MARKETS OUTLOOK RESEARCH - Lane Neave Immigration Lawyers
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RESEARCH
MARKETS OUTLOOK
13 July 2020
Some Resilience To The World’s Ills
• Dairy prices push higher WMP prices were up across all contract periods, but the
• Resilience seen in some other primary export prices too biggest gains came in the shorter dates, including a huge
• An annual trade surplus in sight, as imports fall 24.5% lift in the August period. This indicates very strong
• It’s a positive within a world of caution near-term demand at a time when NZ supply is relatively
• Annual inflation to start move lower in Q2 limited. Yes, the forward curve is downward sloping,
suggesting prices may ease as NZ milk supply builds through
The COVID-19 pandemic has clearly been a massive shock the season. But even in the far dates into the heart of the new
to the world economic system. It has caused all sorts of season, prices were firm at over US$3,100/T.
grief across the globe. Unemployment has lifted and
Improving Chinese economic indicators including a
incomes have been severely dented. Recessions are ugly. All
booming equity market are helpful on the demand side, as
this is supposed to be bad for commodity prices and for
is some (slow) reopening of economies (including
nations reliant on such trade.
foodservice) elsewhere. Chinese demand may have also
Well, if that is the story, someone forgot to tell the dairy been boosted by recent reports of imminent higher
market (and a few other primary product markets have Chinese tariffs on Australian wholemilk powder exports (as
been holding up reasonably well too). part of the safeguard measures associated with the
Australia-China free trade agreement). The strong dairy
Look at last week’s dairy auction. Prices surged higher, auction also saw a lift in unsatisfied buyers. That latent
surprising all and sundry. The GDT Price Index rose a very demand suggests some support for prices ahead.
strong 8.3%. It was the fourth consecutive increase with a
cumulative gain of 11.6% since the recent low in early Other dairy products also saw gains at last week’s auction,
May. For all the positives in that – and there are plenty – it although more in the 2% to 3.5% range. AMF was the
is worth noting that it only put the price index back to year exception in easing 0.2%. Some signs of milk supply
earlier levels to sit around the middle of the prevailing weakness appearing offshore has not doubt helped
multi-year range. But that is a commendable result, given support dairy prices in general as has NZ’s reputation for
the circumstances. safe and quality products. There is evidence of NZ products
achieving higher than normal price premiums.
Commendable
All this is positive for Fonterra milk price calculations. For
USD Index
Dairy Auction Prices - GDT now at least, it has replaced downside risk that was
1800
appearing via a strengthening NZD with upside risk.
1500 Indeed, on our calculations, if current pricing and currency
Firmly within range levels were to persist, the 2020/21 milk price would
1200 exceed the top of Fonterra’s current forecast range of
$5.40 to $6.90. The latest auction’s result may see some
900 talk of the milk price exceeding $7 again with an eye on
where the previous season looks like finishing (around the
600 $7.20 mark).
300
There is no doubt that the strong auction result puts
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Source: GlobalDairyTrade, BNZ
upside risk around our $6.50 forecast. But we are hesitant
Weekly
to move at this point given massive global economic
The price gains were driven by a whopping 14% lift in uncertainty. We wouldn’t be surprised to see offshore
wholemilk powder (WMP) – the mainstay of NZ’s dairy prices ease back a bit from current levels. Obviously,
product mix. The average WMP price came in at just over markets remain extremely volatile. It was only a month or
US$3,200/T. This is a decent chunk higher than the two ago that the futures market was pricing in something
US$2,600/T assumption built into the RBNZ’s May MPS. If sub $6 for the 2020/21 milk price. After last week’s auction
such pricing persists, it would help ease angst the RBNZ may it nudged $7. Conditions can change in a heartbeat.
have been harbouring around the recent NZD appreciation. Caution must still be exercised. But, equally, we must
www.bnz.co.nz/research Page 1Markets Outlook 13 July 2020
acknowledge the better-looking market conditions at associated with similar characteristics for the nation’s
present. For now, we will simply note that current prices terms of trade and currency. This is good for the
present some upside potential for milk price and continue purchasing power of the country, although, of course, for
to monitor offshore developments. food producers themselves, it is all about the balance
between world prices and the NZD.
Looking across prices for NZ’s other major primary
products, we also see a fair degree of resilience. This is not In an aggregate sense, subdued imports and resilient
to deny some clear pockets of weakness, for the likes of primary sector export outlook is a useful offset to the
wool and venison. Nor considerable variation across sudden absence of tourism and international students and
products within the high-level categories (often to do with the pending removal of around $1.1b aluminium exports
the degree of exposure to international foodservice). But it following last week’s Rio Tinto announcement that the
is notable that NZ dollar prices across the major groups of aluminium smelter at Tiwai Pt will close at the end of August
dairy, horticulture, lamb, seafood and wheat are currently next year. The latter is a salient reminder that some export
sitting above their respective five-year averages. In addition, prices are not at all strong with significant consequences.
beef and log prices are only marginally below this norm.
