NEW ZEALAND: VIEW: Westpac Expects FY28/29 Surplus To Stay
NZ’s 2025 budget is released at 2pm NZST (12pm AEST) on Thursday. The Finance Minister has said there won’t be a change in medium-term fiscal strategy from December’s HYEFU. Westpac expects the government’s forecast to retain the return to surplus in 2028/29, while the prior years are likely to show slightly higher deficits. Overall though, it doesn’t expect operating balance revisions to drive major changes to the government borrowing programme but there is uncertainty around capex plans, especially defence.
- Westpac estimates “that the cumulative four-year financing requirement will likely be around $4bn larger than forecast in the HYEFU, with the programme for 2025/26 likely unchanged given the overfunding in 2024/25”.
- “The sustained spending restraint that is likely to be depicted in the Budget will require significant discipline and ongoing tough choices. That said, it is possible that the economy – and tax revenues – could surprise to the upside, allowing an easier return to surplus.”
- “A weaker outlook for trading partner growth will weigh on forecast tax revenues, but the impact should be largely offset by the Minister’s decision to reduce this year’s operating allowance, together with other savings initiatives.”
- “One source of good news since the Half-Year Economic and Fiscal Forecast (HYEFU) is that actual fiscal outturns have been tracking favourably compared with the HYEFU forecast.”
- “Rather than accepting a further delay in the return to surplus, the Minister announced that she has decided to reduce the size of the Budget 2025 operating allowance – the allowance for new spending or revenue initiatives – to just $1.3bn from the $2.4bn allowance set previously. This will save $1.1bn in each year of the forecasts.”
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US TSYS: Sell-Off
TYM5 reopens at 110-24, down 0-02 from closing levels in today’s Asia-Pac session.
- Overnight US 10-year yields had a range of 4.3287% - 4.4185%, closing near the highs around 4.41%, as US treasuries got sold when risk turned lower.
- Treasuries look to finish mostly lower Monday, curves twist steeper as the short end outperforms a sell-off in the long end, risk sentiment hampered as stocks hold at or near session lows.
- Global trade remains the greater concern, markets await something concrete in tariff negotiations vs. hopes and promises that talks with dozens of countries are going well, while Pres Trump berates Fed Chairman Powell and reiterates a call for "preemptive cuts".
- Yields have bounced off their support around the 4.25 area, and the correlation between yields and the USD continues to break down as US assets are being exited en masse.
- The IMF releases its World Economic Outlook tonight. The market will be keen to see its assessment of the recent turmoil.
GOLD: Another Record High, Gold Surges Through $3400
Gold remained on the front foot through Monday trade, albeit in limited liquidity with EU markets still closed. We track near $3424 in early Tuesday dealings, just off session highs from Monday (3430.60), which was a fresh record high. Gold gained 2.92% for Monday's session with broad USD weakness, coupled with risk off in the US equity space driving gains.
- The RSI (14) on gold is in overbought conditions, last above 77, but we have been in this state on numerous occasions already in 2025, with the market comfortable buying gold dips. We have the 20-day EMA back under $3190. Lows from the end of last week were at $3284.
- Topside focus is likely to rest on round figure resistance at $3500. Note Goldman Sachs stated bullion could hit $4000 by mid next year (via BBG).
- US Tsy yields were sharply higher at the back end of the curve, the 10yr up 9bps to 4.41% in Monday trade. President Trump comments berated Fed Chairman Powell and reiterated a call for "preemptive cuts". This raised fears of Fed independence and added to the negative risk mood. The SPX fell 2.36%.
ASIA: Coming Up In Asian Markets On Tuesday
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