NEW ZEALAND: VIEW: Westpac Expects Two Further Cuts In 2025
NZ Q4 GDP was stronger than expected rising 0.7% q/q but still down 1.1% y/y, an improvement from Q3’s -1.6% y/y. There was positive growth in 11 out of 16 sectors with construction continuing to contract though. Westpac notes that technical factors boosted the headline but there was “genuine growth” in the data too. It expects growth to be moderate but below trend in 2025 with the cash rate falling to 3.25%.
- Westpac says that “today’s figures don’t give us reason to adjust our GDP forecast for the March quarter GDP, which currently sits at 0.4%. Our nowcast model, which tracks the general tone of the data in real time, currently sits at around 0.3%.”
- “Given the issues with the volatility of GDP and the extent of revisions, the RBNZ has tended to downplay it in recent times, putting more of its focus on a suite of higher-frequency economic indicators. That said, we don’t think the RBNZ will overlook today’s upside surprise altogether.”
- “At the February Monetary Policy Statement the (now-departed) Governor strongly signalled two further OCR cuts in April and May, but the forecasts were divided on the possibility of a third cut later in the year. At the least, today’s figures make that third OCR cut less likely.”
- Westpac observes that “On a sector-by-sector basis, total activity was up by around 0.3% – better than the flat outcome that was implicit in our forecast. This was mostly due to stronger than expected contributions from a range of service sectors such as healthcare, professional services, and arts and recreation.”
- “Bear in mind that with hours worked down 0.5% over the quarter, seeing any growth in GDP at all would require a healthy lift in productivity.”
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ASIA STOCKS: Nikkei Testing Prior Weeks Highs, Eyes 40,000 If Resistance Breaks
- Japan's Nikkei 225 is testing last weeks highs (39,581), with a break here opening a move to retest the 40,000 mark, a level the index has struggled to hold above since July 2024.
Chart. Nikkei 225 Has Struggled At 40,000
ASIA STOCKS: China & Hong Kong Equities Rise, Tech Again Leads The Way
Chinese and Hong Kong equities extended their rally, driven by optimism following President Xi Jinping’s meeting with private sector leaders, including Alibaba's Jack Ma and DeepSeek’s Liang Wenfeng. The HSI climbed 2%, with the Hang Seng China Enterprises Index is 2.25% higher today and has risen over 23% since its January low. Tech stocks led the gains, with Alibaba, Xiaomi, and Tencent among the top performers.
- DeepSeek’s AI advancements have fueled bullish move, with Wall Street banks upgrading Chinese stocks on expectations of AI-driven earnings growth. However, there still remains some concerns surrounding structural issues like the property crisis and weak consumer confidence. Attention now shifts to China’s annual legislative meeting in March for potential policy update.
- Major benchmarks are mostly higher today with CSI 300 +0.40%, HSI +2%, HSTech +3%, although there is weakness in property names with Mainland Property Index & BBG China Property Developer Gauge both down 0.50%, small cap stocks are also struggling somewhat with the CSI 1000 down 0.40%, while the CSI 2000 is -0.60%.
- Elsewhere, Chinese 10yr bond yields rose as investors rotated into equities, signaling tightening liquidity, while the 1yr yield rose 8bps to it's highest level since August.
BONDS: NZGBS: Closed With Twist-Steepener, RBNZ Policy Decision Tomorrow
NZGBs closed showing a twist-steepener, with benchmark yields 2bps lower to 1bp higher.
- With the local market closed at the time of the RBA’s 25bp rate cut, any spillover effects will have to wait until tomorrow morning. However, the initial reaction has been minimal so far.
- Swap rates also closed mixed, with rates 2bps lower to 3bps higher. The 2s10s curve closed steeper.
- Cash US tsys are 1-4bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s holiday.
- Tomorrow, the local calendar will see the RBNZ Policy Decision. 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.
- RBNZ dated OIS pricing closed slightly softer. 49bps of easing is priced for February, with a cumulative 113bps by November 2025.
- Notably, OIS pricing is 2–17bps firmer than pre-Q4 Labour Market data levels from February 4.
- 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.
