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RESEARCH
Markets Today
1 November 2021
Events Round-Up The Fed meets on Thursday morning, with the market
expecting it to formally announce tapering, likely to
AU: Retail sales (m/m%), Sep: 1.3 vs. 0.4 exp. commence mid-November and finish by mid-2022. The
market prices an almost 80% chance of a Fed rate hike by
GE: GDP (q/q%), Q3: 1.8 vs. 2.2 exp.
June next year. Economists are finally starting to catch up
EC: GDP (q/q%), Q3: 2.2 vs. 2.1 exp. to the market, with Goldman Sachs changing its Fed rate
EC: CPI (y/y%), Oct: 4.1 vs. 3.7 exp. call on Friday, now expecting the first hike in July 2022.
EC: Core CPI (y/y%), Oct: 2.1 vs. 1.9 exp.
In Europe, CPI inflation was much higher than expected, as
US: Employment cost index (q/q%), Q3: 1.3 vs. 0.9 exp. foreshadowed by the Spanish and German inflation
US: Core PCE deflator (y/y%), Sep: 3.6 vs. 3.7 exp. numbers the previous night. Headline inflation matched
its highest since the formation of the euro, at 4.1%, while
US: Chicago PMI, Oct: 68.4 vs. 63.7 exp.
core inflation rose to 2.1% y/y, the first time it has been
CH: Manufacturing PMI, Oct: 49.2 vs. 49.7 exp. above the ECB’s 2% target since 2002. The market
CH: Non-Manufacturing PMI, Oct: 52.4 vs. 53 exp. continues to bring forward the expected timing of ECB rate
hikes following President Lagarde’s ‘half hearted’ pushback
against market pricing on Thursday night, with now 20bps
Good Morning of hikes priced in by the end of 2022 and 60bps by the end
of 2023. The German 5-year rate was 5bps higher on
Bond markets remain volatile amidst high inflation and Friday, hitting its highest level in 2½-years, at -0.39%, while
growing expectations that central banks will bring forward Ital’s 10-year yield pushed another 12bps higher, with the
interest rate hikes. Friday saw the highest quarterly wage market anticipating less ECB bond buying support ahead.
growth in the US in almost 40 years and European core
inflation above the ECB’s 2% target for the first time since US Treasury yields bucked the global trend on Friday,
2002. The US 10-year rate fell slightly on Friday but there despite the extremely strong wage data, with the 10-year
were big movements in Australia after the RBA decided rate falling 3bps, to 1.55%. The yield curve remains under
against enforcing its Yield Curve target once again, flattening pressure amidst expectations that the Fed will
signalling that it will ditch the policy and its 2024 rate raise rates by the middle of next year, in turn leading to a
guidance at its meeting tomorrow. NZ rates had some growth slowdown down the line. Month-end related
respite on Friday, falling back after their big moves higher demand may also have supported bonds on the session.
earlier in the week. The USD was stronger on Friday, with
the EUR giving back its post-ECB gains and the NZD falling Equities remain oblivious to the increase in central bank
back below 0.72. Equities continue to edge higher. rate hike expectations, with the S&P500 grinding out a
0.2% gain on Friday, taking it to a fresh record high.
Inflation concerns remain front and centre for market Earnings reports from tech heavyweights Amazon and
participants. In the US, the Employment Cost Index (ECI) Apple disappointed market expectations, but the
recorded a 1.3% quarterly increase in Q3, much higher corporate earnings season has been positive overall, with
than expected, with wages and salaries 1.5% higher over more than 80% of S&P500 companies having beaten
the quarter, the largest such increase since 1982. The very earnings expectations so far. The S&P500 was up 6.9% in
high rate of wage growth in the US confirms the US labour October, and the NASDAQ 7.3%.
market is extremely tight. Fed officials expect that more
workers will return to the labour force in the coming The USD appreciated sharply on Friday, rising by 0.7-0.8%
months following the end of generous unemployment in index terms. The EUR gave back all its post-ECB gains,
benefits, the return of schools and the decline in Covid-19 and some, falling over 1% to 1.1560, near its year-to-date
cases in the country, in turn moderating wage pressure. low. The NZD was down 0.4%, falling to around 0.7170.