The effects will be painful with the loss of 2,600 jobs
Resilience Amid Areas Of Weakness including estimates of those indirectly affected. It will take
a direct chunk out of NZ’s GDP as the smelter winds down
% NZ Primary Product Prices and closes, the latter currently scheduled for August next
NZ dollar prices
50
40
year. Then there are flow-on effects with reports of expected
30 reduced activity and investment elsewhere already being
20 reported, including possible closure of power plants and/or
10 delays to invest in new plants. The energy sector clearly has
0
some adjustment to do given that the smelter uses around
-10
Annual % change
13% of NZ’s total electricity generation.
-20
2 year % change
-30
We will be building in the implications of this
-40 Deviation from 5 year average
announcement on our forecasts over coming weeks. While
-50
Aluminium Beef Dairy Logs Horticulture Lamb Oil Seafood Venison Wheat Wool the direction of impact on exports, GDP, and jobs is clear,
Source: AgriHQ, ANZ, Bloomberg, BNZ Product
it is less clear for prices and the CPI overall with downward
pressure expected via generation, but possible upward
From a macroeconomic perspective, signs of further price pressure via transmission costs.
resilience for many of NZ’s major primary export products
is very helpful to the outlook for NZ exports. It will Turning to this week’s data, it has already kicked off with
ultimately support domestic economic activity. And it only this morning’s food prices and rents for June. Food prices
adds to our view that NZ’s annual merchandise trade rose 0.5% in June, to be up 4.1% on a year ago. The stock
deficit will continue shrinking and turn into a surplus by measure of rents rose 0.1% in June seeing annual rent
the end of 2020. The latter is also a result of forecast inflation ease marginally to 3.4% from 3.5% in May.
general weakness in imports, with domestic spending – None of this alters our overall pick for this Thursday’s Q2
especially on often import-intensive capital goods – likely CPI which remains at -0.7% q/q and +1.3% y/y, which looks
to remain weak as elevated economic uncertainty curtails the most prominent data release on this week’s calendar.
investment. Lower oil prices are also helping turn the trade We see the expected Q2 easing in annual inflation from
balance around. 2.5% in Q1 as the start of a general slowing in inflation
over coming quarters. Our Q2 view includes lower
Exports More Resilient Than Imports? transport related prices, including lower fuel prices, along
Annual
$ billion
Goods Exports and Imports with expected declines in audio visual and computing
70
65
equipment. Core measures of annual inflation are also
60
expected to ease, including non-tradeable and CPI ex food
55 Imports and energy, as slack opens in the economy. But, at
50 present, inflation is not the biggest concern. The focus is
45 on resuscitating growth.
Exports
40
35 In this regard, Friday’s PMI will be worth a look to see how
30 it fared in June following three consecutive sub-50
25 outcomes, including May’s 39.7. Tuesday’s international
20
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
migration and travel figures for May will likely again show
Source: Statistics New Zealand, BNZ Monthly
low numbers given severe border restrictions. Otherwise,
All this offers support to the NZD. Generally resilient world it is a case of monitoring the latest high frequency data
prices for NZ’s major primary products tends to be including Wednesday’s preliminary merchandise trade
www.bnz.co.nz/research Page 2Markets Outlook 13 July 2020
figures up to 8 July and Thursday’s paid jobs for the week
ended 14 June. Also, we would expect to see the REINZ’s June
housing report at some stage during the week with the focus
being on whether it shows general resilience like we have
seen in some regional indicators.
Annual Inflation Set To Fall
Annual %
change Consumers Price Index
6.0 Forecasts
5.0
4.0
Target peak
3.0
Target mid-point
2.0
1.0
Target low
0.0 BNZ
RBNZ May 2020 MPS
-1.0
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Source: RBNZ, Statistics NZ, BNZ Quarterly
doug_steel@bnz.co.nz
www.bnz.co.nz/research Page 3Markets Outlook 13 July 2020
Global Watch
• China Q2 GDP to bounce strongly AU unemployment expected to rise further
• US indicators seen recovering, CPI the exception
• EU leaders discuss Recovery Fund late this week
• ECB to sit pat on Thursday
• AU employment to bounce; unemployment to edge up
• AU focus on Victorian COVID case numbers
Australia
Australia’s June labour data is expected to improve
reflecting easing of restrictions nationally, but before the
re-imposition in Melbourne. Thursday’s should show that
employment in June partially recovered some of the
835,000 jobs lost in April and May. NAB forecast a 175,000
rise in employment after already-released payrolls data
revealed a sizeable rebound in employment as lockdown
restrictions eased around the country through June. COVID-19 cases in Victoria remain a concern – cases in
the rest of Australia remain very low
The unemployment rate is much harder to predict as we
need to weigh up the large rise in employment against the
likelihood that labour force participation picked up. We
think that more people will have re-joined the labour
force, such that the unemployment rate will have risen to
around 7.8%, from 7.1% previously, even with the large
rise in employment.
