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RESEARCH
MARKETS TODAY
5 February 2021
Events Round-Up
The USD has continued its recent mini resurgence, with the
NZ: Building permits (m/m%), Dec: 4.9 vs. 1.2 prev. BBDXY index rising another 0.5% and heading for its
highest close since the start of December. It’s been a
NZ: ANZ activity outlook (net%), Feb: 22.3 vs. 21.7 prev.
broad-based moved higher in the USD, with gains against
NZ: ANZ business confidence (net%), Feb: 11.8 vs. 9.4 prev. all the G-10 bar the GBP (see more below). No doubt,
AU: NAB business confidence, Q4: 14 vs. -10 prev. some unwinding of speculative positioning, which is still
heavily short the USD according to futures data, has
UK: Bank of England bank rate (%), Feb: 0.1 vs. 0.1 exp.
contributed to the recent move higher in the USD.
UK: BoE asset purchase target (£b), Feb: 875 vs. 875 exp.
US: Initial jobless claims (k), 30-Jan: 779 vs. 830 exp. The EUR remains under downward pressure and overnight
broke below 1.20 for the first time since December. Again,
speculative position adjustments may go some way to
Good Morning explaining the recent pullback in the EUR as well as the
slow vaccine roll-out on the continent (in contrast to the
Risk sentiment remains buoyant, with the market putting US and, particularly, the UK). The bond market is looking
the GameStop saga from last week firmly behind it. The favourably on the possibility that ex-ECB President Draghi
S&P500 and small-cap Russell 2000 indices are toying with could become Prime Minister of a technocratic
fresh all-time highs. The USD has continued its recent mini government in Italy, if he can cobble together support
resurgence and the EUR has broken below 1.20 for the first amongst political parties, which has seen the Italy-
time since December. The GBP has outperformed post the Germany 10-year spread fall below 100bps for the first
BoE meeting with the market scaling back rate cut bets time since 2015. But this hasn’t provided much support to
while the NZD has drifted back to 0.7150 amidst broad- the EUR currency to this point.
based USD strength. NZ rates continued to head higher
and the curve steeper yesterday while NZ market-based The Bank of England struck a more upbeat tone at its
inflation expectations reached a six-year high. monetary policy meeting overnight, saying that vaccine
rollout, and the expected easing of Covid-related
Equities appears to have well and truly moved on from the restrictions, were projected to lead to a “rapid” recovery in
GameStop mania that gripped markets last week. The the economy this year. As of yesterday, 10 million people
S&P500 is up 0.7% overnight, close to its recent all-time in the UK, around 15% of the population, had received a
high, with the index largely erasing its losses from last vaccine dose. The BoE directed the banking regulator to
week. The Financials sector has led gains on the S&P500 start preparations to get the banking sector operationally
overnight, up almost 2%, helped by the continued ready for negative rates but emphasised this was
steepening of the yield curve, which has historically been contingency planning rather than a signal that such a move
supportive of bank net interest margins. Small-cap stocks was imminent. Indeed, the market pared back rate cut
have outperformed, a sign that markets are growing more expectations for the Bank, with less than 4bps of cuts now
confident in a domestic US economic rebound and priced in for the next 12 months (last September, the
vaccines are rolled out, with the Russell 2000 rising 1.9%. market priced 20bps of cuts). UK government bond yields
The VIX has fallen back to 22, around where it was before moved higher across the board, rising by 5bps at the 2-
the GameStop saga erupted. year maturity to 7bps in 10 and 30-years. Meanwhile, the
GBP, which had drifted down to around 1.3570 pre-
There’s not too much new news to report on in the US, meeting, bounced back to 1.3660. The GBP is the only
including on the fiscal stimulus front. US jobless claims fell currency to have made gains against the USD overnight,
by more than expected last week, a positive sign for the albeit reasonably modest.
labour market and a trend which should continue as
vaccination allows Covid-related restrictions to be The NZD has given back its post-HLFS gains overnight
gradually pared back. The nonfarm payrolls report is amidst the stronger USD. The NZD is back towards 0.7150,
released tonight, with the market looking for a bounce- down about 0.6% overnight, as it remains locked within its
back in employment growth, to +100k, after last month’s recent 0.7100 – 0.7250 trading range. The NZD/AUD cross
surprise fall. has drifted down to 0.9420 and has now reversed its
www.bnz.co.nz/research Page 1Markets Today 5 February
2021
appreciation after the super-strong NZ employment On the topic of inflation, one of the stand-out features
report. from yesterday’s preliminary ANZ business survey was the
big jump in pricing intentions. Pricing intentions jumped to
Besides the UK and Italy, global rates haven’t moved much a net +47.9, its highest level on record (since 1992) and
overnight. The 10-year Treasury yield is trading at 1.14%, consistent with broad-based cost pressures in the
close to where it was at the NZ market close. Curve economy (a net 71% of respondents reported rising costs).
steepening remains the dominant trend, with the spread 2pm taper announcement. Employment and investment
between 5-year and 30-year bond yields in the US now intentions rose further, pushing above their long-run
close to 150bps, its highest level since 2015. averages. The ANZ survey is the latest in what has been a
string of very strong economic releases which has seen the
The NZ rates curve has continued to steepen like those market quickly pivot from thinking about OCR cuts to the
offshore. The 10-year government bond yield rose by as timing of when hikes might happen.
much as 7bps at one point yesterday, following its 11bp
rise the previous day, before recovering a few basis points The RBA Statement of Monetary Policy and Governor
later in the session after the pricing of the new May 2026 Lowe’s parliamentary testimony take place today while
maturity government bond ($3.5b issued). The 10-year nonfarm payrolls will hog market attention tonight. The
government bond is around 40bps higher than it was at market will be keeping an eye on the RBNZ’s 2pm
the end of the year and 25bps this month alone, at 1.37%. announcement of its bond buying schedule for the week
The 2-year swap rate continued to grind higher, moving up ahead, after it slightly reduced the purchase pace this
to 0.38%. week.
