Latest / Best of Business / Remy Wisenberg: Milford Asset Management expert on the market reactions to the OCR being kept on hold

Transcript

Remy Wisenberg: Milford Asset Management expert on the market reactions to the OCR being kept on hold · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from Newstalk ZB.
• 0:12
  Speaker 2: Follow this and our wide range of podcasts now on iHeartRadio.
• 0:16
  Speaker 2: And we're joined now by Remy Weisenberg, Milford Asset Management.
• 0:19
  Speaker 1: Hi, Remy. Hi, Heather.
• 0:21
  Speaker 2: Right, well, there's a 95% chance that the OCR was
• 0:24
  Speaker 2: going to go up today. So how did the market
• 0:26
  Speaker 2: react to the fact that it didn't?
• 0:29
  Speaker 1: Yeah, so the decision by the RBNZ to keep the
• 0:32
  Speaker 1: OCR on hold was actually quite a shock to the
• 0:34
  Speaker 1: market because And as a result, we saw a sharp
• 0:37
  Speaker 1: weakening of the New Zealand dollar. And if we look
• 0:40
  Speaker 1: at the New Zealand dollar versus the Australian dollar in particular,
• 0:43
  Speaker 1: some of the move was also driven by the fact
• 0:46
  Speaker 1: that we had the Australian CPI print today. And that
• 0:49
  Speaker 1: showed Australian inflation is stronger than expected. So some of
• 0:52
  Speaker 1: the market started to open. price more, a higher chance
• 0:57
  Speaker 1: of a policy rate hike at the next Australian central
• 1:00
  Speaker 1: bank meeting. So that combined with the RBNZ decision to
• 1:04
  Speaker 1: hold the OCR today was really not supportive of the
• 1:07
  Speaker 1: New Zealand dollar versus Aussie dollar. We then saw New
• 1:10
  Speaker 1: Zealand interest rate swaps fall, so the two-year swap rate
• 1:13
  Speaker 1: that initially fell around 14 basis points. It came back
• 1:17
  Speaker 1: a little bit throughout the afternoon, but still down on
• 1:19
  Speaker 1: the day. Now, while we didn't see a hike today,
• 1:22
  Speaker 1: the RBNZ have instead positioned a potential hike in December.
• 1:26
  Speaker 1: So what we've seen is the market having to shift
• 1:29
  Speaker 1: its expectations, and it's now pricing in a higher chance
• 1:32
  Speaker 1: of a December and a February increase.
• 1:35
  Speaker 2: We've also got the Fed and the US and then
• 1:36
  Speaker 2: the European Central Bank making decisions this week. What are
• 1:39
  Speaker 2: we expecting?
• 1:41
  Speaker 1: Yeah, that's right. So we have the Fed decision tomorrow morning,
• 1:43
  Speaker 1: our time, and then the ECB the following day. For
• 1:47
  Speaker 1: both regions, the general expectation is that policy rates will remain,
• 1:51
  Speaker 1: the same policy rates will remain in place. A couple
• 1:54
  Speaker 1: of reasons for that. Both the Fed and the ECB,
• 1:56
  Speaker 1: they hiked in September. And since then, we've had some
• 2:00
  Speaker 1: of the data actually suggesting that inflation, particularly in the Eurozone,
• 2:04
  Speaker 1: is more energy driven because of the Middle East conflict.
• 2:07
  Speaker 1: We've also seen some of the bond markets doing the
• 2:10
  Speaker 1: heavy lifting for the central banks. So in the US,
• 2:13
  Speaker 1: we've had long end bond yields rising off the back
• 2:16
  Speaker 1: of things like fiscal concerns, demand for what we call
• 2:19
  Speaker 1: term premium. So that's the extra yield investors need for
• 2:23
  Speaker 1: longer dated investments and also some competing supply from AI
• 2:27
  Speaker 1: companies that are funding their CapEx. So markets are not
• 2:31
  Speaker 1: really expecting a policy rate increase from the Fed or
• 2:34
  Speaker 1: the ECB this time around, but they are still for December.
• 2:37
  Speaker 2: Okay, now speaking of the AI CapEx, we have some
• 2:39
  Speaker 2: of the key players reporting this week. What are markets
• 2:42
  Speaker 2: looking for?
• 2:44
  Speaker 1: Yeah, so we've already had Meta. They reported last week.
• 2:47
  Speaker 1: This week we have Microsoft, Alphabet and Amazon reporting. Markets
• 2:52
  Speaker 1: will really be watching to see the earnings growth as
• 2:55
  Speaker 1: being achieved in line with expectations. What they'll also be
• 2:58
  Speaker 1: watching is for any upgrades to CapEx guidance and clarity
• 3:03
  Speaker 1: on how that AI CapEx spend will be funded. So
• 3:06
  Speaker 1: as I mentioned before, there's been a lot of companies
• 3:08
  Speaker 1: that are issuing bonds to fund AI investment, and that's
• 3:11
  Speaker 1: contributed to higher bond yields. But what we're also increasingly
• 3:15
  Speaker 1: seeing is equity raises to help fund some of that spend.
• 3:18
  Speaker 1: So we've already had Meta this week. They launched an
• 3:21
  Speaker 1: equity raise on Monday. So, yeah, it's really been a
• 3:24
  Speaker 1: big week for markets already and lots more to come.
• 3:27
  Speaker 2: OK, Remy, thanks very much. Really appreciate it. Remy Weisenberg
• 3:29
  Speaker 2: of Milford Asset Management.