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RESEARCH
Markets Today
2 May 2022
Events Round-Up telegraphed by Fed officials, including Chair Powell.
However, the market is now pricing an almost 50% chance
NZ: ANZ consumer confidence, Apr: 84.4 vs. 77.9 prev. of a 75bps hike in June, as well as another 50bps hike in
July. The last time the Fed raised (rather than cut) the cash
EC: GDP (q/q%), Q1: 0.2 vs. 0.2 exp.
rate by 75bps was in late 1994, towards the end of that
EC: CPI (EU harmonised, m/m%), Apr: 0.6 vs. 0.5 exp. tightening cycle. Market pricing is consistent with the
EC: CPI (EU harmonised, y/y%), Apr: 7.5 vs. 7.5 exp. current tightening cycle being even more aggressive than
the one in 1994, which famously caused another brutal
EC: Core CPI (EU harmonised, y/y%), Apr: 3.5 vs. 3.2 exp.
bond bear market.
US: Employment cost index (q/q%), Q1: 1.4 vs. 1.1 exp.
US: Core PCE deflator (y/y%), Mar: 5.2 vs. 5.3 exp. In Europe, headline inflation was in line with expectations,
at a post-euro high of 7.5% y/y in April. But market
US: Chicago PMI, Apr: 56.4 vs. 62 exp.
attention focused on the much higher-than-expected core
CH: Manufacturing PMI, Apr: 47.4 vs. 47.5 exp. inflation reading which, at 3.5% y/y, is now well above the
CH: Non-manufacturing PMI, Apr: 41.9 vs. 46.2 exp. ECB’s 2% inflation target. ECB Chief Economist Lane
confirmed that rate hikes are coming, telling Bloomberg TV
CH: Caixin manufacturing PMI, Apr: 46 vs. 47 exp.
“the story is not the issue about are we going to move
away from -0.5% for the deposit rate, the big issue which
Good Morning we do need to still be data dependent about is the scale
Global rates moved sharply higher again on Friday, and the timing of interest-rate normalization.” The lack of
following upside surprises to US wage data and European pushback against market pricing for ECB rate hikes from
core inflation. The Fed is almost universally expected to Lane, who is usually considered one of the most dovish
raise its cash rate by 50bps this week, but the market has members of the committee, is notable. Lane added that
moved to price an almost 50% chance of a 75bps hike (!) in the weakening in the euro would be an “important factor”
June. The prospect of aggressive central bank tightening in determining their forecasts. In contrast to recent cycles,
and underwhelming earnings outlooks from Amazon and where currency strength has been a constraint on policy
Apple saw the S&P500 and NASDAQ plunge by around 4%, tightening, EUR weakness is exacerbating inflationary
capping off a dreadful month for risk assets. The NZD and pressures in the current cycle. The market is now almost
AUD were weaker on Friday amidst weaker risk appetite, fully pricing a 25bps ECB hike in July and 3.5 hikes by the
the NZD ending just above 0.6450, a more than 7% fall on end of the year. The 2-year German rate was 6bps higher
the month. on Friday, at 0.26%, close to its highest level since late
2013.
The Employment Cost Index (ECI), considered one of the
most comprehensive measures of US labour costs, was In some ways, the price action in equities and rates on
much higher than expected in Q1, reinforcing the market’s Friday was a microcosm for the month of April. Bond rates
heightened inflation concerns. The ECI surged 1.4% q/q in surged higher as the market braced for more aggressive
Q1 (1.1% exp.), its largest quarterly increase since the central bank tightening with inflation concerns top of
survey was established in 1996, in part due to a jump in mind. US Treasury rates were 10-11bps higher across the
benefits payments (such as pensions). On an annual basis, curve, with the 10-year rate ending the session at 2.93%,
the ECI is now running at a 4.5% pace while private sector just below the psychologically important 3% mark. The
wage growth is even higher, at 5% y/y. The data German 10-year rate was 4bps higher, at 0.94%, closing
corroborates the elevated readings coming from other near a seven-year high. The 60bps increase in the US 10-
wage measures, such as the Atlanta Fed’s Wage Growth year rate during April was its biggest one month move
Tracker, which is tracking at 6% y/y. since January 2009. The Bloomberg US Treasury index is
now 12.3% lower than its peak in mid-2020, by far its
With the US labour market exceptionally tight and wage biggest drawdown since at least the early 1970s.
