BONDS: NZGBS: Cheaper After RBNZ’s Decision To Leave OCR Unchanged
NZGBs are 2-4bps cheaper after the RBNZ left the cash rate unchanged at 3.25%. The decision was widely expected by the market, with only 4bps of tightening priced in.
- From the RBNZ: "The case for lowering the OCR at this meeting highlighted weak near-term growth momentum and the risk of prolonged weakness in economic activity from excess caution by households and businesses in the face of economic uncertainty. This could lead to downward pressure on medium-term inflation. Some members emphasised that further monetary easing in July would provide a guardrail to ensure the recovery of economic activity, whilst being consistent with price stability.”
- “The case for keeping the OCR on hold at this meeting highlighted the elevated level of uncertainty, and the benefits of waiting until August in light of near-term inflation risks. Some members emphasised that waiting would allow the Committee to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve. It would also allow more time to observe developments in the global economy.”
- Swap rates are 6-7bps higher on the day, 4-5bps higher after the decision.
- RBNZ dated OIS pricing is flat to 4bps firmer across meetings. A cumulative 31bps by November 2025 remains priced.
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CHINA DATA: CPI Remains In Deflation, Risks From Trade War Persist
China’s May CPI inflation remained weak at -0.1% y/y, slightly better than consensus expectations, while core picked up 0.1pp to 0.6% y/y, the highest since January. Producer prices deteriorated further falling 3.3% y/y after -2.7% in April and the weakest since July 2023, signalling some possible upcoming downward pressure on headline inflation. Services & manufacturing PMIs signal a further softening in prices.
- Price wars have pushed prices into deflationary territory and kept them there. There is a significant risk that the CPI will stay negative due to trade tensions with the US, although talks are scheduled to continue today, as well as continued soft demand and intense competition.
- Lower oil prices and negative base effects pushed producer prices further into deflation. Also significant inventory building before the US announced a 90-day reprieve to its punitive tariffs on imports from China pushed input prices lower. Weaker fuel prices would have also impacted headline CPI.
- While talks to come to a trade deal with the US are ongoing, a return to a trade war would likely pressure China’s domestic demand and push prices further into deflation.
- China’s CPI is expected to rise 0.3% y/y this year with PPI -2% y/y, according to a Bloomberg survey.
China CPI vs PPI y/y%
Source: MNI - Market News/LSEG
CHINA PRESS: China Vows to Enhance Dialogue On Rare Earth Export Control
China has approved a number rare earth export applications and will enhance communication with relevant countries, a spokesperson from the Ministry of Commerce said on Saturday. The ministry emphasised that implementing controls on rare earths, which have both civilian and military applications, aligns with international practices. The ministry was willing to establish a green channel and accelerate approvals to European Union firms. (Source: Securities Times)
CHINA PRESS: Shenzhen To Boost Consumption Further
Shenzhen has launched 39 measures to expand consumption, ranging from boosting residents’ income to increasing the high-quality supply of goods and services, Yicai.com reported. Eligible university graduates who move to Shenzhen for employment can obtain subsidies of up to CNY30,000, CNY50,000 and CNY100,000, alongside increased maternity and childcare benefits. The city will also reduce restrictions on car purchases and usage, and reward AI enterprises for launching tech products, the newspaper said.
