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.
Check out our Economic Calendar here ».
Daily exchange rates
Select chart tabs
*Jason Wong is Senior Markets Strategist at BNZ.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.