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RESEARCH
Markets Today
17 June 2022
Events Round-Up The market interpreted the final comment as the Bank
signalling possibly larger rate hike increments in the near
NZ: GDP (q/q%), Q1: -0.2 vs. 0.6 exp. term and moved to fully price in a 50bps hike at the next
meeting, with a chance of a 75bps move and some 175bps
AU: Employment change (k), May: 60.6 vs. 25.0 exp.
of hikes to 3% now priced over the last four meetings of
AU: Unemployment rate (%), May: 3.9 vs. 3.8 exp. the year. GBP initially dipped to full cent to 1.2050 after
UK: Bank of England Bank Rate (%), Jun: xx vs. 1.25 exp. the baby 25bps hike hit the headlines but then soared to
1.24 after the market had time to digest the detail. GBP
US: Building permits (k), May: 1695 vs. 1778 exp.
currently sits at 1.2355, up 1.7% from the NZ close.
US: Housing starts (k), May: 1549 vs. 1693 exp.
US: Philly Fed business outlook, Jun: -3.3 vs. 5.0 exp. Earlier, there was an even bigger reaction for CHF, after
the Swiss National Bank unexpectedly raised its policy rate
US: Initial jobless claims (k), 11-Jun: 229 vs. 217 exp.
by 50bps to minus 0.25%, to counter increased inflationary
pressure. Only one economist had picked any rate rise at
Good Morning all and that expectation being a 25bps hike. The statement
noted that “it cannot be ruled out that further increases in
There have been some chunky moves in financial markets, the SNB policy rate will be necessary in the foreseeable
in the aftermath of the super-sized 75bps hike by the Fed future” and “the SNB is also willing to be active in the
yesterday, followed up by a 25bps hike by the BoE and a foreign exchange market as necessary”, dropping its
surprise 50bps hike by the Swiss National Bank. US and previous wording on a highly valued franc. CHF has
European equities are significantly weaker, global rates are increased over 3% since the NZ close, taking USD/CHF
mostly higher, while the USD has taken a big tumble down to 0.9640.
despite the risk-off backdrop. CHF, GBP and JPY lead
overnight gains, while the NZD is up about 1½% to just US economic data released overnight were uniformly
under 0.64. worse than expectations. Housing starts and permits fell in
May by much more than expected, down 14.4% m/m and
The lift in US equities after the Fed hiked by 75bps 7.0% respectively. Mortgage applications have been
yesterday looked odd in the face of the central bank’s plunging this year against a backdrop of rising mortgage
determination to bring inflation back down to 2%. rates and the fact that they have hit 5.78%, the highest
Recession risk calls have got even louder and with a likely level since 2008 as headlined by the WSJ, should ensure
to hit earnings, US equities have tumbled in the order of more weakness in the housing market to come. The Philly
3½% so far today, extending the bear market moves of Fed business outlook indicator fell to minus 3.3 against
late. European markets were down in the order of 2½-3% expectations of a small lift, and initial jobless claims held
in the face of rate hikes by the Bank of England and the up around 229k, against expectations of a decline to 217k.
Swiss National Bank, the latter coming as a surprise. While seasonal factors may be a factor in the recent lift in
initial jobless claims, there has also been overwhelming
The Bank of England voted 6-3 to raise its policy rate by anecdotes of rising staff layouts.
25bps to 1.25%, deciding to opt for the baby step rather
than a larger 50bps or 75bps move seen elsewhere Bond market moves seem sedate compared to some
recently, with the three MPC members in the minority meaty moves in equities and currencies. The US curve has
voting for a 50bps hike. While a full set of forecasts steepened, with some paring back of Fed hikes dragging
weren’t provided, the Bank noted it now expected CPI the 2-year rate down 5bps, to 3.14% while the 10-year rate
inflation to rise slightly above 11% in October, following is currently up 2bps to 3.31%. The UK 2-year rate is up
another boost to household energy prices. On forward 15bps as the market interpreted the BoE comment in a
guidance the Bank has left itself with plenty of wriggle hawkish light, while its 10-year rate is up only 5bps.
room with “the scale, pace and timing” of any further rate Germany’s 10-year rate is up 7bps, while notably
hikes being data dependent but “the committee will be peripheral bond spreads have narrowed, with Italy’s
particularly alert to indications of more persistent 10year rate down 7bps, the market liking the ECB’s move
inflationary pressures, and will if necessary act forcefully in to limit fragmentation risks in the euro area. Bloomberg
response”. reports that ECB President Lagarde has told EU finance
www.bnz.co.nz/research Page 117 June 2022
Markets Today
ministers that the new anti-crisis tool currently under
development will kick in if borrowing costs for weaker The weak result wasn’t a surprise to most of the local big
nations rise too far or fast. trading banks like ourselves, but the consensus and RBNZ
were picking a 0.6-0.7% increase. The shortfall in growth
In currencies, we’ve noted GBP and CHF strength but the supported a fall NZ rates on the view that the weaker
broadly based fall in the USD is also notable. We’d economy takes the heat off the RBNZ to deliver super-
interpret the moves as recession fears in the US sized rate increases of 75bps like the Fed. However, the
dominating the usual safe-haven bid, and the massive USD fall in rates was reversed after the strong Australian
over-valuation on longer term valuation or PPP employment report.