Either way, we’d continue to caution that the published
unemployment rate is not a particularly useful indicator of
the true state of the labour market at present, in part, due
to the important function of the JobKeeper support
payment. The hours worked series captures the true shock
to the labour market and economy better. Hours worked
fell 10.2% between March and May, but should have risen
in June as employment began to recover as restrictions US
lifted and activity recovered. Covid-19 numbers in southern states will remain a key
focus. Tuesday’s NFIB Small Business index is expected to
We’ll also receive an even more up-to-date indication of
have lifted in July to 97.3 from 94.4 while core CPI is
how the labour market was performing in the second half
expected to ease further to 1.1% y/y from 1.2%, for June.
of June with the release of the more-timely Payrolls data
Wednesday’s readings from the Empire State
and the ABS household survey earlier in the week.
manufacturing survey (July) and industrial production
However, even that is somewhat academic as it’s before (June) are expected to improve further. Thursday’s Retail
the recent renewed lockdown of Melbourne. Victoria Sales for June is expected to rise 5.6% m/m after the big
accounts for around a quarter of Australia’s GDP, so this 15.6% leap the previous month, followed Friday by an
will be a considerable drag on the national recovery in the expected further lift in consumer sentiment in early July.
next six weeks, but must be weighed against the continued Housing is expected to have recovered further in June.
opening of other states. For that reason, a keen focus will
be on the high frequency data which can show the net China
effect of Victorian restrictions against the continued Q2 GDP and June activity data are out on Thursday.
opening of other states. More importantly, we’ll be Consensus for Q2 GDP sits at 9.6% q/q, a sharp v-shaped
watching whether the renewed spread of the virus remains rebound from Q1’s -9.8% q/q (annual growth 2.4% y/y).
contained to Victoria or has spread to neighbouring states. Retail Sales for June will also be watched closely, with the
economic recovery to date concentrated on the industrial
Also out on Tuesday is the NAB Business Survey for June. side.
www.bnz.co.nz/research Page 4Markets Outlook 13 July 2020 EU/UK Intense trade discussions between the UK and EU continue and remain one key focus. Elsewhere the main event this week is likely to be the EU leaders’ (in person) summit on Friday and Saturday. Leaders are attempting to find agreement on the EU Recovery Fund, that is so crucial to struggling EU economies in the south. We are not ruling out an agreement, but suspect it will take more debate and time. If we are wrong and agreement is struck in principle, this would be a EUR supportive development. The ECB meets on Thursday, no change in policy is expected but some interest will be in the bank’s latest economic assessment. kaixin.owyong@nab.com.au www.bnz.co.nz/research Page 5
Markets Outlook 13 July 2020
Fixed Interest Market Reuters: BNZL, BNZM Bloomberg:BNZ
• NZ swap rates, global rates still range-bound second successive week it has tapered these purchases. The
• Reflecting little of the optimism reflected in other yield spread between LGFA and government bonds has
asset markets reached record lows (see chart) and market function has
• 2041 bond syndication launched today the highlight improved immeasurably since the depths of the crisis, when
for the local market the RBNZ added the issuer to its bond buying programme.
The RBNZ may also have decided to preserve some of its LGFA
Global rates, and NZ swap rates for that matter, remain bond buying capacity for next year (it is currently limited to
confined to very tight trading ranges. The 10-year US holding no more than 30% of these bonds outstanding).
