RBNZ Monetary Policy Statement

Economic

Central Bank

Summary:

Short description: The RBNZ left the OCR at 5.5% as expected but was more hawkish on future prospects.

Short description: The RBNZ left the OCR at 5.5% as expected but was more hawkish on future prospects. The RBNZ's projections continue to reflect the risk of further increases in the OCR in 2024. An easing cycle looks quite some time off.

The RBNZ's projections for the OCR were revised 10bp higher to a peak of 5.69% in September 2024, implying around a 75% chance of a further 25bp rate hike. The projections imply a gradual easing of policy from the first half of 2025. The long-run neutral OCR was adjusted up 25bp to 2.5%.

The RBNZ's short term CPI forecasts have been revised down slightly in the near term but significantly higher from mid-2024 reflecting a concern that migration driven population growth will add to demand and the housing market. CPI inflation still gets back inside the range in Q3 2024, but the RBNZ sees upside risks here.

Our overall impression is that this is in line with our concern that more tightening may be required to ensure inflation returns promptly to target.

Talking tough and maybe doing something.

As widely expected, the RBNZ left the OCR at 5.5% at its final policy review for this year. Of much greater interest to markets was what the Bank had to say about the outlook for the OCR next year and beyond.

In summary, the updated projections in the accompanying Monetary Policy Statement (MPS) contained significant revisions from those published back in August. The projections continue to reflect a risk that a higher OCR will ultimately be required, with the probability of a further 25bp hike in 2024 now estimated at around 75% compared with 36% previously (the peak OCR increased to 5.69% from 5.59% previously). Thereafter, with CPI inflation forecast to move back inside the target range in Q3 next year (unchanged from the August forecast) the RBNZ's projections imply a modest easing cycle might be possible from mid-2025 – much later than implied by current market pricing.

The most notable changes in the press statement and meeting record from those which accompanied the October policy review was increased concern that inflation would remain persistent and upside risks from these upwardly revised forecasts. A key driver is increased concern that migration and population would drive increased demand and medium-term inflation pressures. The RBNZ's forecast for house prices was revised up from 4.3% to 5.5% for 2024 reflecting these pressures. The statement of record also notes that government investment looks set to be stronger (in line with PREFU) which also adds to medium term demand concerns.

Our overall first impression is that the RBNZ is concerned that further increases in interest rates may be required towards the middle of 2024. Key will be migration and housing market indicators over the next few months and the next couple of CPI outturns. The new government's fiscal projections in the HYEFU before Christmas will also be a key focus. OCR cuts certainly do not seem to be on the radar for the RBNZ right now.

We will publish a bulletin with further commentary and analysis later today, including implications for our call on the outlook for the OCR, once we have had time to read the full MPS and observe the Governor's post-meeting press conference.

To stay updated on all economic events of today, please check out our Economic calendar

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Titan FX

Forex

GBP/USD Technical Analysis

The British Pound started a major increase above the 1.2450 level against the U.S. dollar. GBP/USD even climbed above the 1.2550 level to enter a positive zone.

GBP/USD Eyes Additional Gains, U.S. GDP Next_1

Looking at the 4-hour chart, the pair settled above the 1.2600 level, the 100 simple moving average (red, 4 hours), and the 200 simple moving average (green, 4 hours).

It even tested the 1.2730 resistance before there was a consolidation phase. On the upside, immediate resistance is near the 1.2730 level. The next key resistance is near the 1.2750 level. A close above the 1.2750 zone could open the doors for more upsides. The next stop for the bulls might be 1.2800.

If there is a downside correction, the pair might find support near the 1.2665 zone. There is also a key bullish trend line forming with support at 1.2600 on the same chart.

The trend line is close to the 50% Fib retracement level of the upward move from the 1.2449 swing low to the 1.2732 high. If there is a downside break below the trend line, the pair could decline toward the 1.2550 support.

The 61.8% Fib retracement level of the upward move from the 1.2449 swing low to the 1.2732 high is also near 1.2550. The next key support sits at 1.2450, below which the pair could test the 1.2420 pivot level in the near term.

