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RESEARCH
Markets Today
7 June 2022
Events Round-Up the coming months, a view reinforced by hawkish
subsequent comments from Cleveland Fed’s Mester.
NZ: Building work put in place (q/q%), Q1: 3.2 vs. 0.5 exp. Mester reiterated her support for 50bp moves at the next
two meetings while implying the September meeting was a
US: Nonfarm payrolls change (k), May: 390 vs. 318 exp.
choice between hiking 25bps or 50bps, not pausing as her
US: Unemployment rate (%), May: 3.6 vs. 3.5 exp. colleague Bostic had recently suggested, saying “if I don’t
US: Average hourly earnings (m/m%), May: 0.3 vs. 0.4 exp. see compelling evidence, then I could easily be a 50 basis-
point in that meeting as well.”
US: Average hourly earnings (y/y%), May: 5.2 vs. 5.2 exp.
US: ISM services index, May: 55.9 vs. 56.5 exp. US rates increased modestly post-payrolls and they have
CH: Caixin China PMI Services, May: 41.4 vs. 46 exp. extended those moves overnight, with the US 10-year rate
breaking above 3% for the first time in three weeks. It is
Good Morning currently trading at 3.03%, around 12bps higher than the
NZ market close on Friday afternoon. The market is pricing
A robust US nonfarm payrolls report and further steps by 144bps into the Fed’s next three meetings, indicating a
China to loosen Covid-19 restrictions have pushed global high chance of 50bps hikes at each, while the US 2-year
rates higher, with the US 10-year rate breaking back above rate is around 8bps higher than Friday morning’s close, at
3% overnight. The higher rates backdrop has hit US equity 2.73%. Ahead of the ECB’s policy update this week, at
markets, with the S&P500 around 1.5% lower than Friday which the Bank is almost certain to announce the end to
morning’s close. The USD is broadly stronger, sending the net asset purchases and set the stage for a rate hike in
NZD back below 0.65 and USD/JPY up to a fresh 20-year July, the German 10-year bund yield has pushed up to a
high, just below 132. It’s a big week ahead. The RBA is fresh eight-year high, at 1.32%. Bank of America is now
expected to raise rates today, with the market roughly split calling for two 50bps ECB hikes by the end of the year.
between a 25bps hike and a 40bps move, and US CPI data
and the ECB policy meeting later in the week. US equity markets were down heavily on Friday after
payrolls (S&P500 -1.6%, NASDAQ -2.5%) amidst firming Fed
Starting with the nonfarm payrolls data from Friday night, rate hike expectations. The ‘good news is bad news’
the monthly report showed still solid job growth, an mindset still appears at play with the equity market,
ongoing recovery in labour force participation and, whereby stronger economic data is seen as increasing the
encouragingly, no further acceleration in wages growth. chances of more aggressive tightening, in turn increasing
Non-farm payroll growth of 390k was stronger than the medium-term recession risks. Meanwhile, not helping the
318k consensus, but a little lower than the 428k gain in mood, Tesla slumped 9% on reports Elon Musk was
April. The pace of employment growth has moderated this planned to cut 10% of its workforce, the latest in a string of
year, albeit to a still healthy pace, with the three-month tech firms to announce hiring freezes or layoff plans, with
moving average of payrolls gains now its lowest since early Musk citing a “super bad feeling” about the economy.
2021. The unemployment rate was steady at 3.6% as jobs
growth was counterbalanced an increase in the labour There has been some stabilisation in risk sentiment
force participation rate. Importantly, average earnings per overnight, with US equities recovering some of those
hour grew 0.3% m/m against expectations for a 0.4% rise, losses from Friday (S&P500 +0.4%), even as rates have
continuing the trend of moderation in this measure of pushed even higher.
wage growth over the past six months. The verdict is still
out as to why the monthly pace of average hourly earnings Helping the stabilisation in sentiment, the WSJ reported
growth has eased this year even though the labour market that Chinese regulators were planning to lift restrictions on
is even tighter than it was six months’ ago, but, on the face ride-hailing app Didi, seemingly confirming the shift away
of it, it does add some weight to the argument that core from the regulatory crackdown on tech firms as the
inflation pressures might start to ease going forward. The Chinese authorities pivot towards supporting the
all-important US CPI release comes out later this week. economy. Separately, China announced a further easing in
Covid restrictions, with public transport to resume in most
The market saw the payrolls report as confirming that the of Beijing, which will allow most workers to return to the
Fed will need to keep up its aggressive pace of rate hikes in office, while restaurants and cinemas in the city will be
www.bnz.co.nz/research Page 17 June 2022
Markets Today
allowed to reopen. Copper prices are 2.5% higher It was a quieter end to the week for domestic rates market
overnight and nickel 5% while the CSI300 equity index was on Friday with swap rates little changed around the curve
almost 2% higher, symptomatic of less pessimism around but a slight steepening bias evident. The short end of the
the Chinese growth outlook. It remains to be seen curve appears to have some stability with terminal cash
whether China can keep Omicron out, with Shanghai rate pricing at around 4%. Government bonds were 1-
reporting three new cases out of quarantine on Sunday. 3bps higher across most of the curve, unwinding some of
their recent significant outperformance against swaps.
