90s I had completely given up on mitigation. I realised the polies would keep talking and setting targets, and emissions would keep going up. What happens now depends mostly on adaption and luck.
Water World here we come (over the next couple of thousand years).
Tomorrows OCR will be interesting.
Arguably, we have a lot less export goods to protect via the exchange rate - a mass of them have been destroyed - and a lot more to unexpectedly have to import - the materials needed for the rebuild. So the last thing we need is a lower NZ$? What will less than the 0.75% we've been conditioned for do in that regard?
There is a crisis on hand. Labour are revelling in it, a replacement PM has never had such an opportunity for a profile uplift and it’s not going to waste either, he is proving himself of quite some ability. However amongst all the resultant media attention, headlines and reports matters such as the OCR fall under the smokescreen of it all and that in turn allows for more “political” consideration. It won’t be more than 0.50% when it needs to be double that.
The response may bury labour
https://www.nzherald.co.nz/nz/politics/opinion-the-government-risks-los…
It feels like cival defense has become slow and bloated, remember the days of ham radio field days to provide rural comms links, gensets everywhere etc. I think that rural NZ may have to group together to look after themselves going forward. Labour has no interest in them.
Suggest Labour had already lost the rural vote especially all those that they got at National’s expense last time. Furthermore if those votes were made in an effort to stymie the Greens from being in actual coalition then that part of the electorate, and undoubtedly a lot more of it, is hardly likely to be supportive of the prospect of a Labour, Greens & TMC government with the latter two actually holding cabinet positions.
On current polling, I think this is what would get National across the line if the election were held today.
Labour is clearly going to need the Greens and TPM to win - who knows what sort of deranged policies TPM will come out with by election day (or the Greens for that matter)
It may come down to National + Act appearing like the saner, more stable choice when in the polling booth, even if Luxon is fundamentally unlikeable and a rubbish campaigner ... if he were a good campaigner he would be zeroing in on the fact that any vote for Labour is effectively an approval of a TPM tail wagging the Labour dog.
Seymour will be able to point this out, because he's relatively astute, but whether National has the gumption to help the public "put two and two together" I'm not so sure.
what sort of deranged policies TPM will come out with by election day (or the Greens for that matter)
I believe Cindy has inspired this derangement. When the party holding a majority in the Beehive goes rogue and introduces a bunch of divisive policy proposals, the likes of ACT and TPM that already cater to fringe are bound to take advantage of the polarisation.
The upcoming election appears to be another lost cause for centrists such as myself.
A decent strong govt will introduce divisive and controversial policies. Sometimes a leader has to lead and the public will have to follow. Those controversial issues like abolishing slavery, universal education, female suffrage, giving colonies independence and denationalising telecom companies. However our govt chose the wrong issues.
Grant Robertson said that it was an independent decision for the Reserve Bank of New Zealand (RBNZ) and, within their mandate, the Bank can “look through current events”, so “that will be part of their thinking”. There is a strong consensus within the market that the Bank will deliver a 50bps hike on Wednesday
That sound like a contradiction within one sentence.
The events of the past couple of months has certainly shaken me out of my smugness with regard to jhow we might escape the worst consequences of climate change in NZ being at the bottom of the world and having a benign climate. With our food baskets threatened by more cyclones we have to protect those food growing areas whilst keeping the locals safe from flooding. Part of the answer will probably be higher stop banks and relocating the local farming population to higher ground. I noted a brewer in Hawkes Bay on 1 News last night talking about rebuilding his business but not living on the property. Could be a pointer to the future.
Do you not mean deeper or by taller are you referring to stop banks? Look at Wairoa on google maps, aerial view, nestled in a U of the river. An accident waiting to happen. Could do with a diversion canal. A huge number crunching exercise to see what to do there and do nothing is actually an option and let natural disintegration occur over time.
The govt unfortunately has to buy alternate land in some areas. Nothing can happen fast on evaluating what to do. Not less than a year.
It starts with the parts. In this case detailed topographical mapping and land ownership.
Climate change? "Flood Plains" have that name for a reason.
Ahuriri Lagoon map before after 1931 Hawke's Bay earthquake crude - 1931 Hawke's Bay earthquake - Wikipedia. Now overlay with mass population growth, urban sprawl, and the forestry industry systematically destroying the countryside.
"Managed Retreat" is being talked about, the question is - in a place as Geologically active as NZ, where do you retreat too?
It would seem Civil Defense is a paper tiger. No contemporaneous assets to activate when the storm hit. What ever they had in their playbook it was pretty light. Missing the fact that there are not thousands of Territorials to throw into the battle -instead just token amount of regular military. In my book being at the ready would mean being able to commander private transport--Helicopters, Earth Moving Equipment, and Heavy & Refrigerated Trucking within hours, and not days, and have communication replacements at the ready. Wonder what Civil Defense annual budget is? Imagine if it was a Tsunami hitting a major cities low lying suburbs.
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