considerations also being forefront of mind. Are we at the
beginning of the long-anticipated USD downward Australian employment surged over 60k in May, much
correction? We can’t be sure of course, but a chunky 1.4% stronger than expected, with higher labour force
fall in DXY and a 0.8% fall in the broader BBDXY USD index participation behind the unemployment rate remaining flat
is a start. at its multi-decade low of 3.9%. The data reinforced
market expectations of the RBA moving in at least 50bps
JPY has caught a safe-haven bid, with USD/JPY tumbling to clips over coming meetings.
132, but that might also reflect some last-minute
positioning of the BoJ today, see below. EUR has been mid- Overall, it was a wild day for the domestic rates market,
pack with a 1.2% gain overnight to 1.0570, the market opening to the downside in the immediate aftermath of
seemingly unconcerned about reduced gas supplies. The the post-Fed moves, with weaker GDP nudging rates down
WSJ reports that Russia has throttled deliveries of gas via further before the Australian data saw a reversal of course.
the Nord Stream pipeline to Germany this week, blaming The net change in the 2-year swap rate was a 7bps fall to
missing turbine parts due to sanctions. EU officials deny 4.49%, while 10-year swap fell only 2bps to 4.55%, having
that claim and say Moscow is weaponizing gas supplies. been marked down to as low as 4.35% intraday. The NZGB
Our central view of euro area growth, inflation and EUR 10-year rate marked out a range of 4.13% to 4.30%
risks has factored in this threat to gas supplies, with Russia throughout the day, closing down 2bps at 4.29%.
seen getting more economic and political bang per buck
later in the year ahead of the Northern Hemisphere In the day ahead, NZ’s manufacturing PMI is released but
winter. the key focus will be on the BoJ’s policy update this
afternoon. There is more interest than usual in this
Despite the risk-off backdrop, the NZD and AUD have meeting, given the recent dislocation of the JGB market
made solid gains, while CAD has been weak, being more and the BoJ needing to ramp up purchases to contain the
tied to the US economy and USD fortunes. The NZD has 10-year rate no higher than 0.25%. At the same time,
charged higher since the US market open, trading just shy rhetoric on concern about the weakening yen has stepped
of the 0.64 mark, currently up about 1½% overnight to up. The BoJ can’t expect the yen to stabilise when it is
0.6380. The outperformance against the AUD in the printing money at such a rapid rate, the two are
overnight move defies the economic backdrop, as seen in incongruous. The BoJ will need to abandon its current YCC
yesterday’s data (more on that below), suggesting some policy at some stage and the market will continue to test
positioning adjustments or flows have been at play. The the Bank’s resolve on defending the rate target as long as
AUD is up “only” 0.6% to 0.7060, seeing NZD/AUD recover this no-longer-fit-for-purpose policy continues.
to 0.9040.
jason.k.wong@bnz.co.nz
NZ GDP data confirmed that the economy was weak in Q1,
with a 0.2% q/q contraction, not helped by Omicron- Coming Up
related restrictions. We have been warning not to read too
much into this, given the likelihood of a decent bounce- Period Cons. Prev. NZT
back in Q2 as most restrictions eased. We still think that NZ BNZ Manufacturing PMI May 51.2 10:30
recession risk for the NZ economy remains very high, JN BoJ 10-yr yield target (%) Jun 0.0 0.0
against the backdrop of slower global growth, surging US Industrial production (m/m%) May 0.4 1.1 01:15
interest rates and a tumbling housing market, but that’s Source: Bloomberg, BNZ
more a story for later this year or early next year.