growth running above levels consistent with the Fed’s 2%
inflation target, markets expect an increasingly aggressive Talk of 75bp Fed hikes is hardly doing the equity market
response from the Fed. Markets are fully pricing a 50bps any favours. Investors are coming to the realisation that
hike at this week’s Fed meeting, given it has been well the so-called ‘Fed put’ is quite some distance away, and
www.bnz.co.nz/research Page 12 May 2022
Markets Today
the Fed is not going to bail out the equity market by way.” The statement also said policymakers would
deviating from its hawkish path while inflation remains so “support healthy growth of platform firms”, seemingly
elevated. The NASDAQ was down a huge 4.2% on Friday, signalling a shift away from the regulatory crackdown on
ending a miserable month for tech stocks. On the month, tech firms. The announcement sparked a 2.4% increase in
the NASDAQ was 13.2% lower, its worst month since Chinese stocks on Friday while the Hang Seng rallied 4%,
October 2008, while the S&P500 didn’t fare much better, bringing its two day move to almost 6%. There was less
down 8.8% on the month (-3.6% on Friday). Shares in obvious enthusiasm from commodity markets at the
Europe weren’t hit as hard, despite the proximity to the possibility of an infrastructure-led fiscal stimulus, with big
Ukraine war and spiralling energy prices, with the German question marks remaining around how this might be
Dax down only 2.2% in April and the EuroStoxx 600 index achieved if a significant proportion of the country is locked
1.2% lower. The outperformance can partly be explained down. Copper was up only 0.8% on Friday while Singapore-
by the differing composition of the indices, with European listed iron ore futures were down 1.2%, suggesting the
benchmarks typically more heavily weighted towards the market isn’t expecting a ‘big bang’ stimulus like that seen
likes of industrials and banks, while US indices have far after the GFC.
greater exposure to interest rate sensitive tech stocks.
The Chinese PMIs released over the weekend reinforced
All sectors in the S&P500 were in the red on Friday, with the case for policy support for the economy. The
Consumer Discretionary (-5.9%) leading the way as the Manufacturing PMI fell to 47.4 while the Non-
market factored in a weaker revenue outlook and more Manufacturing index, which covers services and
cautious guidance from Amazon. Amazon said it had construction industries, tumbled to 41.9, well below
overinvested in both its warehouse space and labour force market expectations. The market remains concerned
and now had excess capacity. Amazon’s share price about the impact on global growth (and supply chains) of
crumbled 14%, weighing on both the S&P500 and NASDAQ prolonged Chinese lockdowns as the country pursues its
given its chunky weights in both benchmarks. Meanwhile, zero-Covid approach in the face of Omicron outbreaks.
Apple’s share price fell 3.7% despite beating analysts’
earnings estimates, with the company warning that supply Turning to currencies, the USD lower was on Friday (DXY -
disruptions, including those related to the lockdowns in 0.6%, BBDXY -0.3%) but it still recorded its best month in
China, could hit revenue by $4-$8b in the current quarter. years. On a DXY basis, the 4.7% increase in April was the
Consumer discretionary stocks on the S&P500 biggest increase since 2015, while the broader BBDXY
underperformed staples by a whopping 15% in April, a sign index’s 4.5% gain was its best since 2012. The sharp
that markets expect consumers to rein in discretionary escalation in Fed rate hike expectations and increase in risk
spending as real disposable incomes get hit by rising aversion during April has been a potent combination for
inflation. Notionally, ~80% of companies have beaten the USD.
earnings estimates this quarter, but investors have focused
on more cautious guidance from companies ahead of what After falling sharply the previous day, the CNY stabilised on
is likely to be a much more challenging macro environment Friday, with USD/CNH edging back down to around 6.64.
ahead. Likewise, after breaking above 131 on Thursday night in
the wake of the BoJ’s renewed commitment to its Yield
The Ukraine war remains another major headwind for risk Curve Control policy, USD/JPY nudged back below 130 on
appetite. In news over the weekend, Bloomberg reported Friday. Meanwhile, the EUR rebounded 0.4% to 1.0545,
that the EU would propose a phased ban on Russian oil, to helped by the higher-than-expected European core CPI
be phased in by the end of the year, although such a move data and more hawkish comments from ECB Chief
would require unanimous support and some countries, Economist Lane.
such as Hungary, have been resistant to this point.