The USD is broadly stronger since Friday against a
backdrop of higher Fed rate expectations and still cautious Today sees the RBA meeting where economists are divided
risk sentiment. The BBDXY index is around 0.6% higher between whether it will raise its cash rate by 25bps or
than it was on Friday morning, with the USD gaining 40bps (with a few even calling for a 50bps hike). The
against all the G10 currencies. rationale for a 40bps hike, not a standard increment for
central banks, would be to return the cash rate to a ‘round’
JPY has been a notable underperformer amidst the surge 0.75%, still extremely low in the context of a super-tight
in US Treasury yields, with USD/JPY blasting up to almost labour market and well above-target inflation. The market
132, a fresh 20-year high. BoJ Governor Kuroda reiterated is pricing 33bps for the meeting, indicating a roughly even
that “monetary tightening is not at all a suitable measure” chance of a 25bps hike and a 40bps move.
for Japan at this point, signalling that the BoJ has no
intention of folding into line with other central banks’ As for the rest of the week, the key focus offshore is the US
tightening plans. The GBP hasn’t been too ruffled by the CPI release and the ECB meeting. For CPI, the consensus is
confidence vote in UK PM Johnson, which he is expected to looking for a 0.7% monthly increase in headline inflation,
win (results expected shortly), outperforming the other which would see the annual rate steady at 8.3%, and a still-
majors overnight. Despite generally stronger commodity too-high 0.5% increase in core inflation (5.9% y/y
prices, the AUD and NZD are both around 1% lower than expected). The ECB’s meeting on Thursday night should
Friday, with the latter falling back below the 0.65 mark. see the announcement of a well telegraphed end of asset
purchases and set the stage for the first interest rate rise
In other economic data, the US Services ISM (released at the following July meeting, with market attention likely
Friday night) was a touch softer than expected at 55.9 to be focused on how open Lagarde is to a potential 50bps
(from 57.1), continuing its recent downtrend. That was its move. While the ECB is all but certain to announce the
lowest reading since February 2021 but the 24th end to bond purchases by early next month, the FT reports
consecutive month in growth territory. In China, the Caixin that most committee members are in favour of setting up
Services PMI rebounded only modestly, to a still a new backstop bond buying facility for weaker sovereigns,
contractionary 41.4, although there was no market impact such as Italy, which could be deployed if these bond
with investors looking ahead to easier Covid restrictions in markets come under significant stress, with details on the
the country. scheme possible this week. Locally there are more ‘partial’
indicators of GDP, which will help firm up estimates for
In other news, Bloomberg reported that the GDP, released next week. As things stand, we anticipate a
semiconductor shortage, which has played a part in recent flat result on Q1 GDP, well below the RBNZ’s 0.7% MPS
supply chain disruptions, may be starting to ease. forecast.
