The overnight trading session has been quiet given the US Thanksgiving holiday, with little news or price action.
S&P500 futures are flat and the Euro Stoxx 60 index closed up just 0.1%. US 10-year Treasury futures have traded a tight range and are little changed from the NZ close. European rates show little movement. As the market fully digests the UK Budget, the 10-year UK gilt yield is up 3bps to 4.46%, reversing about half of the fall of the previous day.
President Putin said President Trump’s proposals for ending the war in Ukraine could be the basis for future agreements, but no final version exists yet. He added Russia wants to agree with Ukraine eventually, but this is legally impossible now. Oil prices have been relatively steady this week and Brent crude trades just over USD63 per barrel.
There have been insignificant changes in major currencies overnight. However, the NZD is the best performing since this time yesterday, as it sustained the move higher in the wake of stronger economic data released yesterday and as rates pushed even higher in the aftermath of the RBNZ’s MPS on Wednesday.
NZ real retail sales surged 1.9% q/q in Q3, extending their gain over the past year to 4.5%. Although this strong growth follows a period of weakness, it helps to balance out some of the recent negative commentary about consumer confidence and the overall health of the economy. It also adds upside risk to Q3 GDP estimates, which already anticipate a bounce-back from the rogue 0.9% contraction in Q2.
The ANZ business outlook survey, which has consistently shown more optimism than other surveys this year, reported even greater positivity, with business confidence reaching its highest level in 11 years and the key own activity indicator is at a value historically linked to very strong growth.
As is customary, post-RBNZ MPS interviews took place, and when questioned by Bloomberg about whether a significant shift in the outlook would be required for the RBNZ to lower rates further, Governor Hawkesby affirmed that such an interpretation would be consistent. This response reinforces the market’s belief that Wednesday’s rate cut was very likely the final one in this cycle.
Hawkesby added that “forever lowering and keeping the door open” to further easing is “just not consistent” with getting inflation back to its 2% target. He also conveyed no surprise to the market reaction, telling the NZ Herald that the RBNZ’s markets team briefs the MPC on the likely reactions to different decisions they make.
The domestic rates curve moved higher and flatter, with clear sign that the market wasn’t positioned for conviction developing regarding the end of the easing cycle. Traders are also anxious that a wave of mortgage fixing will add further upside pressure to short-term rates. The 2-year swap rate rose 9bps to 2.79%, taking the cumulative lift since the RBNZ’s OCR cut to 20bps, while the 10-year rate rose 3bps to 3.85%. NZGB yields showed a similar movement. The OIS market prices the first full 25bps hike by the December 2026 meeting.
Interestingly, the 2-year swap rate has risen 17bps since the day before the October meeting, a period over which the OCR has been cut 75bps, a lesson that movements in interest rates can be significant and perverse around turning points in the cycle.
The tailwind of higher rates saw the NZD push up to around 0.5730, which takes it back to where it began the month, following its post MPS bounce-back. The same can be said for the NZ TWI, at 66.5. NZD crosses all pushed higher and, while most of these movements just make up for prior losses, of note NZD/JPY has risen to a level not seen since the first week of January, reaching 89.5.
On the calendar today, NZ consumer confidence and filled jobs will be released, followed by Tokyo CPI inflation data. Tonight sees the release of German CPI and Canadian Q3 GDP data, while China PMI data are released over the weekend. The market is likely to end the week on a quiet note, given the US holiday and with early Friday closes for US equities and Treasuries.
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Jason Wong is the Senior Markets Strategist at BNZ Markets.
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