BONDS: Marginally Richer After Technical Recession Confirmed
NZGB's have finished dealing 1-2bps richer across the major benchmarks, the curve has bull flattened.
- This mornings Q1 GDP print confirmed a technical recession in New Zealand. The Q/Q print was in line with expectations at -0.1%, and the Y/Y print was a touch lower than expected at +2.2%.
- NZGBs head post GDP gains through the session.
- Terminal RBNZ rate pricing has ticked lower in OIS markets. A terminal rate of 5.61% is now seen against 5.64% pre data, there are also ~40bps of cuts priced for 2024.
- On the wires early tomorrow we have May BusinessNZ Mfg PMI, there is no estimate and the prior read was 49.1
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BONDS: NZGBS: Weaker Fuelled By Hike & Budget Deficits Fears
NZGBs closed at session cheaps, 8-11bp weaker, as the market digests Westpac’s 6.0% OCR forecast and the prospect of a worse-than-expected deficit when the budget is handed down on Thursday. NZGBs underperformed the $-Bloc with NZ/US and NZ/AU 10-year yield differentials closing respectively 6bp and 3bp higher.
- Swap rates closed 5-9bp higher with the 2s10s curve 4bp flatter.
- RBNZ dated OIS closed 6-11bp firmer for meetings beyond May. The May meeting has 25bp of tightening priced.
- Non-Resident Bond Holdings data showed an increase from 60.3% in March to 62.1% in April, its highest level since 2017.
- The local calendar is light again tomorrow ahead of the Budget on Thursday. The government has signalled that Budget 2023 will focus on alleviating cost-of-living pressures, fast-tracking recovery from Cyclone Gabrielle, and maintaining public services, but not much else. The operating balance is expected to reach surplus in 2025/26, one year later than previously flagged.
- In Australia, the Wage Price Index is scheduled for release tomorrow with the market closely watching to see if last quarter’s soft outcome is reversed.
- Until then, all eyes will be on global bonds as they navigate Q1 GDP in the Euro Area and April Retail Sales in the US.
EURUSD TECHS: Maintains A Softer Tone
- RES 4: 1.1127 1.00 projection of the Mar 15 - 23 - 24 price swing
- RES 3: 1.1054/95 High May 8 / High Apr 26 and key resistance
- RES 2: 1.1007 High May 10
- RES 1: 1.0954 20-day EMA
- PRICE: 1.0882 @ 05:33 BST May 16
- SUP 1: 1.0831 Low Apr 10
- SUP 2: 1.0805 50.0% retracement of the Mar 15 - Apr 26 bull run
- SUP 3: 1.0788 Low Apr 3
- SUP 4: 1.0737 61.8% retracement of the Mar 15 - Apr 26 bull run
EURUSD maintains a softer tone following the recent pullback and break of former support at 1.0942, the May 2 low. The pair has also cleared the 50-day EMA, at 1.0892, a key support. This signals scope for an extension lower towards 1.0831, the Apr 10 low and 1.0805, a Fibonacci retracement. The current pullback is considered corrective. Initial firm resistance is at 1.0954, the 20-day EMA.
BUND TECHS: (M3) Bullish Outlook
- RES 4: 140.30 High Mar 20 and key resistance
- RES 3: 138.09 High Apr 6
- RES 2: 137.55 61.8% retracement of the Mar 20 - Apr 19 bear leg
- RES 1: 137.29 High May 11
- PRICE: 136.00 @ 05:11 BST May 16
- SUP 1: 135.63/134.99 20-day EMA / Low May 10
- SUP 2: 134.35 Low May 2
- SUP 3: 133.64 Low Apr 28
- SUP 4: 133.10 Low Apr 19 and the bear trigger
Bund futures remain in a short-term uptrend. Last week’s print above 137.22, the May 4 high, reinforces a bullish condition and the latest pullback appears to be a correction. A continuation higher would open 137.55, a Fibonacci retracement. Clearance of this level would expose 138.09, the Apr 6 high. On the downside, a break below 134.99, the May 10 low would instead highlight a bearish threat and expose 134.35, the May 2 low.