Meanwhile, the UK’s defence secretary warned that Russia Commodity currencies remained under pressure on Friday,
could formally declare war on Ukraine on May 9th, when even against a weaker USD backdrop. The NZD and AUD
the country celebrates the end of WWII. A formal were both around 0.5% lower while the CAD was off 0.3%
declaration of war, rather than the ‘special military amidst the sharp falls in US equity markets. The NZD was
operation’ term that Russia has used to date, would enable off a massive 7% in April, its worst month since mid-2013,
it to call up reservists and replenish front-line forces, likely ending just above 0.6450.
signalling it is preparing for a drawn-out conflict.
NZ rates were 4-7bps higher on Friday, reversing the
Chinese policymakers continue to make more noises about previous day’s falls, with the 2-year swap rate ending at
providing support to the economy. A statement from the 3.82% and the 10-year rate at 3.92%. Volatility remains
Politburo on Friday vowed policies to meet the country’s extremely high, and liquidity strained. Aussie bond
ambitious 5.5% annual growth target while promising to futures’ yields have increased 8-10bps since the NZ market
“strengthen infrastructure construction in an all-around
www.bnz.co.nz/research Page 22 May 2022
Markets Today
close, which will set the tone for the local market when looking for a 390k increase in jobs and a fresh low of 3.5%
trading reopens this morning. in the unemployment rate. The domestic highlight this
week is the HLFS labour market report, where we (and the
In domestic data, the ANZ consumer confidence index market) are looking for the unemployment rate to nudge
rebounded in April although, at 84.4, remains mired at down to a fresh multi-decade low of 3.1%. In the session
levels below those seen during the depths of the GFC. ahead the ISM Manufacturing index is expected to increase
Confidence is facing multiple headwinds including sharply slightly, to what would be a still healthy 57.6.
rising mortgage rates, falling real incomes due to high
inflation, lingering Covid uncertainty, and now falling nick.smyth@bnz.co.nz
house prices. At face value, consumer confidence is at
recessionary levels. Coming Up
Period Cons. Prev. NZT
It’s a big week ahead. The Fed is almost universally
GE Germany Manufacturing PMI Apr F 54.1 54.1 19:55
expected to raise its cash rate by 50bps and announce the
start of Quantitative Tightening (‘QT’) at Thursday EC Eurozone Manufacturing PMI Apr F 55.3 55.3 20:00
morning’s meeting, while the RBA and Bank of England are EC Economic Confidence Apr 108 108.5 21:00
also expect to lift their policy rates. The US nonfarm US ISM Manufacturing Apr 57.7 57.1 02:00
payrolls report takes place on Friday, with the market Source: Bloomberg, BNZ
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 0.6458 -0.5 0.6452 0.6543 CHF 0.9718 -0.0 S&P 500 4,132 -3.6 -1.9 Oil (Brent) 109.34 +1.7
