Last week NZ 10 government bond yields firmed, with those for the 10-year tenor moving above 1.50%, a close to 20bp gain on a week ago. The RBNZ meeting on Wednesday afternoon is the big focus for the week ahead.
In US economic data, the Markit 'flash' purchasing managers index for manufacturing fell from 59.2 to 58.5 in February, in line with expectations, and still pointing to solid expansion. The services PMI rose from 58.3 to 58.9, better than expected, and pointing to a solid expansionary outlook for the service sector. Existing home sales rose by 0.6% in January to 6.69 million (better than expected). The Eurozone composite PMI showed business activity fell for a fourth successive month in February, driven by the continued slump in the service sector. The UK composite PMI improved more than expected in February (actual: 49.8, consensus: 42.6) suggesting the UK economy is showing early signs of steadying.
US sharemarkets were broadly flat on Friday. Shares in farm machinery maker, Deer & Co. rose by 9.9% after it upgraded its earnings outlook. Share prices fell in a number of technology companies: Facebook (-2.9%); Microsoft (-1.2%); and Amazon (-2.4%). The Dow Jones index rose by less than 0.1%. The S&P 500 index fell by 0.2% but the Nasdaq index rose by 0.1%. Over the week the Dow rose 0.1%; S&P 500 fell 0.7%; Nasdaq lost 1.6%.
European sharemarkets rose on Friday after data showed factory activity in February had lifted to a 3-year high. Basic resources rose by 2.8%. The pan-European STOXX 600 index rose by 0.5%, lifting the market to the third week of gains. The German Dax index rose by 0.8%. The UK FTSE index only edged 0.1% higher after the pound rose to its highest point against the US dollar in three years. Meanwhile the NZ market slipped 0.7% on Friday and is trading over 7% down on its record level in early January. Some of the strong dividend payers such as Meridian and Mercury have been under pressure as swap rates and government bond yields have risen, and Ryman Healthcare dropped 4.4% on Friday.
US longer-term treasuries fell on Friday (yields higher). US 2-year yields were steady near 0.11%. And US 10-year yields rose by 5 points to near 1.34%. Over the week US 2-year yields were broadly flat while US 10-year yields rose by 14 points.
Global oil prices fell by near 2% on Friday. Texas oil companies prepared to restart production after it was shuttered by the recent cold snap. Brent crude fell by 1.6% Friday to US$62.91 a barrel. Over the week, Brent prices rose by 0.8%.
FX update: Major currencies were mixed against the US dollar in European and US trade on Friday. The NZD starts the week trading a shade below 73 US cents and 92.8 Australian cents. The RBNZ meeting on Wednesday is the main catalyst for NZD movement this week.
Day ahead: There are no local data releases scheduled today. In the US, the Chicago Federal Reserve national activity index is released, along with the Dallas Fed manufacturing index.
Week ahead local: The RBNZ meeting on Wednesday afternoon is the week’s major event. A lot has happened since the RBNZ’s last meeting in November, with the local economic developments largely positive. The improving economy is putting a lot of upward pressure on long term bond yields and swap rates. The RBNZ’s take on things is keenly anticipated. We expect the RBNZ to leave the OCR unchanged over 2021 and leave its Large-Scale Asset Purchase programme cap unchanged at $100 billion. But we do think the RBNZ could lift the OCR next year.
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