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RESEARCH
Markets Today
16 July 2021
Events Round-Up growth increased to 1.3% in Q2 from a revised 0.4% in Q1.
Monthly Chinese activity data for June was also better
AU: Employment change (k), Jun: 29.1 vs. 20 exp. than expected, with upside surprises across industrial
production, fixed asset investment and retail sales data,
AU: Unemployment rate (%), Jun: 4.9 vs. 5.1 exp.
the latter an encouraging sign as the economy starts to
CH: GDP (q/q%), Q2: 1.3 vs. 1 exp. rotate towards a consumption-led recovery. Still, markets
CH: GDP (y/y%), Q2: 7.9 vs. 8 exp. appear wary of a slowdown in Chinese growth, with the
recent RRR cut by the PBoC seen by some market
CH: Retail sales (y/y%), Jun: 12.1 vs. 10.8 exp.
participants as validating this theory. US regional
CH: Industrial production (y/y%), Jun: 8.3 vs. 7.9 exp. manufacturing data overnight were mixed, with the New
CH: Fixed asset investment (y/y%), Jun: 12.6 vs. 12 exp. York Empire survey hitting a record high but the Philly Fed
survey falling back, albeit to what is still a very high level
UK: Unemployment rate (%), May: 4.8 vs. 4.7 exp.
on a historical basis.
UK: Employment Change (3m/3m), May: 25 vs. 91 exp.
US: Empire manufacturing, Jul: 43 vs. 18 exp. Fed Chair Powell hasn’t provided much new information in
his second round of his testimony to lawmakers, this time
US: Philly Fed business outlook, Jul: 21.9 vs. 28 exp.
to the Senate. Like yesterday, Powell acknowledged that
US: Initial jobless claims (k), Jun: 360 vs. 350 exp. inflation had been higher than expected but reiterated
US: Industrial production (m/m%), Jun: 0.4 vs. 0.6 exp. that the Fed’s base case was that inflation would normalise
once temporary influences faded. But he added that the
Fed was monitoring inflation, including the risk that it
Good Morning could prove longer lasting and seep into inflation
expectations.
Markets have traded with risk-off tone overnight, with
equity markets lower, the US 10-year rate dropping
In currencies, the USD is stronger across the board amidst
further, to around 1.30%, and the USD strengthening.
more cautious risk appetite. The BBDXY index is up 0.3%,
There haven’t been any obvious catalysts for the shift in
rebounding back to near three-month highs. The JPY
sentiment. In the UK, rates increased sharply after a
(+0.1%) has outperformed given the risk-off backdrop and
second BoE MPC member spoke of tightening policy
fall in US Treasury yields while the commodity currencies
earlier. Commodity currencies have come under pressure
have been the laggards. The NOK is down more than 1%
amidst the risk-off backdrop, with the NZD dropping back
over the past 24 hours, while the NZD, AUD and CAD are all
below 0.70. NZ CPI is released this morning, with the
off around 0.8-0.9%. The AUD is trading just above 0.74,
market pricing around a 70% chance of an OCR hike next
close to its year-to-date low. The NZD, which hit 0.7040
month.
yesterday morning, has dropped back to around 0.6980,
close to where it was before the hawkish RBNZ MPR.
There’s no single driver one can point to in explaining the
more cautious investor sentiment overnight. The usual
In the UK, another Bank of England MPC member, Michael
suspects, being concern around the delta variant, a
Saunders, has come out in support of an earlier tightening
possible slowdown in global growth, and fears that the Fed
of monetary policy. Saunders, who has been one of the
could tighten policy too early, have been variously quoted
more dovish voices on the committee in recent times, said
as reasons for caution in financial commentary. We
options included stopping its QE bond buying over the next
suspect the overnight pullback in equity markets, from
few months “and/or further monetary policy action next
close to record highs it must be said, could be just as much
year.” Such a tightening would be “more akin to easing off
day-to-day noise. The S&P500 is off 0.4%, the NASDAQ
the accelerator rather than applying the brakes” he said.
