In the absence of major newsflow, market movements have been modest overnight. Oil prices are slightly lower amid positive vibes around the Middle East conflict. NZD\/USD is trading around 0.5725, recovering from fresh lows yesterday afternoon.<\/p>\n
Brent crude fluctuated between USD97.50 and USD102 per barrel overnight and currently trades with a USD98 handle, down modestly. Saudi Arabia is preparing to restart its key East-West pipeline and resume crude exports from its Red Sea port by the end of the week. There were plenty of headlines overnight on diplomatic efforts to reach a deal between the US and Iran. Trump noted that US officials met with Iran\u2019s delegation at the UN for three hours.<\/p>\n
Media commentary on President Trump\u2019s speech at the UN highlighted his threat to \u201cannihilate\u201d Iran, although less biased outlets noted the full quote, which was more balanced: \u201cWill a deal be made with Iran that lets them rebuild and create a far greater country than it ever was before \u2013 maybe one of the greatest in the Middle East or even the world \u2013 or do I annihilate the Islamic Republic and do it quickly?\u201d He also added that he believes a deal will come \u201cright after\u201d the midterm election, saying, \u201cthey\u2019re waiting to see how I do\u201d.<\/p>\n
US 10-year Treasury yields are currently flat around 4.96%, after trading an overnight range of 4.92%-4.98%. The 2-year rate traded at a fresh two-year high of 4.785%. The Fed Funds market is pricing in three full rate hikes by the middle of next year, spread over the next six meetings.<\/p>\n
US equities have shown modest movements. The S&P 500 is currently flat, while the Nasdaq index is up 0.5%, trimming earlier gains that saw it trade at a fresh record high.<\/p>\n
The USD is broadly stronger overnight, although moves have been modest. NZD\/USD is trading around 0.5725, relatively flat from this time yesterday. The NZD traded down to about 0.5695 early yesterday afternoon, a fresh two-month low, in what looked like a liquidity vacuum before rebounding with some support from an RBNZ press release (see below). At the same time, the AUD fell through 0.71, although that did not prevent NZD\/AUD from hitting a fresh 13-year low of 0.8006 before recovering sharply. The AUD is trading back above 0.71, while the NZD\/AUD cross is around 0.8050. Most of the price action in all NZD crosses occurred yesterday afternoon, with only small moves overnight.<\/p>\n
The RBNZ released a statement under the guise of various MPC members\u2019 visit to Dunedin, including comments on recent data and economic conditions. The RBNZ seemed to be trying to deliver a clear message to the market, but we are just not sure what it was! There was a mix of soundbites that could be interpreted as either dovish or hawkish, depending on one\u2019s disposition.<\/p>\n
The market seemed to latch on to the comment noting that higher oil prices, if sustained, \u201care expected to result in somewhat higher near-term inflation than we assumed in the September Statement\u201d. Of note, the RBNZ\u2019s statement followed a critical report highlighting the mistakes it made in the wake of the COVID-19 pandemic. A key conclusion of the review was that greater emphasis should be placed on real interest rates when assessing and communicating the stance of monetary policy, while near-term inflation developments should receive greater focus.<\/p>\n
Applying these recommendations to the current situation, NZ\u2019s real interest rates remain clearly stimulatory against a backdrop of headline CPI inflation that is on the verge of breaking up through 4%, while core inflation could easily breach 3%. On this basis, while the RBNZ has been tightening policy, there remains significant heavy lifting to do.<\/p>\n
Domestic rates showed a flattening bias, with higher short-term rates in response to the RBNZ\u2019s comments against flat long-term rates. The 2-year rate closed up 4bps to 4.04%, just shy of its recent multi-year high, while the 10-year rate was unchanged at 4.65%. Short-end NZGB yields rose 3bps against a flat 10-year rate and a 1bp fall in ultra-long bonds.<\/p>\n
On the economic calendar, global PMIs across Europe and the US are released tonight, with consensus estimates pointing to only modest changes in the early-September indicators compared with August.<\/p>\n
Select chart tabs<\/p>\n
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Jason Wong is the senior Markets Strategist at BNZ Markets.<\/p>\n","protected":false},"excerpt":{"rendered":"In the absence of major newsflow, market movements have been modest overnight. Oil prices are slightly lower amid…\n","protected":false},"author":2,"featured_media":608628,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-608627","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/608627","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=608627"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/608627\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/608628"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=608627"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=608627"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=608627"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}