NEW ZEALAND: Economy Forecast To Have Developed As RBNZ Expected In Q4
Mar-19 03:38
Q4 GDP prints on Thursday and Bloomberg consensus is forecasting the production-based measure to rise 0.4% q/q but still be down 1.4% y/y after falling 1.0% q/q & 1.5% y/y the previous quarter. The RBNZ’s February projection is slightly lower at 0.3% q/q but the annual rate is in line with consensus. With the economy developing broadly in line as it expects, it is likely to cut rates 25bp at each of the April and May meetings.
- Forecasts are in a wide range between +0.2% q/q and +1.3% q/q but most are around 0.3-0.5% q/q.
- ANZ is in line with consensus and ASB & Kiwibank with the RBNZ. BNZ is less optimistic forecasting a rise of 0.2% q/q resulting in an annual decline of 1.5%. Westpac is more optimistic projecting a 0.5% q/q increase and a 1.3% y/y fall, but this is due to seasonal adjustment and its other calculations imply that there was no sectoral growth in Q4.
- Expenditure-based GDP fell 0.8% q/q and 1.1% y/y in Q3 and the RBNZ expects it to rise only 0.2% q/q in Q4 to be down 0.9% y/y.
- Q4 data showed a solid rise in manufacturing volumes (+1.1% q/q) and real retail sales (+0.9% q/q). Building volumes were very weak contracting 4.4% q/q as the construction sector continues to struggle. There could be a positive contribution from net exports though as export volumes rose 1.3% q/q and imports fell 1.7% q/q.
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BONDS: NZGBS: Closed Cheaper & At Worst Levels, RBNZ Decision On Wednesday
Feb-17 03:37
NZGBs closed 2-3bps cheaper but at the session’s worst levels.
- Outside of the previously outlined NZ PSI and Migration data, there hasn't been much by way of domestic drivers to flag.
- The NZ-AU 10-year yield differential closed unchanged at +9bps. It has traded in a -10bps to +20bps since October.
- Cash US tsys are closed for the Presidents Day holiday. TYH4 is slightly weaker.
- Swap rates closed 3-4bps higher.
- RBNZ dated OIS pricing is flat to 5bps firmer across meetings today, ahead of the RBNZ Policy Decision on Wednesday.
- The RBNZ decision is widely expected to cut rates 50bp again to 3.75%. Revised staff forecasts will also be published.
- All 22 analysts surveyed by Bloomberg are forecasting a 50bp rate cut and the RBNZ shadow board is recommending 50bp of easing.
- Notably, OIS pricing is 2–19bps firmer than pre-Q4 Labour Market data levels from February 4.
- Nevertheless, 49bps of easing is priced for Wednesday, with a cumulative 111bps by November 2025.
- Tomorrow, the local calendar is empty.
- On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% Apr-27 bond, NZ$200mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.
JPY: Continues To Rally, But Early Feb Highs Intact, CPI & BoJ Speak This Week
Feb-17 03:13
Yen remains the clear outperformed in the G10 space, the pair last near 151.55/60, close to to session lows (151.51). The yen is up 0.50%, with NZD the next best performer up close to 0.25%. For USD/JPY techs, downside focus will remain on recent lows of 150.93 (recorded on Feb 7).
- The earlier Q4 GDP beat was a clear yen positive, although after underperforming last week's G10 move against the USD, there is still room to play catch up.
- A further BOJ rate hike is arguably not priced in until the Sep meeting, although the end July meeting is close to full priced.
- On the data front we get the Jan national CPI this Friday. Note on Wednesday BoJ board member Takata speaks in Miyagi.
- FX options volumes are large at this stage, under $1bn, with higher volumes in USD/CNY per DTCC. The 1 month risk reversal is off recent highs at -1.205 is still above earlier Feb lows (-1.69).
- Versus current spot, the largest expiring strikes for the coming week are center at 154.00 (just over $5bn), with close to 1.7bn at 152 and 154. 149.00 has $1.2bn worth of option expiries for the coming week.
- Futures volumes have ticked up but look normal for this time of day.
JGBS: Cash Bond Twist-Flattener After Q4 GDP, Cash US Tsys Out
Feb-17 03:12
At the Tokyo lunch break, JGB futures weaker, -24 compared to the settlement levels, and at session lows.
- A clear downtrend in JGB futures firmed further, with the latest fresh cycle lows reinforcing the condition. Note too that MA studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The 140.00 psychological handle has been pierced. Markets have shown through 139.38, a Fibonacci projection. For bulls, a reversal would open 142.73 and 144.48, the Dec 9 and Nov 11 high respectively. Gains would be considered corrective.
- Japan's preliminary Q4 GDP was above market expectations. Q3 also saw positive revisions. The q/q annualized outcome was +2.8% versus 1.1% forecast. In q/q terms, this was 0.7% (0.3% was forecast, while Q3 was revised up to 0.4% from 0.3% originally reported).
- Cash US tsys are closed for the Presidents Day holiday. TYH4 is slightly weaker.
- Cash JGBs are 2bps cheaper to 1bp richer, with a flattening bias. The benchmark 10-year yield is 1.2bps higher at 1.374% versus the cycle high of 1.377%.
- Swap rates are 1-2bps higher. Swap spreads are wider.