0.8% and the Russell 2000 index of small cap stocks is
Saunders comments echo similar messages from fellow
down by 1.1%. The US 10-year rate has continued to drift
MPC member Ramsden yesterday and follow recent upside
lower and is now trading around 1.30%, 5bps lower on the
surprises to UK inflation, such that core CPI is now above
day and close to its lowest level since February.
the 2% target. Governor Bailey was noncommittal after
the most recent CPI upside surprise, saying the Bank would
Chinese annual GDP growth came in slightly lower than
expected, at 7.9% (8% expected), although quarterly
www.bnz.co.nz/research Page 116 July 2021
Markets Today
analyse the extent to which is was being driven by flattening was again the order of the day, with the long
temporary factors. end of the swap curve kept in check by the overnight move
in US Treasuries. The NZ 10-year swap rate was up just
Saunders comments led to a sharp repricing of BoE rate 1bp, to 1.85%. The yield curve, as measured by the
hike expectations, with the market bringing forward the difference between 2 and 10-year swap rates, is back to its
expected timing of the first 25bp rate hike to mid next flattest level since the start of the year, at 81bps.
year. The UK 2-year bond yield increased 6bps, to 0.13%,
while the GBP immediately gained 0.5% in the wake of the NZ CPI is the highlight of the local session today. We are
comments, before later reversing. The market ignored a looking for a 0.7% quarterly increase, taking the annual
weaker than expected UK labour market report for May, rate to 2.8%, close to the top of the RBNZ’s 1-3% target
which revealed slower than expected job growth and a tick range. The market will also closely watch the core inflation
up in the unemployment rate, to 4.8%. figures, which were already around the 2% target midpoint
last time and are surely biased higher. The CPI data is,
There was little market reaction to yesterday’s stronger alongside the HLFS labour market report in early August,
than expected Australian employment report, given it one of the two key domestic pieces of economic data
preceded the recent lockdown in Sydney. For the record, ahead of the RBNZ’s August meeting. US retail sales data
Australia saw 29k new jobs in June (+20k expected) while is released tonight with the market looking for a bounce
the unemployment rate fell from 5.1% to 4.9%, its lowest back in core retail spending in June.
level since 2010. The market appeared more interested in
news that the state of Victoria would enter a snap five-day nick.smyth@bnz.co.nz
lockdown after another 2 new Covid-19 cases were
reported in Melbourne. The NZ travel bubble with Victoria Coming Up
has been paused for at least four days in response.
Period Cons. Prev. NZT
There was another chunky increase in short-end domestic NZ Manufacturing PMI Jun 58.6 10:30
rates yesterday, with the 2-year swap rate rising by 7bps, NZ CPI (q/q%) 2Q 0.7 0.8 10:45
to 1.04%, as the market continued to digest the NZ CPI (y/y%) 2Q 2.7 1.5 10:45
implications for the OCR outlook from Wednesday’s RBNZ JN BOJ 10-Yr Yield Target (%) Jul 0
MPR. August remains around 70% priced for a rate hike US Retail Sales (m/m%) Jun -0.4 -1.3 00:30
but the market increased rate hike pricing for November, US Retail Sales Ex Auto, Gas (m/m%) Jun 0.4 -0.8 00:30
taking it 4bps higher, to 0.66%, as the market edges closer US U. of Mich. Sentiment Jul P 86.5 85.5 02:00