www.bnz.co.nz/research Page 217 June 2022
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 0.6386 +1.6 0.6233 0.6396 CHF 0.9636 -3.1 S&P 500 3,654 -3.6 -13.5 Oil (Brent) 120.03 +1.3
AUD 0.7064 +0.9 0.6944 0.7068 SEK 10.135 -0.4 Dow 29,889 -2.5 -12.2 Oil (WTI) 117.86 +2.2
EUR 1.0573 +1.2 1.0381 1.0601 NOK 9.933 -0.2 Nasdaq 10,614 -4.4 -24.4 Gold 1845.7 +1.9
GBP 1.2362 +1.5 1.2042 1.2406 HKD 7.850 -0.0 Stoxx 50 3,428 -3.0 -17.4 HRC steel 1125.0 -0.9
JPY 132.06 -1.3 131.50 134.65 CNY 6.704 -0.2 FTSE 7,045 -3.1 -1.9 CRB 314.8 -0.3
CAD 1.2921 +0.2 SGD 1.383 -0.2 DAX 13,038 -3.3 -17.0 Wheat Chic. 1091.8 +2.7
NZD/AUD 0.9040 +0.7 IDR 14,768 +0.2 CAC 40 5,886 -2.4 -11.5 Sugar 18.58 +0.8
NZD/EUR 0.6040 +0.3 THB 35.02 +0.7 Nikkei 26,431 +0.4 -8.9 Cotton 143.53 +0.4
NZD/GBP 0.5166 +0.1 KRW 1,287 -0.3 Shanghai 3,285 -0.6 -6.8 Coffee 231.8 +1.2
NZD/JPY 84.33 +0.3 TWD 29.75 +0.2 ASX 200 6,591 -0.2 -10.4 WM powder 4200 -0.6
NZD/CAD 0.8251 +1.8 PHP 53.48 +0.1 NZX 50 10,647 +0.1 -15.1 Australian Futures
NZ TWI 71.54 +1.1 3 year bond 96.1 -0.12
Interest Rates 10 year bond 95.81 -0.11
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 1.75 2.03 3.61 3.37 USD 3.31 0.03 NZGB 0 1/2 05/15/24 3.85 -0.07 1 year 4.16 -0.04
AUD 0.85 1.74 4.01 4.59 AUD 3.99 -0.21 NZGB 4 1/2 04/15/27 4.06 -0.05 2 year 4.49 -0.07
NZD 2.00 2.76 4.51 4.59 NZD 4.29 -0.01 NZGB 3 04/20/29 4.19 -0.02 5 year 4.53 -0.05
EUR -0.50 -0.18 1.84 2.51 GER 1.71 0.07 NZGB 1 1/2 05/15/31 4.26 0.00 7 year 4.54 -0.04
GBP 1.25 1.59 2.97 2.58 GBP 2.52 0.05 NZGB 2 05/15/32 4.29 -0.02 10 year 4.56 -0.02
JPY -0.04 -0.02 0.22 0.63 JPY 0.26 0.00 NZGB 1 3/4 05/15/41 4.59 -0.05 15 year 4.58 -0.02
CAD 1.50 2.39 3.75 3.91 CAD 3.46 0.00 NZGB 2 3/4 05/15/51
* 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 06:40
Source: Bloomberg
www.bnz.co.nz/research Page 317 June 2022
Markets Today
NZD exchange rates
17/06/2022 6:41 am Prev. NY close 0.65 NZD/USD - Last 7 days
USD 0.6386 0.6288
0.64
GBP 0.5166 0.5163
AUD 0.9040 0.8979 0.63
EUR 0.6040 0.6021
JPY 84.33 84.16 0.62
CAD 0.8251 0.8106 0.61
CHF 0.6154 0.6252
DKK 4.4929 4.4793 0.60
FJD 1.3962 1.3847 10-Jun 11-Jun 14-Jun 15-Jun 16-Jun 17-Jun
HKD 5.0128 4.9360
INR 49.86 49.09 NZD/AUD - Last 7 days
0.91
NOK 6.3433 6.2598
PKR 132.58 129.61
PHP 34.15 33.61 0.90
PGK 2.2486 2.2141
SEK 6.4721 6.3983
SGD 0.8833 0.8716 0.89
CNY 4.2814 4.2223
THB 22.41 22.03
0.88
TOP 1.4769 1.4415
VUV 74.61 73.62 10-Jun 11-Jun 13-Jun 15-Jun 16-Jun 17-Jun
WST 1.6354 1.6149
XPF 72.99 71.91 NZD/USD - Last 12 months
ZAR 10.2186 9.9198 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 -2.48 -2.06 0.60
3 Months -11.78 -10.68 0.58
6 Months -25.78 -24.00 0.56
Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22
9 Months -37.29 -34.42
1 Year -50.68 -47.68
NZD/AUD - Last 12 months
0.98
NZD/AUD Forward points
0.96
BNZ buys NZD BNZ Sells NZD
1 Month -5.83 -4.97 0.94
3 Months -20.95 -18.71 0.92
6 Months -37.34 -33.35 0.90
9 Months -44.01 -37.41
0.88
1 Year -47.40 -39.33
0.86
0.84
Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22
www.bnz.co.nz/research Page 417 June 2022
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 Senior Interest Rates
+64 4 474 6905 +64 4 474 6799 +64 4 474 6923 Strategist Strategist
+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
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