AUD 0.7061 -0.5 0.7059 0.7180 SEK 9.830 -0.4 Dow 32,977 -2.8 -3.2 Oil (WTI) 104.69 -1.2
EUR 1.0545 +0.4 1.0510 1.0593 NOK 9.382 -0.4 Nasdaq 12,335 -4.2 -12.4 Gold 1911.7 +0.3
GBP 1.2574 +0.9 1.2524 1.2614 HKD 7.847 -0.0 Stoxx 50 3,803 +0.7 -4.9 HRC steel 1400.0 -1.0
JPY 129.70 -0.9 129.32 130.50 CNY 6.609 -0.3 FTSE 7,545 +0.5 8.4 CRB 308.3 +0.1
CAD 1.2848 +0.3 SGD 1.383 -0.2 DAX 14,098 +0.8 -7.0 Wheat Chic. 1055.8 -2.8
NZD/AUD 0.9146 +0.0 IDR 14,482 -0.1 CAC 40 6,534 +0.4 3.7 Sugar 19.35 -0.4
NZD/EUR 0.6124 -1.0 THB 34.28 -0.5 Nikkei 26,848 +1.7 -7.6 Cotton 152.33 -0.5
NZD/GBP 0.5136 -1.4 KRW 1,256 -1.3 Shanghai 3,047 +2.4 -11.6 Coffee 222.1 +2.1
NZD/JPY 83.76 -1.3 TWD 29.44 -0.3 ASX 200 7,435 +1.1 5.8 WM powder 4020 +0.0
NZD/CAD 0.8297 -0.2 PHP 52.20 -0.1 NZX 50 11,884 +0.1 -6.7 Australian Futures
NZ TWI 71.85 -0.7 3 year bond 97.025 -0.10
Interest Rates 10 year bond 96.71 -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 0.50 1.29 3.05 3.02 USD 2.93 0.11 NZGB 5 1/2 04/15/23 2.86 0.03 1 year 3.29 -0.02
AUD 0.10 0.71 2.87 3.60 AUD 3.13 0.04 NZGB 0 1/2 05/15/26 3.54 0.04 2 year 3.82 0.04
NZD 1.50 1.97 3.82 3.92 NZD 3.64 0.06 NZGB 0 1/4 05/15/28 3.60 0.05 5 year 3.94 0.04
EUR 0.00 0.06 0.97 1.72 GER 0.94 0.04 NZGB 1 1/2 05/15/31 3.63 0.06 7 year 3.92 0.05
GBP 0.75 1.21 2.22 1.93 GBP 1.91 0.03 NZGB 2 05/15/32 3.64 0.06 10 year 3.92 0.07
JPY -0.03 -0.02 0.10 0.42 JPY 0.23 0.00 NZGB 1 3/4 05/15/41 3.78 0.06 15 year 3.88 0.07
CAD 1.00 1.81 3.11 3.33 CAD 2.87 0.08 NZGB 2 3/4 05/15/51 3.84 0.06
* 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 32 May 2022
Markets Today
NZD exchange rates
30/04/2022 NY close Prev. NY close 0.68 NZD/USD - Last 7 days
USD 0.6458 0.649
0.67
GBP 0.5136 0.5210
AUD 0.9146 0.9145 0.66
EUR 0.6124 0.6182
JPY 83.76 84.92 0.65
CAD 0.8297 0.8312 0.64
CHF 0.6276 0.6308
DKK 4.5566 4.6000 0.63
FJD 1.3927 1.4045 23-Apr 25-Apr 27-Apr 28-Apr 29-Apr 30-Apr
HKD 5.0675 5.0927
INR 49.36 49.64 NZD/AUD - Last 7 days
0.93
NOK 6.0586 6.1134
PKR 119.84 120.30
PHP 33.71 33.91 0.92
PGK 2.2739 2.2852
SEK 6.3481 6.4058
SGD 0.8934 0.9000 0.91
CNY 4.2678 4.3007
THB 22.12 22.36
0.90
TOP 1.4611 1.4597
VUV 74.00 74.23 23-Apr 25-Apr 26-Apr 28-Apr 29-Apr 30-Apr
WST 1.6705 1.6690
XPF 73.35 73.73 NZD/USD - Last 12 months
ZAR 10.1967 10.4054 0.74
0.72
0.70
0.68
NZD/USD Forward Points 0.66
BNZ buys NZD BNZ sells NZD 0.64
1 Month -0.04 0.50 0.62
3 Months -5.92 -4.88 0.60
6 Months -17.48 -15.50 0.58
Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22
9 Months -28.36 -25.29
1 Year -39.05 -34.54
NZD/AUD - Last 12 months
0.98
NZD/AUD Forward points
BNZ buys NZD BNZ Sells NZD
0.96
1 Month -5.34 -4.24
3 Months -23.02 -20.88
0.94
6 Months -47.92 -43.77
9 Months -65.20 -59.68
1 Year -79.18 -70.43 0.92
0.90
Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22
www.bnz.co.nz/research Page 42 May 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
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
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