Treasury yield remains caught between various crosscurrents
and hasn’t been able to sustain a break of its 0.55% – 0.75% Long-term rates continue to track sideways
trading range. US Treasury market implied volatility is near % NZ, US and Australian 10y rates
historical lows. 2.0
1.8
US 10 year Treasury
On one side is the fast-rising COVID-19 spread in numerous 1.6
Southern and Western US states, which presents a major 1.4
downside risk to the economic outlook, as well as the 1.2 Australia 10 year swap rate
subdued near-term inflation outlook. On the other side, a 1.0
range of other asset markets appear to be reflecting a more 0.8
positive (or less negative) economic outlook, including 0.6
equities and commodities. 0.4
NZ 10 year swap rate
0.2
The tightly-range bound global rates market has been 0.0
mirrored in NZ. The 10-year swap rate has been confined to a Jan-20 Feb-20
Source: BNZ, Bloomberg
Mar-20 Apr-20 May-20 Jun-20 Jul-20
0.7% - 0.8% range for the past month, while the 2-year swap
rate has been (unsurprisingly, given the OCR outlook) stuck With interest rate volatility near historical lows
between 0.2% - 0.25%. vol
US Treasury volatility
180
For longer-term rates, we continue to see more upside than 160
downside from these extremely low levels. Our core view is
140 MOVE index of implied
that they will increase gradually over the course of the next volatility
120
year on the back of a continuation of the global economic
recovery, albeit they are likely to remain at levels that are very 100
low on a historical basis, unless inflation re-emerges. The key 80
downside risk to longer-term NZ rates remains the risk that 60
the RBNZ could cut the OCR to negative next year, although 40
this isn’t our expectation. 20
New Zealand government bonds have been more volatile 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
than wholesale swap rates, although these yields also remain Source: Bloomberg
at very low levels historically. The big event this week is the
May-2041 government bond syndication, which was launched LGFA yield spreads to NZ govt. bonds are at record lows
today and will price tomorrow. This will be the longest bond LGFA yield spreads to NZ government bonds
bps
on the government bond curve, extending it by four years 120
from the Apr-2037. The New Zealand government bond 10 year
curve has steepened into the syndication and NZ government 100
bond yields have increased relative to global peers. NZ 80
government bond yields are now higher than those of
Australia, except for the 2037 bond (where the spread is now 60
5 year
close to 0bps, having been -50bps two months ago). 40
The RBNZ kept the weekly pace of its government bond 20
buying unchanged last week, at $940m ($880m nominal
bonds and $60m inflation-indexed bonds). Interestingly, it 0
Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19
reduced its planned weekly purchases of Local Government Source: BNZ. Linearly interpolated between bonds.
Funding Agency (LGFA) bonds from $40m to $30m, the nick.smyth@bnz.co.nz
www.bnz.co.nz/research Page 6Markets Outlook 13 July 2020
Foreign Exchange Market Reuters pg BNZWFWDS Bloomberg pg BNZ9
The NZD moved higher again last week against a backdrop of NZ CPI is released this week but we doubt it will generate
further gains in equity markets, a broadly weaker USD, and much market reaction, given it is historic data and has been
CNY strength. The NZD rose by 0.7% to 0.6580, reaching its superseded by global events. With the NZD still closely tied to
highest level since January. the S&P500, the onset of reporting season for US corporates
may have an influence on the currency. Market expectations
The spread of COVID-19 in numerous Southern and
are for a big fall in earnings in Q2, although these have been
Western US states – which saw new cases in the US reach
revised up somewhat recently. The trend in COVID-19 in the
a record high, above 66,000, on Friday – did little to
US, especially the hotspots such as Texas and Florida, remains
dampen risk sentiment. The market seems sanguine that
on the market’s radar. Finally, there is an EU leaders’ summit
the outbreak in these states won’t interrupt the broader
at the end of the week where countries are trying to forge a
reopening process for the US economy and there appears
consensus on the proposed EU recovery fund. We suspect it
little political appetite for widespread lockdown measures,
will take more time to find an agreement, but if one were to
like those implemented in March and April. Gilead’s
be struck it would be EUR-positive/USD-negative.
announcement on Friday night that its COVID-19
treatment drug, Remdesivir, could cut the mortality rate NZD/USD contrinues to track equities
for seriously ill patients also boosted risk appetite. NZD/USD NZD/USD and S&P500 Index
0.69 3600
The S&P500 gained almost 2% last week and the NASDAQ 4%, NZD/USD
3400
0.67
with the latter reaching new all-time highs. However, these
3200
gains were eclipsed by China, where the CSI300 rose nearly 0.65
3000
8% last week as state-owned media encouraged a 0.63 S&P500 (rhs)
“healthy” bull market. The performance of the NZD has 2800
0.61
been closely tied to equity market movements since the 2600
crisis kicked off, even if the day-to-day correlation sometimes 0.59
2400
breaks down (see chart). 0.57 2200
Fundamental support for the NZD also came in the form of a 0.55 2000
Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20
big lift in dairy prices at the GDT auction. The index rose a Source: Bloomberg.
strong 8.3%, led by a 14% increase in wholemilk powder NZD/AUD has pushed higher over the past fortnight
prices. Wholemilk powder prices are now back to where they NZD/AUD
NZD/AUD and interest rate spreads bps
were in January, just like the NZD. 1 50
NZ-AU 2-year spread 40
The NZD/USD has increased further against our short-term 0.98
30
fair value estimate of 0.6330, with the gap now sitting at
almost 4%. The NZD is currently sitting towards the top of the 0.96 20
0.62 – 0.66 range we have pencilled in for Q3. Our core view 0.94
10
is still for near-term consolidation, although further gains in 0
equity markets, and broader risk appetite, could see a break 0.92
NZD/AUD
-10
to the topside of the range. 0.9
-20
NZ-AU 10-year spread -30
The NZD/AUD cross has continued to grind higher and now
0.88 -40
sits at its highest level since mid-April, around 0.9450. The Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20
Source: Bloomberg.