Mercedes, Daimler, and BMW were all receiving enough
semiconductors to produce at full capacity, a welcome nick.smyth@bnz.co.nz
change for an industry which has been crippled by
shortages. New and used car prices have been a major Coming Up
contributor to higher US core inflation over the past two
Period Cons. Prev. NZT
years, albeit far from the only factor. But this inflationary
impulse has recently started to ease, a trend likely to AU RBA Cash Rate Target (%) Jun 0.60 0.35 16:30
continue if supply chain issues with semiconductors are GE Factory Orders (m/m%) Apr -0.6 -4.7 18:00
indeed moderating. US Trade Balance ($b) Apr -89 -109.8 00:30
Source: Bloomberg, BNZ
www.bnz.co.nz/research Page 27 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 0.6488 -0.3 0.6485 0.6537 CHF 0.9713 +0.9 S&P 500 4,119 +0.3 -2.6 Oil (Brent) 119.36 -0.3
AUD 0.7191 -0.2 0.7187 0.7232 SEK 9.799 +0.2 Dow 32,915 +0.1 -5.3 Oil (WTI) 118.29 -0.5
EUR 1.0690 -0.3 1.0684 1.0752 NOK 9.432 -0.1 Nasdaq 12,056 +0.4 -12.7 Gold 1839.2 -0.2
GBP 1.2535 +0.4 1.2516 1.2577 HKD 7.844 -0.0 Stoxx 50 3,838 +1.4 -6.1 HRC steel 1155.0 +0.0
JPY 131.98 +0.8 130.47 131.98 CNY 6.654 -0.1 FTSE 7,608 +1.0 7.0 CRB 323.3 +0.1
CAD 1.2576 -0.2 SGD 1.377 +0.0 DAX 14,654 +1.3 -6.6 Wheat Chic. 1108.3 +5.4
NZD/AUD 0.9022 -0.0 IDR 14,446 +0.1 CAC 40 6,549 +1.0 0.5 Sugar 19.56 +1.5
NZD/EUR 0.6069 +0.1 THB 34.42 +0.1 Nikkei 27,916 +0.6 -3.8 Cotton 137.74 -0.3
NZD/GBP 0.5176 -0.7 KRW 1,254 +0.9 Shanghai 3,236 +1.3 -10.1 Coffee 237.6 +1.4
NZD/JPY 85.63 +0.5 TWD 29.39 +0.1 ASX 200 7,206 -0.4 -1.0 WM powder 4280 +1.4
NZD/CAD 0.8159 -0.7 PHP 52.88 +0.0 NZX 50 11,417 +0.6 -8.6 Australian Futures
NZ TWI 72.13 -0.2 3 year bond 96.945 0.00
Interest Rates 10 year bond 96.52 0.03
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 1.00 1.63 3.10 3.12 USD 3.03 0.10 NZGB 0 1/2 05/15/24 2.99 0.00 1 year 3.55 0.01
AUD 0.35 1.24 3.29 3.86 AUD 3.48 0.00 NZGB 4 1/2 04/15/27 3.46 0.01 2 year 3.88 -0.00
NZD 2.00 2.49 3.86 3.99 NZD 3.68 0.03 NZGB 3 04/20/29 3.53 0.02 5 year 3.94 0.00
EUR 0.00 0.06 1.29 2.03 GER 1.32 0.05 NZGB 1 1/2 05/15/31 3.63 0.03 7 year 3.96 0.01
GBP 1.00 1.42 2.53 2.29 GBP 2.25 0.09 NZGB 2 05/15/32 3.68 0.03 10 year 4.00 0.01
JPY -0.05 -0.02 0.07 0.40 JPY 0.25 0.01 NZGB 1 3/4 05/15/41 4.08 0.01 15 year 4.03 0.01
CAD 1.50 2.21 3.46 3.63 CAD 3.18 0.11 NZGB 2 3/4 05/15/51 4.11 -0.01
* 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 06:58
Source: Bloomberg
www.bnz.co.nz/research Page 37 June 2022
Markets Today
NZD exchange rates
7/06/2022 6:58 a.m. Prev. NY close 0.66 NZD/USD - Last 7 days
USD 0.6488 0.651
GBP 0.5176 0.5213
AUD 0.9022 0.9033
EUR 0.6070 0.6073 0.65
JPY 85.63 85.20
CAD 0.8159 0.8199
CHF 0.6302 0.6263
DKK 4.5153 4.5172 0.64
FJD 1.3938 1.3922 31-May 01-Jun 02-Jun 03-Jun 04-Jun 07-Jun
HKD 5.0893 5.1073
INR 50.37 50.53 NZD/AUD - Last 7 days
0.92
NOK 6.1192 6.1430
PKR 129.49 128.64
PHP 34.30 34.37 0.91
PGK 2.2845 2.3012
SEK 6.3574 6.3611
SGD 0.8932 0.8958 0.90
CNY 4.3171 4.3359
THB 22.25 22.35
0.89
TOP 1.4776 1.4856
VUV 74.39 74.60 31-May 01-Jun 02-Jun 03-Jun 04-Jun 07-Jun
WST 1.7099 1.7045
XPF 72.18 72.52 NZD/USD - Last 12 months
ZAR 10.0196 10.1219 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 -3.28 -2.68 0.60
3 Months -11.27 -10.47 0.58
6 Months -25.44 -23.76 0.56
Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22
9 Months -35.67 -33.11
1 Year -44.70 -41.78
NZD/AUD - Last 12 months
0.98
NZD/AUD Forward points
BNZ buys NZD BNZ Sells NZD
0.96
1 Month -8.90 -7.70
3 Months -27.20 -25.46
0.94
6 Months -50.06 -46.48
9 Months -60.14 -54.70
1 Year -61.97 -55.30 0.92
0.90
Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22
www.bnz.co.nz/research Page 47 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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