Short-end NZ interest rates edged lower after a measure of NZ business confidence slumped, while global interest rates rose as the oil price rally assuages disinflation concerns
The ANZ survey’s headline business confidence measure fell to -29.1 in August, the lowest level since 2009.
We pay close attention to the ‘own activity’ measure, which provides a gauge on GDP growth. Yesterday’s reading of 12.2 is consistent with our forecast that GDP will fall below 2% in 2016.
Worryingly, if the survey deteriorates further, then our forecasts would start looking rather optimistic.
The NZ rates market took on board the message that the slowing pace of NZ data firms up the prospect of further near-term RBNZ rate cuts. The 2-year swap yield declined 2 bps to 2.78%. We forecasts two further 25 bps rate cuts from the RBNZ by October, which could see the 2-year swap trade down toward 2.70%.
Offshore, global bond markets softened, as sharp gains in oil prices eased concerns about further disinflation. The price of WTI crude gained 7.7%. The 27% rally over the past three days has been the sharpest gain since Iraq invaded Kuwait in 1990. Last night’s gains were supported by OPEC announcing that it’s ready to talk with other producers to achieve “fair prices”. In addition, US authorities lowered their estimates of crude output.
The US 10-year bond yield is up 3 bps to 2.21%.
Today, the RBA’s statement will be closely parsed for signs that it is leaning toward easing, in light of China’s recent wobbles. The final reading of China’s Caixin PMI for August will also be watched.
Overnight, the dairy auction will help set the tone for NZ rates tomorrow.
Raiko Shareef is on the BNZ Research team. All its research is available here.
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7 Comments
From 2009 until 2014 the NZ public and businesses were warned of impending interest rate rises, with a new lowered normal OCR of 4.5% or more. E.g. "BNZ says the rate will have reached 3.25% by March 2014, and will rise to 4.5% by December 2015".
So in the light of a recent acknowledgment that global conditions do/will always eventually affect NZ and that the new normal is likely to be 2%, what lessons have the commentators learnt from their misreading of the global economic environment and the misreading of NZ being immune.
How were the forecasting models incorrect?
What false assumptions were made over a 7 year period?
And what is the likelihood of an OCR of 4.5% in NZ over the next 3 years?
What benefit for SMEs have occurred as a result of 7 years of higher than necessary interest rates and tight govt spending? Consumers are still retrenched and SMEs are struggling.
Agree....if I was this wrong for this long in my line of work I would not only not be listened to but probably not have a job!
2%? hmmm if that is correct and I think for the next 5 years it is that doesnt bode well for our economy and ppl.
"immune" well bear in mind we have indeed somehow not been gutted with a 30%+ collapse in the housing market and indeed its over-heating in some parts. Got to wonder how long that has to last.
The FED is not any better
http://davidstockmanscontracorner.com/the-us-economy-is-not-awesome-and…
Canada is now in Recession - while their Vancouver housing markets keeps going into the stratosphere.
http://m.businessinsider.in/ITS-OFFICIAL-Canada-is-in-recession/article…
That will be NZ shortly. NZ in Recession, while the Auckland housing market keeps climbing fuelled externally.
the stories coming out of sydney and australia are not good, their housing market is more disconnected than ours, falling incomes and so close to recession, banks raising rates for investors AMP not now lending to investors.
if you are watching the markets around the world you can see the cheap credit is creating more problems that good i.e oil shale drilling meaning a big drop in some countries incomes also caused deflation.
what that means for NZ I can not see good things if GFC 2 hits we are not as well prepared as last time, unemployment would hit 10% government borrowing would cause service cuts, and if as many of us think a lot of overseas money is in the auckland housing market, it would leave ASAP
Repeat after me. A new flag is "gonna be worth billions" to New Zealand, Prime Minister John Key says. Laugh more
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