NEW ZEALAND: Q2 Sees Increased Labour Market Capacity
NZ employment was weaker in Q2 than the RBNZ projected in May declining 0.1% q/q and 0.9% y/y, in line with consensus, after a downwardly-revised 0.0% q/q & -0.7% y/y in Q1. The unemployment rate rose 0.1pp to 5.2%, highest since Covid-impacted Q3 2020, but as the RBNZ forecast. The next rate decision is on August 20 and will include an updated outlook. With job shedding continuing and activity indicators remaining lacklustre and inflation in the band, another 25bp rate cut is likely.
NZ unemployment %
Source: MNI - Market News/LSEG
- With excess supply in the labour market, wage inflation continues to moderate. April 1 pay rises are included in the Q2 data boosting the quarterly rates but they were below Q2 2024.
- Q2 labour costs rose 0.6% q/q to be up 2.4% y/y down from 2.9% y/y in Q1 and the slowest rate since Q2 2021. Private wages rose 0.6% q/q to moderate to 2.2% y/y from 2.5%, lowest since Q1 2021.
NZ wages y/y%
- Underutilisation continues to trend higher too. It troughed recently at 9% in Q3 2022 and rose 0.4pp to 12.8% in Q2, the highest since Q3 2020. It is up 0.9pp since Q2 2024.
- The participation rate fell 0.2pp to 70.5%. There was a 5% y/y rise in 15-24 year olds in education which is probably being driven by difficulties in finding employment. The employment rate for this age group is down 3pp to 53.1%.
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JGBS: Futures Weaker Overnight Friday, Very Weak Cash Earnings
In post-Tokyo trade, JGB futures closed slightly higher, +4 compared to settlement levels, with US tsys futures stronger. Cash US tsys were closed on Friday for the 4th of July holiday.
- Labor & Real Cash Earnings for May have printed at +1.0% y/y and -2.9% y/y respectively versus estimates of +2.4% and -1.7% and priors of +2.3% and -1.8%. This should give the market a boost.
- Bloomberg - "Japanese Prime Minister Shigeru Ishiba said the country is prepared for all possible tariff scenarios, speaking on Fuji TV's "Sunday News The Prime" program. Japan is ready to "stand firm" and defend its interests while anticipating every possible situation, says Ishiba."
- "We will be pushing for zero tariffs on automobiles," Ishiba adds. He notes that Japan is the largest investor in the US and the biggest job creator there."
- Bloomberg - "Japan's top negotiator Ryosei Akazawa held two phone meetings with Howard Lutnick to discuss tariffs ahead of this week's deadline."
- Today, the local calendar will also see Coincident/Leading Index data.
AUSSIE BONDS: Modestly Stronger With US Tsy Futures, RBA Decision Tomorrow
ACGBs (YM +2.0 & XM +2.0) are richer with US tsys futures stronger. Cash US tsys were closed on Friday for the 4th of July holiday.
- Cash ACGBs are 2bps richer with the AU-US 10-year yield differential at -17bps.
- The bills strip is flat to 2bps across contracts.
- Today, the local calendar will feature ANZ Indeed job advertisements and foreign reserves. The RBA Policy Decision is tomorrow.
- (Bloomberg) The RBA is set to deliver its first back-to-back interest-rate cuts in six years, stepping up its easing cycle as inflation pressures cool and US trade policies threaten a fragile global outlook. Most economists polled by Bloomberg, as well as financial traders, expect the Reserve Bank will lower the cash rate by 25bps to 3.6% on Tuesday.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut this week is given a 93% probability, with a cumulative 78bps of easing priced by year-end (based on an effective cash rate of 3.84%).
- This week, the AOFM plans to sell A$1200mn of the 4.25% 21 December 2035 bond on Wednesday and A$1000mn of the 2.75% 21 November 2029 bond on Friday.
BONDS: NZGBS: Modestly Richer, Pres Trump Remarks On Trade/Tariffs
In local morning trade, NZGBs are 2-3bps richer. Cash US tsys were closed on Friday for the 4th of July holiday.
- President Trump has delivered remarks to reporters on trade/tariffs. Regarding trade deals, Trump noted that some agreements have been reached. This follows several countries continuing negotiations with the US over the weekend, including Japan, South Korea and India. Trump noted that the US could send out tariff letters to 12-15 countries today (per RTRS).
- Swap rates are 1-2bps lower.
- RBNZ dated OIS pricing is little changed across meetings. 3bps of easing is priced for this week’s meeting, with a cumulative 31bps by November 2025.
- Today, the local calendar will be empty. The next major event on the calendar will be the RBNZ Monetary Policy Review on Wednesday.
- (Bloomberg) -- A majority of members in the NZIER Monetary Policy Shadow Board recommend that the Reserve Bank of New Zealand keep the cash rate on hold at 3.25% at the July 9 review. While activity remains soft in the New Zealand economy, there are both upside and downside risks to inflation in the near term, given the recent pick-up in annual CPI inflation and heightened global risks.