move higher in the cross likely reflects, at least in part, the
outbreak of COVID-19 in Victoria (which accounts for Cross Rates and Model Estimates
almost a quarter of the national economy), which saw Cu rre n t L ast 3 -w e e ks ran ge *
more than 200 new cases a day late last week. Melbourne NZD/USD 0.6572 0.6390 - 0.6600
has gone into a six-week lockdown. NZD/AUD 0.9451 0.9300 - 0.9460
We think the NZD/AUD cross can move a little higher in the NZD/GBP 0.5203 0.5140 - 0.5260
short-term based on the lockdown in Melbourne, with its NZD/EUR 0.5813 0.5690 - 0.5830
NZD/JPY 70.25 68.40 - 70.70
negative read-across to Australian growth (our NAB
colleagues forecast a 1.1% hit to Australian Q3 GDP, 0.3% to *Indicative range over last 3 weeks, rounded figures
annual GDP). We retain our forecast that the cross will move
BN Z Sh ort-te rm F ai r Val u e Mode l s
lower by the end of the year, with Australia’s economy still
looking likely to outperform NZ’s. But the latest news out of Mode l Est. Actu al /F V
Victoria closes that gap and is something we’re watching NZD/USD 0.6330 4%
closely. If there were an outbreak in NSW as well, it would NZD/AUD 0.9250 2%
generate a more meaningful change to the
economic and currency outlook. nick.smyth@bnz.co.nz
www.bnz.co.nz/research Page 7Markets Outlook 13 July 2020
Technicals
NZD/USD
NZD/USD – Daily
Outlook: Trading range Source: Bloomberg
ST Resistance: 0.6600 (ahead of 0.6750)
ST Support: 0.6380 (ahead of 0.62)
The NZD is close to resistance around 0.66 and a break
above would open the door to a move towards the year-
to-date highs of 0.6750. Support begins to kick in just
below 0.64, ahead of the second support level of 0.62.
NZD/AUD NZD/AUD – Daily
Outlook: Trading range Source: Bloomberg
ST Resistance: 0.9460 (ahead of 0.9500)
ST Support: 0.9200 (ahead of 0.9075)
The cross remains range-bound but close to resistance at
0.9460. Support comes in around 0.92.
nick.smyth@bnz.co.nz
NZ 5-year Swap Rate NZ 5-yr Swap – Daily
Outlook: Lower Source: Bloomberg
ST Resistance: 0.46
ST Support: 0.18
Still expect the move lower to continue but it needs to get
through 0.31 to have momentum to test 0.18.
NZ 2-year - 5-year Swap Spread (yield curve) NZ 2yr 5yrSwap Spread – Daily
Outlook: Flatter Source: Bloomberg
ST Resistance: +19
ST Support: zero
Resistance at +19 proved a good level to put on
flatteners. First support comes in at +0.08 and then zero.
pete_mason@bnz.co.nz
www.bnz.co.nz/research Page 8Markets Outlook 13 July 2020
Quarterly Forecasts
Forecasts as at 13 July 2020
Key Economic Forecasts
Quarterly % change unless otherwise specified Forecasts
Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
GDP (production s.a.) 0.4 0.1 0.8 0.5 -1.6 -16.0 12.0 -0.5 0.6 1.1
Retail trade (real s.a.) 1.0 0.1 1.9 0.0 -0.7 -19.0 20.0 -1.0 1.0 0.5
Current account (ytd, % GDP) -3.6 -3.4 -3.3 -3.0 -2.7 -2.7 -2.3 -2.7 -3.5 -3.7
CPI (q/q) 0.1 0.6 0.7 0.5 0.8 -0.7 0.6 0.1 0.6 -0.4
Employment -0.1 0.6 0.2 0.1 0.7 -2.1 -3.5 -2.0 0.0 0.5
