RBNZ to Cut and Maintain Easing Bias

Transcription

1 RBNZ to Cut and Maintain Easing Bias RBNZ committed to cutting at Thursday s MPS And will probably maintain an easing bias too Though the case for super-low rates is wearing thin Stats NZ revises Q3 CPI to 0.4% y/y, from 0.2% ECT Wednesday, PMI and FPI Friday Little evidence of LVR crushing credit, housing Testing Credibility % Day Bank Bills Forecasts The only reason we are still expecting the Reserve Bank to cut a further 25 basis points, to 1.75%, at Thursday s Monetary Policy Statement (MPS) is that the Bank has strongly indicated it is going to do so. The economic case for such a low cash rate was always difficult to justify, in our view. And even more so now, after the recent run of strong economic news. However, the RBNZ seems committed to easing further, and inclined to downplay the positive elements of the data which was the essence of September s OCR commentary, as you ll recall. And we suspect the Bank will carry this approach into Thursday s MPS by maintaining some sort of easing bias to boot. This, in the belief it will be crucial in containing the currency and boosting inflation expectations. In this light, the central bank officialdom will be conscious of the way the currency caught a lift following the final rate cut late last year, because the Bank indicated it was finished easing. The one and done amounted to a hawkish cut. It s worth noting that the trade-weighted exchange rate (TWI-17), at 78.6 this morning, is around 3.6% above the level the August MPS assumed it would average in the December quarter. However, it s barely higher than it was at the time the RBNZ issued its September OCR commentary. Another relevant point of comparisons is that, since the August MPS forecasts were finalised, dairy auction prices have rebounded by more than a third. As for the CPI track, the August MPS anticipated a 0.1% annual outturn for Q3. It (initially) turned out to be 0.2%. Not much in that. The Bank then expected 1.0% for Q4 and a glacial return to 2.0% annual CPI inflation by late We believe there is upside to this for both technical and fundamental reasons. The technical aspect relates to the revision that Statistics NZ made to the Q3 CPI this morning. This was solely to do with correcting a manual processing error, which had over-estimated the impact of the cut to motor vehicle ACC levies. This altered the Q3 CPI quarterly result to 0.3%, Source: RBNZ, BNZ Quarterly Average from 0.2%, in turn lifting the annual result to 0.4%, from its initially reported 0.2%. Statistics NZ stated that the Reserve Bank has been made aware of the correction (presumably in good advance of today s announced revision). But given the MPS was probably due to go to the printer today, it s unclear whether the Bank has had any reasonable time to build this into its November MPS. We suspect not, in which case it s something to bear in mind come Thursday s numbers. Amending what was always a technical wiggle the big drop in ACC levies should not affect assessments of underlying inflation one iota. For the record, it bumps up non-tradables headline inflation to 2.4% y/y, from 2.1%, as a lesser drag from the ACC change comes to bear. Upside Risk Annual % change Aug 2016 RBNZ MPS Source: RBNZ, Statistics NZ, BNZ Target low Consumers Price Index Target peak Quarterly BNZ Forecasts BNZ RBNZ August MPS

