RBNZ: RBNZ Prepared To “Adapt” Policy To Ease Financial Conditions
RBNZ Director of Financial Markets Richardson spoke on the transmission of the 300bp of easing since August 2024. The MPC discussed this at the October meeting, implying they are concerned that the pass through of rate cuts to the economy has not been as efficient as expected. Richardson said today that global factors have increased NZ long-end yields, which have put upward pressure on domestic rates and thus financial conditions, the RBNZ could “adapt” policy to ease them again in order to achieve its 2%-mid-point inflation target.
- Richardson implied that the RBNZ is focussed on overall financial conditions and will act if their tightening weighs on the domestic economy, suggesting that if needed it could intervene to flatten NZ’s yield curve. The bank is willing to use other tools apart from rates, given its use of LTV caps.
- Richardson noted that households have chosen short-term/variable mortgages but MPC member Silk noted in August that they are switching to more long-term loans at much lower rates. However, with the 10-2year spread widening since 2023, the full effect of RBNZ easing may not be fully passed on.
- The NZ 2/10s government bond yield curve longer trend chart is plotted below. We were last +146bps, just off cycle highs. In recent years we haven't been able to sustain +150bps levels for long.
- In its October statement, the RBNZ observed that while wholesale rates were lower than in August, it was “particularly at shorter terms”.
- Higher term premium in the US related to increased policy uncertainty and ongoing rising government debt levels has driven the NZ 10yr yield higher too.
- See Richardson’s speech here.
Fig 1: NZ 2/10s Curve
Source: Bloomberg Finance L.P./MNI
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GOLD: Gold & Silver Have Strong Week As More Fed Cuts Priced In
Gold prices finished last week up 2% with a 0.3% rise on Friday to $3759.98/oz supported by a weaker US dollar (BBDXY -0.3%) as the Uni of Michigan consumer data softened. Bullion is now up just over 9% in September. It reached a high of $3783.78 before moderating. It has started today around $3774.0.
- Resistance is at the record high of $3791.1 reached on 23 September with support the 22 September low of $3683.8. The bull cycle in gold remains.
- US PCE price indices for August printed in line with expectations, while income and spending were slightly higher. However, September Uni of Michigan September consumer sentiment was down on August and below consensus and near- and long-term inflation expectations moderated, which supported bullion. The market has almost another 25bp rate cut priced in for the October FOMC decision.
- Silver reached a new monthly high on Friday at $46.63 and was up 16% in September. It rose 2% to $46.08 at the end of the week and is currently around $46.48. The metal is still in an uptrend with the bull cycle extended last week as it rose 7% w/w. It breached a number of resistance levels on Friday.
- Equities rallied with the S&P up 0.6% and Euro stoxx +1.0% and the S&P e-mini is up 0.1% so far on Monday. Oil prices were higher with Brent +0.5% to $69.75/bbl. Copper rose 0.1%.
US TSYS: Cash Open
TYZ5 is trading 112-12+, up 0-04 from its close.
- The US 2-year yield opens around 3.635%, down 0.01 from its close.
- The US 10-year yield opens around 4.166%, down 0.01 from its close.
- 10-Year yields persisted with its probe of the 4.20% area, I suspect buyers continue to be around 4.20% initially and look to fade the move higher. The jobs data if released will be key this week. A move back above 4.35%/4.40% is needed to negate the downtrend.
- MNI FED BRIEF: Fed's Barkin-Jobs Shakier, Inflation Less Troubling. The U.S. employment outlook has deteriorated following recent weakening in payroll growth and large downward revisions to past numbers, while inflation has not risen as much as had been feared due to tariffs.
- MNI US DATA: PCE Spending Looks More Robust After Revisions. August's PCE spending and income data showed robust spending dynamics, especially when strong upward revisions to Q2 are considered. However, the income data didn't cast quite as solid a light on the underlying dynamics.
- Data/Events: Pending Home Sales, Dallas Fed Manf. Activity
AUSTRALIA: RBA Widely Expected To Hold On 30 September
The focus of the week will be Tuesday’s RBA decision followed by Governor Bullock’s press conference. As it is widely expected to keep rates at 3.6% and there won’t be an updated set of forecasts, the tone of the statement and Bullock’s comments will be scrutinised after disinflation appears to have stalled in Q3 and the Governor said to a parliamentary committee last week that "domestic data have been broadly in line with our expectations or if anything slightly stronger". The Board is likely to remain highly data dependent.
- The RBA’s Financial Stability Review is published on Thursday.
- There is quite a bit of second tier data starting with August building approvals on Tuesday. After falling sharply in July due to the volatile multi-dwelling component, it is forecast to rise 2.6% m/m.
- Tuesday also sees private credit for August which is forecast to rise by 0.6% m/m again. In July it was 7.2% higher than a year ago.
- The final September S&P Global manufacturing PMI is released on Wednesday and services/composite on Friday. The preliminary readings moderated across manufacturing and services.
- August household spending, which has replaced retail sales, prints on Thursday and Bloomberg consensus expects a 0.3% m/m increase after 0.5% the previous month which would leave the annual rate at 5.2%.
- Merchandise trade for August is also published on Thursday and the surplus is projected to narrow to $6.2bn from $7.3bn.