We wouldn’t normally comment on it here, but its also nick.smyth@bnz.co.nz
worth pointing out that market-based inflation
expectations in NZ, derived from the difference between Coming Up
nominal and inflation-indexed government bonds, have
rocketed higher over the past few months. The 10-year
Period Cons. Prev. NZT
‘breakeven inflation rate’ in NZ has moved up above 1.7%,
AU RBA's Lowe Testimony to Parliament Committee 11:30
compared to less than 1.2% in mid-December and 0.5% AU Retail Sales (m/m%) Dec F -4.2 -4.2 13:30
last May. This is still below the midpoint of the RBNZ’s 1- AU RBA Statement on Monetary Policy 13:30
3% target range, although illiquidity premia on inflation- GE Factory Orders (m/m%) Dec -1 2.3 20:00
indexed bonds means these breakeven inflation estimates CA Unemployment Rate (%) Jan 8.9 8.6 02:30
tend to understate the market’s ‘true’ inflation US Change in Nonfarm Payrolls (k) Jan 100 -140 02:30
expectations. The rise in NZ market-based inflation US Unemployment Rate (%) Jan 6.7 6.7 02:30
expectations, to what are now six-year highs, follows US Average Hourly Earnings (y/y%) Jan 5 5.1 02:30
similar moves overseas and the large upside surprise to CPI US Trade Balance ($b) Dec -65.7 -68.1 02:30
data a fortnight ago. Source: Bloomberg, BNZ
www.bnz.co.nz/research Page 2Markets Today 5 February
2021
Foreign Exchange Equities Commodities**
Indicative overnight ranges (*) Other FX Major Indices Price
Last % Day Low High Last % Day Last % Day % Year Last Net Day
NZD 0.7151 -0.8 0.7148 0.7210 CHF 0.9037 +0.5 S&P 500 3,858 +0.7 17.0 Oil (Brent) 58.76 +0.5
AUD 0.7593 -0.3 0.7588 0.7638 SEK 8.471 +0.8 Dow 30,976 +0.8 7.5 Oil (WTI) 56.15 +0.8
EUR 1.1963 -0.6 1.1958 1.2017 NOK 8.652 +0.8 Nasdaq 13,717 +0.8 44.9 Gold 1786.5 -2.5
GBP 1.3662 +0.1 1.3567 1.3698 HKD 7.752 +0.0 Stoxx 50 3,642 +0.9 -2.4 HRC steel 1154.0 +0.5
JPY 105.47 +0.4 105.14 105.49 CNY 6.472 +0.2 FTSE 6,504 -0.1 -12.6 CRB 179.6 +0.3
CAD 1.2836 +0.4 SGD 1.338 +0.4 DAX 14,060 +0.9 5.9 Wheat Chic. 639.3 -1.8
NZD/AUD 0.9418 -0.5 IDR 14,015 +0.1 CAC 40 5,609 +1.0 -5.5 Sugar 16.00 -0.3
NZD/EUR 0.5978 -0.2 THB 30.10 +0.2 Nikkei 28,342 -1.1 21.5 Cotton 83.62 +3.2
NZD/GBP 0.5234 -0.9 KRW 1,118 +0.3 Shanghai 3,502 -0.4 24.3 Coffee 124.4 +0.2
NZD/JPY 75.42 -0.4 TWD 27.96 +0.0 ASX 200 6,765 -0.9 -3.0 WM powder 3420.0 +0.1
NZD/CAD 0.9179 -0.4 PHP 48.08 +0.1 NZX 50 12,992 -0.8 12.0 Australian Futures
NZ TWI 74.84 -0.6 3 year bond 99.815 -0.01
Interest Rates 10 year bond 98.76 -0.05
Rates Swap Yields Benchmark 10 Yr Bonds NZ Government Bonds NZ Swap Yields
Cash 3Mth 2 Yr 10 Yr Last Net Day Last Last
USD 0.25 0.20 0.20 1.21 USD 1.14 0.00 NZGB 5 1/2 04/15/23 0.26 -0.01 1 year 0.28 0.01
AUD 0.10 0.01 0.07 1.24 AUD 1.23 0.06 NZGB 2 3/4 04/15/25 0.57 0.02 2 year 0.38 0.02
NZD 0.25 0.28 0.38 1.43 NZD 1.37 0.03 NZGB 4 1/2 04/15/27 0.85 0.03 5 year 0.84 0.04
EUR 0.00 0.06 -0.52 -0.14 GER -0.45 0.01 NZGB 3 04/20/29 1.14 0.03 7 year 1.12 0.05
GBP 0.10 0.04 0.16 0.66 GBP 0.44 0.07 NZGB 1 1/2 05/15/31 1.36 0.03 10 year 1.43 0.06
JPY -0.03 -0.09 -0.05 0.08 JPY 0.06 0.00 NZGB 3 1/2 04/14/33 1.57 0.03 15 year 1.77 0.06
CAD 0.25 0.44 0.51 1.45 CAD 0.97 0.02 NZGB 2 3/4 04/15/37 1.91 0.03
* These are indicative ranges from 5pm NZT; please confirm rates with your BNZ dealer
** All near futures contracts, except CRB. Metals prices are CME.
Rates are as of: NZT 06:50
Source: Bloomberg
www.bnz.co.nz/research Page 3Markets Today 5 February
2021
Contact Details
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Stephen Toplis Craig Ebert Doug Steel Jason Wong Nick Smyth
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www.bnz.co.nz/research Page 4Markets Today 5 February
2021
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