RBNZ: VIEW: Goldman Sachs Now Look For Longer, Deeper Cutting Cycle
Jun-19 09:29
Goldman Sachs believe that “the RBNZ’s reaction function is a key source of uncertainty, particularly given recent leadership changes, intensifying focus on the RBNZ Chair and MPC members, escalating war in the Middle East, and the scheduled expiration of the “Liberation Day” tariff deferral in the hours after the RBNZ’s July meeting”.
- On balance, they suggest that “this uncertainty, alongside the upside surprise in Q1 GDP, probably incentivises the RBNZ to “pause to assess” in July”. However, they note that “the RBNZ’s revealed preference over the past 12 months has been to surprise in a dovish direction” and “expect this bias will prevail over the medium term”.
- As a result, Goldman now expect “the RBNZ to pause the easing cycle at the July MPC meeting (prior: 25bp cut), before delivering a deeper - if slower - easing cycle down to a 2.50% terminal rate by February 2026 (25bp cuts in Aug, Nov, Feb: prior: 3.00% by July 2025)”.
- They view their new terminal rate forecast to be “consistent with slightly accommodative monetary policy settings, it is more dovish than pricing in financial markets and the RBNZ’s OCR track”.
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FOREX: AUD Slips as RBA Considered Jumbo Rate Cut
May-20 09:28
- AUD is slipping against all others in G10 following the RBA rate cut to 3.85%. While the rate cut itself was expected, Bullock's more assertive language on easing ahead has pressured the front-end of the curve. The RBA disclosed that a 'jumbo' rate cut of 50bps was discussed - signaling the bank's approach to inflation is less restrictive than expected. As a result, AUD/USD has retreated away from any test of the 200-dma of 0.6452, reverting to the lower-end of the recent range in the pair.
- An uptick in oil prices has helped support commodity-tied currencies. Comments from Iran's Khamenei talked down the prospects of progress with the US in nuclear negotiations. Khamenei stated he does not believe talks with the US will yield any results - supporting Brent crude to briefly trade back to yesterday's highs. As a result, NOK is outperforming most others in G10.
- Broad EUR and GBP strength that played out across Monday has faded somewhat, however GBP/USD remains well toward the upper-end of the week's range. GBP/USD holds above 1.3350, but is yet to make any material challenge on the weekly high of 1.3404.
- Canadian CPI for April is the data highlight Tuesday, at which markets look for Y/Y CPI to slow to 1.6% from 2.3% previously. The Atlanta Fed's financial markets conference continues, while appearances are also due from Fed's Bostic, Barkin, Collins, Musalem and Kugler. Knot & Cipollone represent the ECB.
BONDS: Long-end Gilts Outperform Bunds Despite 30-year Syndi
May-20 09:25
German and UK yields are biased lower this morning, with the German curve lightly bull steepening and the Gilt curve bull flattening. Those dynamics come despite today’s syndicated launch of the new 5.375% Jan-56 gilt. Books are now closed and final terms have been set for the syndication, with the GBP4bln size smaller than MNI's expectations.
- The 10-year Gilt/Bund spread has tightened 2bps to 205.5bps this morning, but there hasn’t been an overt driver of the UK outperformance.
- The reaction to UK Chief Economist Pill’s opening remarks was relatively contained. Although Pill thinks the MPC started easing too early, he viewed May as the appropriate moment for a skip and seems to still broadly support quarterly cuts going forward.
- In the EGB space, Germany will sell green Bunds at 1030BST while Finland will issue RFGBs at 1100BST.
- Bund futures are +4 ticks at 130.58, off earlier session highs of 130.75. Gilt futures are +30 at 91.80, from a high of 91.91.
- Following a record high merchandise trade surplus ahead of US Liberation Day, the Eurozone seasonally adjusted current account surplus rose to E50.9bln in March (vs an upwardly revised E40.6bln prior). German April PPI was weaker-than-expected, but more interest will be in the flash Eurozone May consumer confidence reading at 1500BST.
- In the UK, focus remains on tomorrow’s April CPI report. MNI’s preview will be released later this morning.
GILT SYNDICATION: 5.375% Jan-56 gilt: Final terms
May-20 09:21
- Size: GBP4.0bln (smaller than MNI expected - that's the average size in the DMO's funding plan with no upsizing)
- Books closed in excess of GBP74bln pre-rec (inc JLM interest of GBP3.75bln)
- Spread set: 4.25% Dec-55 gilt (GB00BT7J0241) + 1.75bp (guidance was 1.75bp/2.25bp)
- ISIN: GB00BT7J0241
- JLMs: BNP Paribas, BofA Securities, Deutsche Bank, Goldman Sachs International Bank (B&D / DM) and Santander
- Settlement: 21 May 2025 (T+1)
- Maturity: 31 January 2056
- Coupon: 5.375%. Short first
- Timing: Allocations to follow
From market source / MNI colour
