There has been little news overnight and market movements have been modest. US equities are slightly higher, US Treasury yields are lower after their recent big move higher. The NZD has been flat overnight after a small lift after the RBNZ delivered the widely expected 50bps hike. Market reaction to the MPS has been muted overall.
Markets have been quiet overnight with some anticipation of the minutes from the FOMC’s early-February meeting due at 8am. Since that meeting the run of data has been stronger than expected, financial conditions have notably tightened, and we have heard ad nauseum from Fed speakers about their views on the rates outlook. It’s hard to see the minutes adding much more information, but that won’t necessarily prevent a knee-jerk reaction when they are released.
The only news that caught our eye overnight were reports on Japanese wage negotiations. Outgoing BoJ Governor Kuroda might be getting his wish for higher wage inflation, with Toyota and Honda agreeing to union demands for higher wages, the former not disclosing the amount but noting it was the largest hike in two decades and Honda disclosing a 5% lift in wages, the largest increase in base pay in three decades. This will put pressure on other companies to do the same during upcoming wage negotiations. Kuroda has previously noted that he wants to see wage inflation of at least 3% before ending the Bank’s ultra-easy policy stance.
Over the past couple of weeks, Japan’s 10-year rate has been pinned at the very top of the allowable range at 0.50%, with only active BoJ buying preventing a sharp move higher. Through February, the yen has trended lower against the backdrop of rising global rates and USD strength, with some USD/JPY resistance around the 135 mark.
In economic news, Germany’s IFO business survey showed a fifth consecutive monthly improvement in expectations, from a soft base, rising a couple of points to 88.5. Yesterday, the Australian wage price index rose 0.8% q/q and 3.3% y/y, 0.2pps shy of market and RBA expectations. The data suggest no evidence yet of a developing wage-price spiral, but on its own won’t prevent the RBA from hiking rates further.
The S&P500 is currently up slightly after yesterday’s largest daily fall for the year of 2%. The US 10-year rate traded up to a fresh three-month high slightly under 3.97% just before midnight, but has since pushed lower, currently at 3.90%, a few basis points down from the NZ close. It is too early to be certain that after a brutal run higher through February a turning point in that rate has been reached, but the overnight turnaround might hint of some resistance just under the 4% mark.
In currency markets, overnight moves have been modest. The NZD has been trading more or less in a 0.6210-0.6250 trading range since the RBNZ’s MPS (see below), so an immaterial reaction. Some NZD support is more evident in the crosses. The AUD lost ground after the weaker wages print and hasn’t recovered, currently trading around 0.6820 and with NZD/AUD stronger at 0.9140. EUR and GBP performances have also been lacklustre, and NZD crosses against those are modestly higher, while NZD/JPY is flat around 84.
The RBNZ raised the OCR by 50bps to 4.75% as widely anticipated and there was only a minor tweak to the projected track, with the peak still assumed to be 5.5% but taking slightly longer to get there. The RBNZ will rightly try to look-through the near-term inflationary impact of Cyclone Gabrielle and suggested that it didn’t materially alter the outlook for monetary policy. We detected a slight softening of tone through the minutes compared to November, reflecting the fact that policy was now more overtly contractionary, the long lags of policy transmission to the economy and that domestic demand and inflation were now heading in the desired direction.
Market reaction was muted by the lack of genuine surprise in the announcement. Rates closed the day higher across the curve, but much of that reflected the pre-MPS move following the global rates market selloff the prior night and even some of the post-MPS move we saw could be traced to lower rates in Australia as the market digested the lower wages print. The historical record will show a 9bps lift in the 2-year swap rate for the day, but mostly a reflection of global forces. The 5-year rate closed up 11bps and the 10-year rate was up 9bps. The OIS market continues its reluctance to price in an OCR as high as the RBNZ’s 5.5% projection, seeing some chance that the rate won’t need to get that high. BNZ’s peak OCR projection is pitched at 5.25%, consistent with two 25bps hikes over the April and May meetings, before a long period of rate stability at that higher level ensues.
NZGBs showed a lift of 9-11bps with a steepening bias. Yesterday morning the NZDM announced the syndication of a new 2030 nominal bond in March, an earlier schedule than expected. Ahead of this increase in bond supply, the pressure will be on NZGBs to underperform swap.
After the FOMC minutes are released, the economic calendar remains light with the second estimate of US Q4 GDP and initial jobless claims released tonight.
