EQUITIES: US Equities Tumble On Trade Concerns

The Q4 unemployment rate rose 0.3pp to 5.1%, in line with consensus and the RBNZ, to be its highest since the Covid-impacted Q3 2020. Employment fell 0.1% q/q to be down 1.1% y/y after -0.6% & -0.6% in Q3, which was revised lower. Wages growth continues to moderate and is either near 3% or under. Given the data printed close to the RBNZ’s November forecasts, which also suggested a 50bp rate cut in Q1 2025, another 50bp on February 19 remains likely.

NZ unemployment rate %

• There is growing spare capacity in the labour market with the Q4 underutilisation rate rising to 12.1% from 11.6% in Q3 and 10.7% a year ago. Thus it is not surprising that hours worked fell for the fourth straight quarter down 0.5% q/q and 2.5% y/y. The number of unemployed grew 5.4% q/q & 26.8% y/y after -24.4% y/y in Q3.
• Job shedding was focused in full-time jobs, another sign of weakness in the labour market. Any cautious hiring is occurring in the part-time sector with PT jobs rising 0.2% q/q to be up 1.4% y/y.
• The labour cost index rose 0.6% q/q with the annual rate moderating to 3.3% from 3.8%, the lowest since Q1 2022. Private wages rose 0.6% q/q, slightly higher than the RBNZ forecast, to be up 2.9% y/y down from 3.4% in Q3.
• The minimum wage is set to rise only 1.5% on April 1, while lower inflation and labour demand should continue to weigh on other wages, which should make the RBNZ comfortable that inflation is sustainably within its 1-3% band.

NZ wages y/y%

Source: MNI - Market News/Refinitiv

Since Monday's near fresh record peak of 7.3734, USD/CNH has largely been tracking south. We saw a brief blip higher above 7.3300 as China responded to the 10% tariff imposition with its own tariffs and other measures. However, China's move wasn't seen as an escalation. USD/CNH tracks at 7.2870 in early Wednesday dealings, after a 0.34% gain for Tuesday's session. In US trade, the Golden Dragon equity index rose 2.65%. 

• US President Trump didn't seem concerned by China’s retaliation and will speak to President Xi “at the right time”.
• Intra-session lows on Tuesday came at 7.2746. Current spot levels are close to the 50-day EMA, we are back sub the 20-day EMA, which is near 7.3000. The 100-day EMA remains further south close to 7.2540.
• Onshore markets return today after the LNY break, with eyes on the USD/CNY fixing. The last fixing was 7.1698 (record on Jan 27 last week). Since then, USD indices have gravitated higher, but only marginally. The risk may be for a relatively benign outcome given recent tariff implementations by both countries and China not wanting to inflame tensions any more with fresh sharp yuan depreciation pressures.
• Also benefiting the CNH during US trade was softer US data, including the JOLTS print, which helped drag US yields lower.
• Today on the data front we have the Caixin services PMI for Jan. The market consensus is 52.4, versus 52.2 prior. 

US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu are shortly due to deliver a joint press conference from the White House, following a bilateral meeting. LIVESTREAM

• The presser comes amid concerns about the implementation of phase two of the Gaza ceasefire agreement that went into effect last month. Axios reports: “Netanyahu wants to convince Trump not to force him to implement the deal's second phase, so he can have more time to dismantle Hamas.”
• Trump told reporters at the Oval Office yesterday that there are “no guarantees” the Gaza cease-fire will hold: “We'll see how it all turns out. It's complex, but I think he's going to do very well."
• The Washington Post notes Trump's Middle East envoy, Steve Witkoff and Trump’s national security advisor, Mike Waltz, met yesterday with Netanyahu, whose office described the meeting as “positive and friendly.”
• Today's bilateral meeting is also likely to have touched upon Iran’s nuclear programme and a plan to normalise relations between Israel and Saudi Arabia – a key pillar of Trump’s Middle East policy.