Looking at Gold, there were strong bullish moves above $2,025 and there could be more upsides toward $2,050 in the coming sessions.

Economic Releases

U.S. Goods Trade Balance for Oct 2023 - Forecast $-85.5B, versus $-86.3B previous.

U.S. Gross Domestic Product for Q3 2023 (Preliminary) – Forecast 5.0% versus previous 4.9%.

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FastBull Featured

Daily News

[Quick Facts]

1. Two Fed hawks give dovish remarks.

2. U.S. home price index hits a record high after rising for 8 months.

3. Famous investor Charlie Munger dies at 99.

4. Binance US: Zhao (CZ) resigns as Chairman of the Board of Directors.

5. BOJ's paper loss on bond holdings grows to a 20-year high of $71bn.

[News Details]

Two Fed hawks give dovish remarks

Fed governor Waller, one of the Fed's most hawkish officials, seemed to be paving the way for rate cuts at an event at the American Enterprise Institute (AEI) on Tuesday. He said that he was "increasingly confident" that the Fed's current interest rates would prove sufficient to drive inflation down to the 2% target and that if inflation continues to fall, a rate cut would possibly come a few months later. Fed Governor Bowman, who has been hawkish, said she supports further rate hikes if needed, but she added some conditions compared to previous remarks, saying she supports taking action if inflation progress stalls or cannot fall to target in time. The two big hawks who promoted substantial interest rate hikes to curb inflation last year have hinted that they are now happy to see interest rates remain unchanged, which reinforces expectations that the Fed's current interest rate hike cycle has come to an end.

In addition, the "big dove" Chicago Fed President Goolsbee also said that interest rates staying high for too long is a matter of concern.

U.S. home price index hits a record high after rising for 8 months

U.S. home prices continue to climb to an all-time high. A national gauge of home prices rose 0.7% in September from August, according to seasonally adjusted data from S&P CoreLogic Case-Shiller. It was the eighth straight month of gains for the index. Mortgage rates above 7% have chilled the housing market, keeping both would-be buyers and sellers on the sidelines.

Famous investor Charlie Munger dies at 99

Berkshire Hathaway a few minutes ago was advised by members of Charlie Munger's family that he peacefully died at 99 this morning at a California hospital, Berkshire Hathaway posted a statement on the website of its subsidiary Business Wire on Tuesday, November 28, local time. Charlie Munger was a legendary investor who teamed up with Warren Buffett over the past 46 years to create one of the finest investment records of all time -- the book value of Berkshire's stock created an investment myth with a compounded annualized return of 20.3%, and the price per share rose from $19 to $84,487. Warren Buffett eulogized his old partner saying, "Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom and participation."

Binance US: Zhao (CZ) resigns as Chairman of the Board of Directors

Cryptocurrency exchange Binance US announced on Nov. 28 that it is not implicated in the settlement announced last week as it operates separately from Binance, and it holds no outstanding enforcement matters with U.S. regulatory bodies such as the U.S. Department of Justice, Financial Crimes Enforcement Network, Office of Foreign Assets Control, or the Commodity Futures Trading Commission. The firm maintains full operations. Binance founder Changpeng Zhao has decided to resign as chairman of the Board of Directors of Binance US and transfer his voting rights through a proxy arrangement.

BOJ's paper loss on bond holdings grows to a 20-year high of $71bn

The Bank of Japan's (BOJ) semi-annual financial report released on Tuesday showed that its bond holdings have suffered the highest floating losses on record in the last six months, demonstrating the challenges faced by the BOJ governor Kazuo Ueda as he moves toward policy normalization. At the end of September, the paper loss on those assets was 10.5 trillion yen ($70.7 billion), the biggest since fiscal 2004. That's over six times higher than the 157 billion yen loss in the previous fiscal year.