But, if wage growth remains elevated, it will likely sustain Currencies and equities haven’t been overly affected by
higher inflation, in turn requiring a more aggressive Fed the recent volatility in interest rate markets and risk
monetary policy response. appetite remains generally positive, a key factor behind
the almost 4% appreciation in the NZD over the month.
www.bnz.co.nz/research Page 11 November
Markets Today 2021
European natural gas futures fell another 13% on Friday unchanged on the day, at 2.74%. Volatility remains very
continuing the trend lower after Russian President Putin high and liquidity is thin, exaggerating market movements.
signalled that Gazprom would start filling European
storage facilities from early November. Gas futures are In other news, overleveraged Chinese real estate
now some 60% off the panic levels reached in early developer Evergrande has seemingly staved off default for
October but, to put the moves in context, they are still another few weeks after reportedly making USD bond
more than 2.5 times higher than at the end of last year. interest payments to investors on Thursday, just ahead of
10-year breakeven inflation expectations in Europe and the the end of its 30-day grace period. The next coupons come
UK fell almost 10bps on Friday on the back of the moves in due on the 11th of November and media have reported
gas prices, albeit they remain near multi-year highs. that Chinese authorities have pressured the company’s
founder to commit his own personal capital to help the
In Australia, the RBA again decided against enforcing its company survive.
Yield Curve Control policy on Friday, even with the April
2024 bond trading well above the 0.1% target. The bond’s Finally, in data released over the weekend, the official
yield jumped another 24bps, to 0.78%, following on from Chinese manufacturing PMI fell to 49.2, its lowest level
Thursday’s 33bps rise, as the market took the RBA’s since the nationwide lockdown last year, amidst electricity
inaction as confirmation that it will change its forward shortages in the country. The non-manufacturing index
guidance at tomorrow’s meeting and will drop the policy was also softer than expected, albeit it remains in
altogether. The reason the RBA had previously been expansionary territory.
buying the April 2024 bond if it was trading above 0.1%
was because it tied in with its central view that rate hikes The highlight in the session ahead is the ISM
were unlikely until 2024. But with core inflation now Manufacturing survey but focus really lies on the upcoming
within the 2-3% target range, that forward guidance will be central banks decisions this week, starting with the RBA
dropped tomorrow, and more realistic, outcomes-based tomorrow, and followed by the Fed and Bank of England
guidance is likely to be adopted. The market prices an later in the week. In New Zealand, we’re looking for the
almost 40% chance of an RBA rate hike at the February unemployment rate to fall to 3.7%, which would be its
2022 meeting. The volatility wasn’t confined to the lowest level since 2008.
Australian short end, with the 10-year rate increasing a
massive 24bps, to a 2½-year high of 2.09%, before nick.smyth@bnz.co.nz
reversing that move during Friday night futures trading.
Coming Up
New Zealand rates finally found some relief on Friday, even
with Australian rates pushing sharply higher. The 2-year Period Cons. Prev. NZT