to pricing two full hikes by the end of the year. Yield curve US U. of Mich. 5-10 Yr Inflation Jul P 2.8 02:00
Source: Bloomberg, BNZ
www.bnz.co.nz/research Page 216 July 2021
Markets Today
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 0.6978 -0.8 0.6965 0.7030 CHF 0.9182 +0.3 S&P 500 4,352 -0.5 34.9 Oil (Brent) 73.42 -1.8
AUD 0.7417 -0.9 0.7411 0.7481 SEK 8.673 +0.6 Dow 34,908 -0.1 29.9 Oil (WTI) 71.66 -2.0
EUR 1.1807 -0.3 1.1796 1.1851 NOK 8.837 +1.2 Nasdaq 14,496 -1.0 37.4 Gold 1829.6 +0.3
GBP 1.3811 -0.4 1.3805 1.3899 HKD 7.768 +0.0 Stoxx 50 4,056 -1.1 20.1 HRC steel 1780.0 -0.7
JPY 109.83 -0.1 109.71 110.09 CNY 6.461 -0.1 FTSE 7,012 -1.1 11.4 CRB 212.2 -0.5
CAD 1.2611 +0.8 SGD 1.355 +0.1 DAX 15,630 -1.0 20.9 Wheat Chic. 679.0 +2.5
NZD/AUD 0.9408 +0.0 IDR 14,483 +0.0 CAC 40 6,493 -1.1 27.1 Sugar 17.33 +2.5
NZD/EUR 0.5910 -0.6 THB 32.69 +0.2 Nikkei 28,279 -1.2 24.2 Cotton 89.84 -0.4
NZD/GBP 0.5052 -0.5 KRW 1,141 -0.6 Shanghai 3,565 +1.0 11.0 Coffee 157.1 +0.6
NZD/JPY 76.64 -0.9 TWD 27.90 -0.4 ASX 200 7,336 -0.3 22.0 WM powder 3725.0 -0.1
NZD/CAD 0.8800 -0.0 PHP 50.21 -0.2 NZX 50 12,671 -0.4 10.1 Australian Futures
NZ TWI 74.02 -0.6 3 year bond 99.665 0.00
Interest Rates 10 year bond 98.73 0.02
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 0.13 0.30 1.28 USD 1.29 -0.05 NZGB 5 1/2 04/15/23 0.74 0.06 1 year 0.78 0.06
AUD 0.10 0.03 0.24 1.39 AUD 1.29 -0.05 NZGB 2 3/4 04/15/25 1.06 0.05 2 year 1.04 0.07
NZD 0.25 0.41 1.04 1.85 NZD 1.64 0.01 NZGB 4 1/2 04/15/27 1.27 0.03 5 year 1.48 0.03
EUR 0.00 0.06 -0.46 0.00 GER -0.33 -0.02 NZGB 3 04/20/29 1.47 0.01 7 year 1.66 0.02
GBP 0.10 0.08 0.47 0.91 GBP 0.66 0.04 NZGB 1 1/2 05/15/31 1.64 0.00 10 year 1.85 0.01
JPY -0.05 -0.08 -0.03 0.04 JPY 0.01 -0.01 NZGB 2 3/4 04/15/37 2.11 -0.02 15 year 2.06 -0.01
CAD 0.25 0.44 0.82 1.71 CAD 1.26 -0.04 NZGB 1 3/4 05/15/41 2.39 -0.02
* 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 06:49
Source: Bloomberg
www.bnz.co.nz/research Page 316 July 2021
Markets Today
NZD exchange rates
16/07/2021 6:49 a.m. Prev. NY close 0.71 NZD/USD - Last 7 days
USD 0.6978 0.7033
GBP 0.5052 0.5074
AUD 0.9408 0.9401 0.70
EUR 0.5910 0.5942
JPY 76.64 77.34 0.69
CAD 0.8800 0.8798
CHF 0.6407 0.6437
DKK 4.3954 4.4193 0.68
FJD 1.4465 1.4579 09-Jul 10-Jul 13-Jul 14-Jul 15-Jul 16-Jul
HKD 5.4204 5.4622
INR 52.02 52.46 NZD/AUD - Last 7 days
0.95
NOK 6.1662 6.1433
PKR 110.94 111.88
PHP 35.04 35.38 0.94
PGK 2.4484 2.4677
SEK 6.0517 6.0601
SGD 0.9454 0.9516 0.93
CNY 4.5084 4.5498
THB 22.79 22.98
0.92
TOP 1.5632 1.5758
VUV 77.06 77.57 09-Jul 10-Jul 12-Jul 14-Jul 15-Jul 16-Jul
WST 1.7875 1.8029
XPF 70.06 70.59 NZD/USD - Last 12 months
ZAR 10.1804 10.1811 0.74
0.72
0.70
0.68
0.66
NZD/USD Forward Points 0.64
BNZ buys NZD BNZ sells NZD 0.62
1 Month -0.64 -0.35 0.60
3 Months -4.34 -3.77 0.58
6 Months -12.65 -11.65 0.56
Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21
9 Months -24.72 -23.08
1 Year -39.82 -37.82
NZD/AUD - Last 12 months
0.98
NZD/AUD Forward points
BNZ buys NZD BNZ Sells NZD
0.96
1 Month -2.29 -1.69
3 Months -9.80 -8.64
0.94
6 Months -25.51 -23.37
9 Months -43.15 -39.64
1 Year -64.00 -59.19 0.92
0.90
Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21