[Focus of the Day]

UTC+8 17:00 Switzerland ZEW Investor Confidence Index (Nov)

UTC+8 18:00 Eurozone Industrial Climate Index & Economic Confidence Index (Nov)

UTC+8 21:00 Germany CPI Prelim MoM (Nov)

UTC+8 23:05 BOE Gov Bailey Speaks

UTC+8 23:30 U.S. EIA Weekly Crude Stocks

UTC+8 02:45 Next Day: FOMC Member Mester Speaks

UTC+8 03:00 Next Day: Fed's Beige Book

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Economic

Energy

OPEC+ delays decision on lack of consensus

Oil prices tumbled after OPEC and other major oil producing nations, known as the OPEC+ group, decided to delay a meeting scheduled for Sunday, November 26, to Thursday, November 30. Investors may have sold black gold on concerns that the group was unable to reach consensus on further production cuts amid a weakening global growth outlook, as it was anticipated heading into the meeting.

Sources said that this was due to African countries Nigeria and Angola aiming for higher oil output allowance, as they were earlier given lower targets after years of failing to meet the previous ones. Nonetheless, on Friday, news hit the wires that the alliance has moved closer to a compromise, which increases the likelihood of having a consensus on Thursday.

Are deeper cuts on the table?

Before the announcement of the postponement, it was largely anticipated that members are likely to extend or even deepen the existing supply cuts into next year. Saudi Arabia was also expected to stretch its additional voluntary supply cuts to at least the first quarter of 2024, so the big question may be whether there will be consensus of deeper cuts by other nations.

Although Saudi Arabia may be willing to cut more, it will likely want concessions from other nations as well. For example, Iraq is already exceeding its existing production target and could be tempted to take more barrels to the market if an accord to reopen its Kurdish export pipeline is soon reached. Iran's exports have also been increasing. Iran's targets have been suspended due to the imposition of US sanctions, but there is clear frustration among Gulf producers regarding soft enforcement by the US. Thus, there may be clear calls for this nation to be also given a target.

Any recovery could be limited and short-lived

As for the market's reaction, Friday's news that members have nearly reached common ground did not trigger a rebound in oil prices, which means that investors may be thinking that whatever cuts are decided, the alliance may have been on track to agree more if it weren't for the disagreements. A relief bounce remains a likelihood in case the group as a whole deepens its production cuts, but the hypothesis that they could have done more could keep the recovery limited and short-lived.

What's more, US output is also on the rise, hitting new records, which combined with weakening global demand prospects constitutes another reason why any decision-related recovery is likely to be brief. Therefore, oil prices could stay in a downtrend for a while longer, which could result in lower headline inflation around the world and perhaps prompt central banks whose economies are on the verge of recession, like the Eurozone, to cut interest rates earlier than currently anticipated.

WTI's broader path remains to the downside

From a technical standpoint, WTI's price structure remains of lower highs and lower lows below the downside resistance line drawn from the high of September 29. What's more, the 50-day EMA appears ready to fall below the 200-day EMA soon, which could validate the bearish picture. Although the 74.00 barrier provided decent support recently, it could soon be violated by the bears, with the next stop perhaps being the low of November 16 at around 72.15. A break lower would confirm a lower low on the daily chart and could see scope for extensions all the way down to the key area of 67.00.

For the picture to turn brighter, WTI may need to climb all the way above the crossroads of the aforementioned downtrend line and the round number of 80.00. Will Deeper OPEC+ Output Cuts Matter for Oil Prices?_2

Will Deeper OPEC+ Output Cuts Matter for Oil Prices?_2

To stay updated on all economic events of today, please check out our Economic calendar

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Damon

Forex

The EUR/USD pair is currently making steady gains, approaching multi-month highs around 1.0960, driven by a weakened USD and Christine Lagarde's somewhat hawkish remarks before the European Parliament.

Minor housing data from the U.S., specifically New Home Sales for October, came in below expectations but didn't significantly impact the pair.

Lagarde, President of the European Central Bank, cautioned that headline inflation might see a slight increase, and economic growth is anticipated to remain weak. However, Lagarde didn't provide clear indications on the duration of maintaining restrictive rates or the timeline for rate cuts.

The focus for the rest of the week will be on Eurostat's release of the Harmonized Index of Consumer Prices (HICP) and the U.S. report on the Core Personal Consumption Expenditures Index (PCE), influencing short-term expectations for the ECB and the Fed.