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7 Comments
Ya hilux is gunna cost ya more
Ya overseas holiday more
Mortgage more
Imports more
Me thinks the OCR @ 0.5% is not going to do much and Orr is a lame numbskull ruled by politics via Socialist Robertson.
Ever since the OCR started to be raised it seemed obvious that the process was one of catch up. That was still the case before Gabrielle and that event now simply means there will be more to catch up on. Consequently there is now going to need to be a sizeable lift, a 100 pointer, at some stage. Inflation cannot be brought under control with the OCR lagging the inflation rate by the current margin and particularly as there is no indication of the latter easing but more that it will continue on set in with potential to increase given continued uncertainties overseas and internally, such as the reinstatement of the fuel tax.
Just as a factoid, Hiluxes and most other utes are made in Thailand.
How many toyota stsff work in japan!
If toyota are incresing wages IT WILL INCREASE PRICÈS
A society that puts equality - in the sense of equality of outcome - ahead of freedom will end up with neither equality or freedom. The use of force to achieve equality will destroy freedom. On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality. Freedom means diversity but also mobility. It preserves the opportunity for today's less well off to become tomorrow's rich, and in the process, enables almost everyone, from top to bottom, to enjoy a richer and fuller life.
Milton Friedman
Milton Friedman - aka comparatively rich able bodied white man who never experienced much inequality at all proposing something similar to the trickle down theory for "equality". As he describes it his childhood in USA is one of relative wealth compared to most NZ families today. Considering we still imprisoned our most disadvantaged children by birth, torturing, raping and neglecting them well past the 1970s, at times the society claimed it was the most free, Milton Friedman's quote there has well and truly been disproved with our national shame and unmarked graves of children who were killed by such freedom. It would help if he had experienced one ounce of true inequity before stating that society had no need of measures to ensure equality. But even looking at what NZ is facing now he would have been born into a relatively wealthy family. He benefited much in luck with official efforts to increase equality of outcome; without which he would not have his university education. His family were not super wealthy but comfortable enough that there would always be good food on the table and a roof over his head and lots of paid scholarships for children such as himself.
Lets not fall back into the old fallacies (and poorly educated arguments) where cheap quotes from wealthy people should ever be considered a good argument. Better to learn from those who suffered and survived than those who did not suffer at all, simply parroting cheap arguments from positions of good fortune. Lets also consider if Milton's family did not emigrate to a country with more equality he likely would not have survived through early adulthood. To put it plainly without equality of human rights he would have been killed simply because of the genetics of his birth and the position of his family.
You can claim it was freedom that gave him human rights but in reality it is equality of outcome that everyone has human rights regardless of genetics. It is just in NZ we still do not recognize that for a significant proportion of the population (approximately 25% by last records).
Protip of Friedmans more ludicrous claims:
Milton Friedman, in his work Capitalism and Freedom, argues that one of the largest benefits of a free market system is that it protects people “from being discriminated against in their economic activities for reasons that are irrelevant to their productivity.” In a competitive free market, he explains, any firm that discriminates on the basis of race, gender, ideology, or any other attribute unrelated to worker performance imposes a cost upon itself, and thus the owners would eventually be driven out of business by firms that do not discriminate. Friedman then concludes that the free market actively works to encourage moral behaviour and offers a shield for vulnerable groups in society, and that it is the best and most efficient method of doing so.
Does this claim hold up to scrutiny? NO. WE HAVE CENTURIES OF DATA TO DISPROVE IT. The free market actually enforces discrimination much in the same way it can refuse customers of business without punishment because a truly free market system does not uphold human rights and itself can claim financial advantage through funded investors intent of systemic discrimination benefiting themselves from generational wealth, often funded through loose employee rights (and slavery historically). We have the legal case data that even with the few employee protections now there is no repercussion through a free market system to ensure that discrimination and even physical abuse of employees impacts much upon the company and brand image. We have sufficient legal case data of deaths of employees and discrimination of many groups where the companies suffered no penalties, no cost to themselves (they actually can increase profits with more employee abuse). In most modern free market systems and a truly free market with no enforcement of human and employee rights there is a system of increasing systemic discrimination. Even AI when built using data from such environments cannot be immune from clear discriminatory outcomes that go against the most productive and experienced options (contrary to what would be the most logical perceived benefit to the company) simply because they are trained from data that shows market enforcement of systemic discrimination that is freely allowed.
Only a complete moron ignorant of systemic discrimination would have written Capitalism and Freedom. Oh look a rich able bodied white man in the USA who had the red carpet approach to university... benefiting himself from actions to go against the free market to get his entry to university.
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