swap rate dropped 9bps, to 2.26%, still some 83bps higher CH Caixin China Manufacturing PMI Oct 50 50 14:45
during the month of October. And the yield curve reversed
US ISM Manufacturing Oct 60.3 61.1 03:00
some of its recent flattening trend, the 10-year swap rate
Source: Bloomberg, BNZ
www.bnz.co.nz/research Page 21 November
Markets Today 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 0.7171 -0.4 0.7136 0.7193 CHF 0.9161 +0.5 S&P 500 4,605 +0.2 40.8 Oil (Brent) 83.72 +0.1
AUD 0.7518 -0.3 0.7500 0.7552 SEK 8.592 +0.9 Dow 35,820 +0.2 35.2 Oil (WTI) 83.57 +0.5
EUR 1.1558 -1.1 1.1535 1.1676 NOK 8.444 +1.3 Nasdaq 15,498 +0.3 42.0 Gold 1783.9 -1.0
GBP 1.3682 -0.8 1.3668 1.3802 HKD 7.779 +0.0 Stoxx 50 4,251 +0.4 43.7 HRC steel 1803.0 +0.3
JPY 113.95 +0.3 113.51 114.10 CNY 6.406 +0.2 FTSE 7,238 -0.2 29.8 CRB 237.7 -0.3
CAD 1.2388 +0.3 SGD 1.349 +0.3 DAX 15,689 -0.0 35.8 Wheat Chic. 785.0 -0.1
NZD/AUD 0.9538 -0.1 IDR 14,168 -0.0 CAC 40 6,830 -0.2 48.7 Sugar 19.27 -1.8
NZD/EUR 0.6204 +0.6 THB 33.28 +0.3 Nikkei 28,893 +0.3 25.7 Cotton 114.85 +1.0
NZD/GBP 0.5241 +0.4 KRW 1,168 -0.1 Shanghai 3,547 +0.8 10.0 Coffee 204.0 +2.0
NZD/JPY 81.71 -0.1 TWD 27.80 -0.0 ASX 200 7,324 -1.4 23.6 WM powder 3925.0 -0.6
NZD/CAD 0.8883 -0.1 PHP 50.42 -0.6 NZX 50 13,100 +1.0 8.4 Australian Futures
NZ TWI 75.91 -0.1 3 year bond 98.675 0.04
Interest Rates 10 year bond 98.07 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 0.69 1.56 USD 1.55 -0.03 NZGB 5 1/2 04/15/23 1.55 -0.05 1 year 1.58 -0.06
AUD 0.10 0.07 1.04 2.13 AUD 2.09 0.24 NZGB 0 1/2 05/15/26 2.31 -0.07 2 year 2.26 -0.09
NZD 0.50 0.80 2.23 2.74 NZD 2.63 -0.00 NZGB 0 1/4 05/15/28 2.45 -0.04 5 year 2.63 -0.07
EUR 0.00 0.06 -0.22 0.28 GER -0.11 0.03 NZGB 1 1/2 05/15/31 2.58 -0.01 7 year 2.68 -0.03
GBP 0.10 0.25 1.23 1.23 GBP 1.03 0.03 NZGB 2 05/15/32 2.63 -0.00 10 year 2.74 -0.00
JPY -0.05 -0.08 0.02 0.14 JPY 0.10 0.01 NZGB 1 3/4 05/15/41 2.90 -0.02 15 year 2.85 0.01
CAD 0.25 0.48 1.59 2.20 CAD 1.72 0.05 NZGB 2 3/4 05/15/51 3.00 -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: New York close
Source: Bloomberg
www.bnz.co.nz/research Page 31 November
Markets Today 2021
NZD exchange rates
30/10/2021 NY close Prev. NY close 0.73 NZD/USD - Last 7 days
USD 0.7171 0.7201
GBP 0.5241 0.5222
AUD 0.9538 0.9545 0.72
EUR 0.6204 0.6165
JPY 81.71 81.79 0.71
CAD 0.8883 0.8890
CHF 0.6569 0.6566
DKK 4.6158 4.5855 0.70
FJD 1.4786 1.4869 23-Oct 25-Oct 27-Oct 28-Oct 29-Oct 30-Oct
HKD 5.5783 5.6004
INR 53.69 53.95 NZD/AUD - Last 7 days
0.96
NOK 6.0550 5.9996
PKR 123.33 124.76
PHP 36.16 36.52
PGK 2.5161 2.5356
0.95
SEK 6.1615 6.1330
SGD 0.9672 0.9682
CNY 4.5935 4.6027
THB 23.79 23.97
0.94
TOP 1.5862 1.5896
VUV 78.31 78.93 23-Oct 25-Oct 26-Oct 27-Oct 29-Oct 30-Oct
WST 1.8142 1.8210
XPF 73.76 73.92 NZD/USD - Last 12 months
ZAR 10.9295 10.8984 0.74
0.72
0.70
NZD/USD Forward Points 0.68
BNZ buys NZD BNZ sells NZD 0.66
1 Month -3.10 -2.70
0.64
3 Months -11.92 -11.41
6 Months -30.36 -29.36 0.62
Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21
9 Months -57.78 -55.97
1 Year -91.15 -89.15
NZD/AUD - Last 12 months
0.98
NZD/AUD Forward points
BNZ buys NZD BNZ Sells NZD
0.96
1 Month -5.42 -4.58
3 Months -18.61 -17.15
0.94
6 Months -39.60 -36.53
9 Months -67.09 -62.09
1 Year -95.64 -89.85 0.92
0.90
Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21
www.bnz.co.nz/research Page 41 November Markets Today 2021 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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