EUR/USD – D1 Timeframe

EUR/USD is currently trading around a major supply zone on the daily timeframe. The bearish array of the moving averages can be considered an additional confluence in support of the bearish sentiment. In the meantime though, there is a trendline support on the 4-Hour timeframe that I will be expecting price to break, before the bearish move can commence.

Analyst's Expectations

Direction: Bearish

Target: 1.06965

Invalidation: 1.10556

GBP/USD – D1 Timeframe

GBP/USD is currently at an intersection of a supply zone and a trendline resistance. Usually, this is considered basis enough for a bearish sentiment. However, considering the apparent lack of volatility from the US Dollar, I will personally wait to see a break of the minor trendline support on the 4-Hour timeframe for a safer entry, as in the case of EUR/USD.

Analyst's Expectations

Direction: Bearish

Target: 1.22494

Invalidation: 1.27452

USD/JPY – D1 Timeframe

USD/JPY is currently approaching the major demand zone with an overlapping trendline support. Based on this, I am expecting a bounce off of the trendline with an initial target at the 76% of the Fibonacci retracement level.

Analyst's Expectations

Direction: Bullish

Target: 150.28

1Invalidation: 145.692

Conclusion

The trading of CFDs comes at a risk. Thus, to succeed, you have to manage risks properly. To avoid costly mistakes while you look to trade these opportunities, be sure to do your due diligence and manage your risk appropriately.

Source: FBS

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ING

Commodity

Energy

Energy - Kazakh oil disruptions

A move lower in treasury yields and a weaker USD following some less hawkish comments from some Fed officials yesterday provided a boost to the commodities complex. ICE Brent managed to settle a little more than 2.1% higher on the day, which took it back well above US$81/bbl. The strength in the oil market comes despite the fact that there appears to still be no resolution to the disagreement between OPEC+ members over 2024 production targets. The group are scheduled to meet tomorrow, but if they fail to come to a preliminary deal, we cannot rule out the risk that the meeting is further delayed, which would likely put some downward pressure on oil prices. The outlook for the oil market in 2024 will largely depend on OPEC+ policy.

Further support would have likely come from disruptions to oil loadings in the Black Sea following a storm in the region. And this bad weather is expected to continue for most of this week. The halt in loadings will weigh on output, with Kazakhstan’s energy ministry already saying that output at its largest oil fields (Tengiz, Kashagan and Karachaganak) has been cut by 56%.

Numbers from the API overnight were somewhat neutral, showing that US crude oil inventories fell by 817Mbbls over the last week, while stocks at Cushing declined by 465Mbbls. The market was expecting a small draw in crude inventories. For refined products, gasoline inventories fell by 898Mbbls, while distillate stocks increased by 2.8MMbbls. If EIA numbers later today show a similar build in distillate stocks, it would be the first build since September.

Metals – MMG Peru copper miners begin strike

Workers at MMG’s Las Bambas copper mine in Peru began an indefinite strike starting Tuesday over delayed payment of their bonuses. The mine has a maximum production capacity of 400ktpa. The strike’s impact on the mine’s copper production remains unclear as of now. The copper concentrate market is expected to tighten with smelters around the world increasing capacity, while political risks continue to increase for mining operations globally. In Panama, Canada’s First Quantum mine has ignited massive protests in the country and was recently forced to suspend activity. A court yesterday ruled that the contract, which allowed the miner to operate the mine, was unconstitutional.

LME on-warrant copper stocks fell by 6,900 tonnes yesterday to 154,325 tonnes, the lowest since 19 September. The decline was driven by warehouses in New Orleans. Meanwhile, exchange inventories fell by 1,400 tonnes for a second consecutive day to 176,400 tonnes as of yesterday, the lowest since 2 November.

Agriculture – Cocoa jumps on supply woes

US cocoa prices extended their upward rally yesterday reaching their highest level since 1977. Concern over a strong El Nino event and wet weather elevating crop disease in West Africa are pointing towards a third consecutive supply deficit for the 2023/24 season. Recent reports suggest that the upcoming harmattan season (starting from late November-March) in the Ivory Coast has raised concern about caterpillar attacks while ageing plantations are expected to reduce overall productivity in the northwest region. Along with that, cocoa farmers in Ghana are struggling to receive proper fertilizers to control crop diseases, while Cameroon is also fighting black pods and other diseases due to persistent rains.