www.bnz.co.nz/research Page 416 July 2021 Markets Today Contact Details BNZ Research Stephen Toplis Craig Ebert Doug Steel Jason Wong Nick Smyth Head of Research Senior Economist Senior Economist Senior Markets Strategist Senior Interest Rates Strategist +64 4 474 6905 +64 4 474 6799 +64 4 474 6923 +64 4 924 7652 +64 4 924 7653 Main Offices Wellington Auckland Christchurch Level 4, Spark Central 80 Queen Street 111 Cashel Street 42-52 Willis Street Private Bag 92208 Christchurch 8011 Private Bag 39806 Auckland 1142 New Zealand Wellington Mail Centre New Zealand Toll Free: 0800 854 854 Lower Hutt 5045 Toll Free: 0800 283 269 New Zealand Toll Free: 0800 283 269 National Australia Bank Ivan Colhoun Alan Oster Ray Attrill Skye Masters Global Head of Research Group Chief Economist Head of FX Strategy Head of Fixed Income Research +61 2 9237 1836 +61 3 8634 2927 +61 2 9237 1848 +61 2 9295 1196 Wellington New York Foreign Exchange +800 642 222 Foreign Exchange +1 212 916 9631 Fixed Income/Derivatives +800 283 269 Fixed Income/Derivatives +1 212 916 9677 Sydney Hong Kong Foreign Exchange +61 2 9295 1100 Foreign Exchange +85 2 2526 5891 Fixed Income/Derivatives +61 2 9295 1166 Fixed Income/Derivatives +85 2 2526 5891 London Foreign Exchange +44 20 7796 3091 Fixed Income/Derivatives +44 20 7796 4761 This document has been produced by Bank of New Zealand (BNZ). BNZ is a registered bank in New Zealand and is only authorised to offer products and services to customers in New Zealand. Analyst Disclaimer: The Information accurately reflects the personal views of the author(s) about the securities, issuers and other subject matters discussed, and is based upon sources reasonably believed to be reliable and accurate. The views of the author(s) do not necessarily reflect the views of the NAB Group. No part of the compensation of the author(s) was, is, or will be, directly or indirectly, related to any specific recommendations or views expressed. Research analysts responsible for this report receive compensation based upon, among other factors, the overall profitability of the Global Markets Division of NAB. NAB maintains an effective information barrier between the research analysts and its private side operations. Private side functions are physically segregated from the research analysts and have no control over their remuneration or budget. The research functions do not report directly or indirectly to any private side function. The Research analyst might have received help from the issuer subject in the research report. New Zealand: This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication. To the extent that any information or recommendations in this publication constitute financial advice, they do not take into account any person’s particular financial situation or goals. Bank of New Zealand strongly recommends readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. Neither Bank of New Zealand nor any person involved in this publication accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication. National Australia Bank Limited is not a registered bank in New Zealand. USA: If this document is distributed in the United States, such distribution is by nabSecurities, LLC. This document is not intended as an offer or solicitation for the purchase or sale of any securities, financial instrument or product or to provide financial services. It is not the intention of nabSecurities to create legal relations on the basis of information provided herein. www.bnz.co.nz/research Page 5
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