Unemployment rate % 4.1 4.0 4.1 4.0 4.2 5.9 8.3 9.7 9.6 9.4
Avg hourly earnings (ann %) 3.7 4.7 3.9 3.0 3.3 -2.5 -2.2 -2.0 -2.6 2.7
Trading partner GDP (ann %) 3.4 3.3 3.2 3.1 -2.3 -5.5 -2.4 -0.7 3.8 8.1
CPI (y/y) 1.5 1.7 1.5 1.9 2.5 1.3 1.2 0.8 0.6 0.8
GDP (production s.a., y/y)) 3.0 2.1 2.4 1.8 -0.2 -16.3 -7.0 -7.9 -5.8 13.4
Interest Rates
Historical data - qtr average Government Stock Swaps US Rates Spread
Forecast data - end quarter Cash 90 Day 5 Year 10 Year 2 Year 5 Year 10 Year Libor US 10 yr NZ-US
Bank Bills 3 month Ten year
2019 Mar 1.75 1.90 1.75 2.15 1.85 2.05 2.45 2.60 2.55 -0.56
Jun 1.60 1.70 1.45 1.80 1.55 1.65 2.05 2.40 2.05 -0.45
Sep 1.15 1.30 1.00 1.30 1.10 1.15 1.45 2.15 1.70 -0.51
Dec 1.00 1.15 1.05 1.40 1.10 1.20 1.50 1.90 1.85 -0.27
2020 Mar 0.75 1.05 1.00 1.35 1.00 1.10 1.40 1.10 0.90 0.30
Jun 0.25 0.30 0.40 0.85 0.25 0.40 0.80 0.30 0.70 0.11
Forecasts
Sep 0.25 0.45 0.65 1.10 0.20 0.40 0.85 0.30 0.70 0.40
Dec 0.25 0.45 0.65 1.10 0.20 0.45 0.90 0.30 0.80 0.30
2021 Mar 0.25 0.45 0.70 1.20 0.20 0.50 1.00 0.30 0.90 0.30
Jun 0.25 0.45 0.70 1.20 0.20 0.60 1.10 0.30 1.00 0.20
Sep 0.25 0.45 0.75 1.30 0.20 0.60 1.15 0.30 1.10 0.20
Dec 0.25 0.45 0.75 1.30 0.20 0.60 1.15 0.30 1.10 0.20
2022 Mar 0.25 0.45 0.85 1.45 0.25 0.75 1.35 0.30 1.20 0.25
Jun 0.25 0.45 1.00 1.60 0.35 0.95 1.55 0.30 1.30 0.30
Exchange Rates (End Period)
USD Forecasts NZD Forecasts
NZD/USD AUD/USD EUR/USD GBP/USD USD/JPY NZD/USD NZD/AUD NZD/EUR NZD/GBP NZD/JPY TWI-17
Current 0.65 0.69 1.12 1.24 108 0.65 0.93 0.58 0.52 69.8 71.8
Sep-20 0.64 0.70 1.13 1.27 109 0.64 0.91 0.57 0.50 69.8 70.9
Dec-20 0.66 0.72 1.15 1.30 109 0.66 0.91 0.57 0.51 71.6 72.0
Mar-21 0.67 0.74 1.17 1.32 109 0.67 0.91 0.57 0.51 73.0 72.5
Jun-21 0.68 0.74 1.18 1.33 109 0.68 0.92 0.58 0.51 74.1 73.1
Sep-21 0.69 0.74 1.19 1.35 108 0.69 0.93 0.58 0.51 74.5 73.8
Dec-21 0.70 0.75 1.20 1.36 108 0.70 0.93 0.58 0.52 75.6 74.4
Mar-22 0.70 0.75 1.21 1.37 107 0.70 0.93 0.58 0.51 74.9 74.4
Jun-22 0.71 0.76 1.22 1.39 106 0.71 0.93 0.58 0.51 75.3 75.1
Sep-22 0.72 0.77 1.23 1.40 106 0.72 0.94 0.59 0.51 76.3 75.6
Dec-22 0.73 0.78 1.24 1.41 105 0.73 0.94 0.59 0.52 76.7 76.3
TWI Weights
13.3% 19.2% 10.5% 4.1% 6.4%
Source for all tables: Statistics NZ, Bloomberg, Reuters, RBNZ, BNZ
www.bnz.co.nz/research Page 9Markets Outlook 13 July 2020
Annual Forecasts
Forecasts March Years December Years
as at 13 July 2020 Actuals Forecasts Actuals Forecasts
2019 2020 2021 2022 2023 2018 2019 2020 2021 2022
GDP - annual average % change
Private Consumption 3.1 2.2 -4.9 5.6 7.5 3.2 2.7 -4.5 6.2 5.3
Government Consumption 3.9 4.4 3.3 1.7 1.3 3.6 4.4 3.7 1.9 1.4
Total Investment 3.7 1.2 -22.1 1.0 6.1 5.3 2.8 -18.0 -5.4 4.9
Stocks - ppts cont'n to growth -0.3 -0.4 0.3 0.4 0.0 0.3 -0.8 -0.1 0.6 0.0
GNE 3.1 1.8 -7.3 5.4 4.9 4.0 2.1 -6.4 3.6 4.5
Exports 2.7 -0.4 -26.6 19.1 8.0 2.6 2.0 -22.8 8.3 10.1
Imports 3.9 0.6 -22.7 14.3 9.8 5.9 1.6 -20.0 7.1 9.9
Real Expenditure GDP 2.8 1.5 -8.0 6.0 4.2 3.1 2.3 -6.9 3.7 4.2