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Justin

Economic

The rise in Europe’s populist parties, underlined by this week’s far-right election win in the Netherlands, further exacerbates central banks’ political and public relations problems over their weakened balance sheets.

The far right’s surge, with anti-Islam, anti-euro Party for Freedom leader Geert Wilders favourite to become the next Dutch prime minister, makes life more difficult for central banks for several key reasons. It concentrates the spotlight on policy mistakes by largely independent central banks contributing to an unpopular mix of high (though now diminishing) inflation and high interest rates.

The rise of a new breed of politicians unstinting in their criticism of public sector technocrats will focus attention on central bank operating losses and measures taken to stem them. A landmark report from the International Monetary Fund in July found that losses throughout the euro system were ‘temporary and recoupable’. However, following the European Central Bank’s further interest rate rise in September, prospects for a medium-term easing of the central banks’ balance sheet plight have deteriorated further.

As the IMF wrote, quantitative easing – large-scale, across-the-board purchases of government bonds introduced in 2015 – removed duration risk from the private sector’s balance sheet, in an effort to support credit provision to the real economy. ‘In effect, the ECB executed a fixed-for-floating rate swap for public debt. This leaves the ECB and its shareholder national central banks with a large interest rate exposure in the current tightening cycle.’

Campaign to raise minimum reserve levels could hit bank lending

Deposit rates paid by central banks to commercial banks have increased sizeably in the past 18 months. These outlays hugely exceed the paltry interest rate return on the asset side of central banks’ balance sheets, heavily swollen by huge purchases of low- (sometimes negative-) yielding bonds during the past decade.

This imbalance – as well as some more mainstream monetary policy reasons – represents one reason why some euro area central banks have been campaigning to raise much further the volume of commercial banks’ non-remunerated minimum reserves held at Eurosystem central banks.

This aim is unlikely to be met, at least in the short term. Increasing minimum reserves might lower banks’ profitability and capacity to overpay staff, potentially garnering political applause. But bank executives argue it would impede lending at a sensitive time for European economies.

As the IMF wrote, major euro area central banks seem unlikely to turn to governments for recapitalisation or other forms of overt state support. But an end to a long cycle of paying profits to aid public finances is politically problematic. De Nederlandsche Bank is likely to pay no dividends to the government for the next 10 years. The Bundesbank is braced for a wider public debate over its finances in 2024-25. This will coincide with a probably stormy run-up to the next scheduled general election for Germany in autumn 2025.

QE criticism and appeal of populist parties

The Bundesbank will have used up nearly €20bn of provisions on its balance sheet in covering 2023 losses, to be announced in early 2024. These balance sheet problems, although soluble through accounting adjustments, will sharpen the debate about the drawbacks of large-scale QE. Many now believe this continued too long in the European Union and the UK. QE has been blamed for exacerbating wealth imbalances and undermining the solidity of public finances – both factors enhancing the appeal of populist parties.

The UK has a different mechanism to the euro area for dealing with central banks’ QE-induced losses. The prospective levy on UK taxpayers to stem losses through the Bank of England’s asset purchase facility is estimated to be as high as a cumulative £150bn by 2033.

The Bundesbank may see its sizeable gold reserves as an important buffer for its balance sheet strains. For political, legal and accounting reasons, it probably will not resort to direct use of its gold valuation reserves to plug its deficit. But it pointed out in its 2022 annual report that its balance sheet is underpinned by a gold revaluation reserve of €176bn, eight times larger than when the euro started in 1999.

A similar approach seems likely to be followed by De Nederlandsche Bank. Drawing on gold directly might have adverse side effects if politicians opined that the Bundesbank’s gold should be diverted to other channels. In view of the political and constitutional imbroglio over German public finances, such speculation would be anathema to the Bundesbank and to Chancellor Olaf Scholz’s embattled government.