NZGBS: Closed Sharply Richer After Bus. Conf. Falls, Q1 Employment Tomorrow

NZGBs closed on a strong note, with benchmark yields 5-6bps lower, after Business Confidence fell to its lowest level since September last year.

• ANZ’s Business Confidence measure for April fell to 14.9 from 22.9 and the activity outlook to 14.3 from 22.5. Cost and wage pressures remained elevated with some easing only in the latter. Weak demand will make it difficult to pass on higher costs. The RBNZ needs activity to ease to return to inflation to target but this may be a slow journey.
• Swap rates closed 8-9bps lower.
• RBNZ dated OIS pricing closed 4-6bps softer for meetings beyond August. A cumulative 32bps of easing is priced by year-end.
• Tomorrow, the local calendar will see the Q1 Employment Report. The labour market is widely expected to have eased further with slower growth resulting in less hiring and migration increasing the labour supply and thus reducing pressure on wages.
• Bloomberg consensus has a 0.3pp increase in the unemployment rate to 4.3%, the highest in over 5 years, and forecasts employment growth to moderate to 0.3% q/q and 1.6% y/y from 0.4/2.4% in Q4. Unemployment expectations are between 4.1% and 4.5%.
• Private wages including overtime are projected to rise by between 0.6% and 0.9% q/q in Q1.