GDP (production) 3.1 1.5 -9.2 5.7 4.2 3.2 2.3 -7.8 3.0 4.2
GDP - annual % change (q/q) 3.0 -0.2 -5.8 4.2 4.0 3.3 1.8 -7.9 3.8 4.3
Output Gap (ann avg, % dev) 3.3 3.8 -6.4 -1.7 0.1 3.0 4.0 -4.7 -2.4 -0.3
Nominal Expenditure GDP - $bn 300 314 287 311 330 298 311 292 305 326
Prices and Employment - annual % change
CPI 1.5 2.5 0.6 1.0 1.8 1.9 1.9 0.8 0.6 1.6
Employment 1.3 1.6 -7.4 4.1 5.2 1.9 0.8 -6.8 2.4 6.2
Unemployment Rate % 4.1 4.2 9.6 7.9 5.2 4.3 4.0 9.7 8.5 5.3
Wages - ahote 3.7 3.3 -2.6 2.5 2.1 3.7 3.0 -2.0 2.6 2.2
Productivity (ann av %) 0.6 -0.1 -4.2 5.5 -1.7 0.5 0.6 -5.1 5.9 -1.4
Unit Labour Costs (ann av %) 2.6 3.7 2.7 -3.2 4.1 2.9 2.9 5.2 -4.7 3.8
House Prices 1.8 6.0 -11.5 3.0 7.7 2.8 3.8 -7.4 -0.5 7.7
External Balance
Current Account - $bn -10.8 -8.5 -10.0 -5.8 -4.7 -11.4 -9.3 -7.8 -8.0 -5.4
Current Account - % of GDP -3.6 -2.7 -3.5 -1.9 -1.4 -3.8 -3.0 -2.7 -2.6 -1.7
Government Accounts - June Yr, % of GDP
OBEGAL (core operating balance) 2.4 -11.1 -13.8 -10.8 -5.5
Net Core Crown Debt (excl NZS Fund Assets) 20.1 32.0 50.0 58.0 62.0
Bond Programme - $bn (Treasury forecasts) 8.0 25.0 60.0 40.0 35.0
Bond Programme - % of GDP 2.7 8.0 20.9 12.9 10.6
(1)
Financial Variables
NZD/USD 0.68 0.60 0.67 0.70 0.73 0.68 0.66 0.66 0.70 0.73
USD/JPY 111 108 109 107 104 112 109 109 108 105
EUR/USD 1.13 1.11 1.17 1.21 1.25 1.14 1.11 1.15 1.20 1.24
NZD/AUD 0.96 0.97 0.91 0.93 0.94 0.95 0.96 0.91 0.93 0.94
NZD/GBP 0.52 0.49 0.51 0.51 0.51 0.54 0.50 0.51 0.52 0.52
NZD/EUR 0.60 0.55 0.57 0.58 0.59 0.60 0.59 0.57 0.58 0.59
NZD/YEN 75.9 65.1 73.0 74.9 75.9 76.4 72.0 71.6 75.6 76.7
TWI 74.3 68.9 72.5 74.4 76.2 74.6 72.8 72.0 74.4 76.3
Overnight Cash Rate (end qtr) 1.75 0.25 0.25 0.25 0.50 1.75 1.00 0.25 0.25 0.25
90-day Bank Bill Rate 1.88 0.71 0.45 0.45 0.80 1.98 1.23 0.45 0.45 0.45
5-year Govt Bond 1.65 0.80 0.70 0.85 1.55 1.95 1.25 0.65 0.75 1.35
10-year Govt Bond 2.00 1.15 1.20 1.45 2.15 2.40 1.60 1.10 1.30 2.00
2-year Swap 1.80 0.65 0.20 0.25 0.90 2.05 1.25 0.20 0.20 0.65
5-year Swap 1.95 0.80 0.50 0.75 1.55 2.30 1.40 0.45 0.60 1.35
US 10-year Bonds 2.55 0.90 0.90 1.20 1.60 2.85 1.85 0.80 1.10 1.50
NZ-US 10-year Spread -0.55 0.25 0.30 0.25 0.55 -0.45 -0.25 0.30 0.20 0.50
(1)
Average for the last month in the quarter
Source for all tables: Statistics NZ, EcoWin, Bloomberg, Reuters, RBNZ, NZ Treasury, BNZ
www.bnz.co.nz/research Page 10Markets Outlook 13 July 2020
Key Upcoming Events
Forecast ... Median -- Last Forecast ... Median --- Last
Monday 13 July US, Empire Manufacturing, July +5.5 -0.2
NZ, (circa) REINZ Housing Data, June US, Beige Book
NZ, Food Price Index, June flat -0.8% US, Industrial Production, June +4.8% +1.4%
NZ, Rental Price Indexes, June Can, BOC Policy Announcement 0.25% 0.25%
Jpn, Tertiary Industry Index, May -4.0% -6.0% Thursday 16 July
UK, BRC Retail Sales Monitor, June +7.9% NZ, Benefit Fact Sheets, Q2
US, Budget Statement, June -$399b NZ, CPI, Q2 y/y +1.3% +2.5%
Tuesday 14 July NZ, Employment Indicators, Week ended 14 Jun
NZ, International Travel, May y/y -99% NZ, Vehicle Registrations, June
NZ, RBNZ Credit Conditions Survey, Q2 Aus, Unemployment Rate, June 7.1% 7.1%
NZ, International Migration, May s.a. +220 Aus, Employment, June +104k -228k
Aus, NAB Business Survey, June -20 China, Retail Sales, Jun y/y +0.2% -2.8%
China, Trade Balance, June +¥394b +¥443b China, Fixed Assets (ex rural), Jun ytd -3.4% -6.3%
Jpn, Industrial Production, May 2nd est -8.4%P China, GDP, Q2 y/y +2.5% -6.8%
Euro, Industrial Production, May +8.1% -17.1% China, Industrial Production, Jun y/y +4.8% +4.4%
Germ, CPI, June y/y 2nd est +0.9% +0.9%P Euro, Trade Balance, May s.a. +€1.2b
Germ, ZEW Sentiment, July +67.0 +63.4 Euro, ECB Policy Announcement, Depo -0.50% -0.50% -0.50%
UK, Industrial Production, May +5.2% -20.3% US, Philly Fed Index, July +20 +27.5
UK, Unemployment Rate (ILO), May 4.0% 3.9% US, NAHB Housing Index, July 60 58
UK, Average Weekly Earnings, May y/y -0.3% +1.0% US, Jobless Claims, week ended 11/07 1,314k
UK, GDP monthly, May +5.3% -20.4% US, Retail Sales, June +5.5% +17.7%
UK, Trade Balance, May +£0.3b US, Business Inventories, May -2.3% -1.3%
US, NFIB Small Business Optimism, June 97.5 94.4 Friday 17 July
US, CPI ex food/energy, June y/y +1.1% +1.2% NZ, BNZ PMI (Manufacturing), June 39.7
Wednesday 15 July Euro, CPI, Jun y/y 2nd est +0.3% +0.1%P
NZ, Merchandise Trade, To 8 July 2020 US, Housing Starts, June 1180k 974k
Aus, Consumer Sentiment - Wpac, June 93.7 US, Mich Cons Confidence, Jul 1st est 80.0 78.1
Jpn, BOJ Policy Announcement, Policy Rate -0.1% -0.1% Sunday 19 July
UK, CPI, June y/y +0.5% +0.5% UK, (circa) CBI Industrial Trends, July -58
Historical Data
Today Week Ago Month Ago Year Ago Today Week Ago Month Ago Year Ago
CASH AND BANK BILLS SWAP RATES
Call 0.25 0.25 0.25 1.50 2 years 0.23 0.23 0.25 1.37
1mth 0.27 0.28 0.27 1.61 3 years 0.25 0.25 0.28 1.38
2mth 0.30 0.30 0.27 1.59 4 years 0.30 0.31 0.33 1.42
3mth 0.32 0.31 0.27 1.59 5 years 0.37 0.38 0.38 1.49
6mth 0.34 0.33 0.29 1.52 10 years 0.77 0.79 0.74 1.87
GOVERNMENT STOCK FOREIGN EXCHANGE
04/23 0.32 0.34 0.35 1.22 NZD/USD 0.6577 0.6555 0.6474 0.6719
04/25 0.46 0.48 0.45 1.31 NZD/AUD 0.9452 0.9400 0.9357 0.9546
04/27 0.64 0.68 0.56 1.49 NZD/JPY 70.25 70.37 69.49 72.50
04/29 0.83 0.86 0.66 1.65 NZD/EUR 0.5811 0.5796 0.5718 0.5968
05/31 0.98 1.00 0.79 NZD/GBP 0.5201 0.5247 0.5136 0.5368
04/33 1.09 1.09 0.87 1.86 NZD/CAD 0.8931 0.8875 0.8788 0.8767
04/37 1.33 1.31 1.03 2.04
TWI 72.7 72.4 71.8 73.6
GLOBAL CREDIT INDICES (ITRXX)
Nth America 5Y 74 71 70 53
Europe 5Y 63 61 71 49
www.bnz.co.nz/research Page 11Markets Outlook 13 July 2020 Contact Details BNZ Research Stephen Toplis Craig Ebert Doug Steel Jason Wong Nick Smyth Head of Research Senior Economist Senior Economist Senior Markets Strategist 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 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 12
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