2 But today s upward revision to the Q3 NZ CPI arguably has some meaning, to the point that folk are sweating over second decimal places on inflation, and inflation expectations, these days. And, technically speaking, it gives a better platform for annual CPI inflation to get back into the 1.0 to 3.0% band at next quarter s release (19 January). The revision to Q3 has bumped up our expectation of Q4 CPI inflation to 1.4%, from 1.3%. Something like this might help boost near-term inflation expectations, these having broadly stabilising at low levels over recent months. But in the interim the RBNZ will probably be sweating. We are still forecasting annual CPI inflation to get to 2.0% by the September quarter of As well as its CPI track, the other change to note from the RBNZ this Thursday is that it will no longer be forecasting short-term interest rates on the basis of 90-day bank bill yields. Instead, it will be forecasting the OCR directly, leaving little room for imagination. On this basis, we wouldn t be surprised to see its near-term track have something fractionally lower than 1.75%, implying half a chance of an easing to 1.50%. Yet this will have to be reconciled with probably beefed up GDP forecasts in the November MPS. And more noticeable positivity in its output gap projections. Such things should bolster the bank s inflation forecasts from a fundamental point of view. Will the market see (through) what the RBNZ is trying to do here of keeping a semblance of an easing bias, when the economic news is calling into all into question? Thursday s market reaction will give some clues. We think that by the time we get to the next meeting on the 9 February MPS the case for further easing barring a global calamity, which doesn t puncture the NZD would have gone cold. As for the NZ data on parade for the coming week, it begins with Wednesday s (10:45am) electronic card transactions, For October, we estimate a fairly flat result, overall, in the context of the 2.0% they jumped in September. The market is looking for a 0.4% increase in the retail component of the ECT data. Friday delivers the October 2016 Performance of Manufacturing Index (10:30am). It was surprisingly high in September, at Just after that (10:45am) we get October s Food Price Index. We anticipate a 0.6% fall in this, as part of the 0.5% increase we expect of the Q4 CPI (for an annual result of 1.4%, from 0.4% in Q3 that Statistics NZ has revised up to). Meanwhile, we remain on guard for a material slowing in the local housing and credit markets, post the latest LVR tightening. Yet there s little evidence of any dramatic impact, to date. Riding High Diffusion Index (s.a.) Breakeven Source: BNZ/BusinessNZ Performance Of Manufacturing Index Monthly Degree of expansion Degree of contraction Indeed, the monthly stock of household credit expanded a chunky 0.8% in September unruffled from its pace of prior months. This made for a net expansion of $19.5b over the 12 months to September, about as much as anything we saw over the previous cycle ( ). Its latest level, of $225b, is equivalent to 100% of nominal GDP or around 165% of household disposable income. These proportions remain part of increasing trends. But this is nothing particularly novel. What is new is the indication of a pick-up in net household debt. Or, should we say, renewed pick-up. This reverses a fairly long stretch, post GFC, where household net debt which we crudely proxy as gross debt less bank deposits actually trended downwards. We took this as a sign of broader deleveraging, at least for the household sector at large. But these gains now look to be reversing out, and rapidly so. Based on current trends, household net debt could conceivably be back to 2007 proportions, relative to income, within the next couple of years. The other, broader, trend that we found interesting in the latest money and credit aggregates was the affirmation of slowing deposit (M3) growth, while private sector credit growth remained robust. Indeed, to the point where credit growth is now overtaking that of internal deposits. This is also reversing a long period, post GFC, where deposits were typically expanding comfortably faster than domestic credit was. The more recent switchover is relevant to wider funding of the NZ registered banking sector. As for the housing market data, October s lot so far has not been obviously weak, overall, although there have been signs of slower sales in Auckland. Web-based realestate.co.nz released its results first thing Tuesday of last week. This report talked about a dulled shine with respect to Auckland, with (viewer) demand seemingly softer, accompanied by a 1.4% rise in the stock of inventory for sale, compared to October However, asking prices in Auckland increased 1.1%, as new listings dropped 7.1% y/y. More generally, the realestate.co.nz figures for October showed a still-strong housing market.

3 Re-Leveraging Diffusion Index (s.a.) Breakeven Source: BNZ/BusinessNZ Performance Of Manufacturing Index Monthly Degree of expansion Degree of contraction Cooling? Monthly Sales Barfoot's House Sales (seasonally adjusted, BNZ) Dec 2014 spike, post election Beat the policy changes of Oct/Nov 2015?? General Election Unwind from prepolicy change rush?? Source: Barfoot and Thompson, BNZ Monthly Then along came the Quotable Value NZ housing report, midday Tuesday. Its annual house price inflation measure slowed further to 12.7%, from 14.3%. However, it s hard to see this as a trend, when the price index increased 3.3% over just the last 3 months. And this entailed a quarterly rise in Auckland values of 5.3%, even though its annual rate of inflation, technically speaking, eased to 13.8%, from 15.0% in September. Remember that there was a surge in activity around September/October last year in terms of the housing market, and credit. So the current annual comparisons might look weaker than they really are. The new residential lending figures for September 2016 seemed a good example. While they were lower than a year ago, they were solid enough, in absolute terms, to infer further strong expansion in the overall stock of household credit, which we saw confirmed in the RBNZ data. Later last week we received the Barfoot and Thompson (B&T) report on its October results. While its sales have been up and down (while bearing in mind the strong sales in October 2015, affecting annual comparisons) there did seem to be a slowing in activity. If this is a turning point, and (thus) a precursor to much slower inflation, then it could become important for our macro-economic forecasts. However, it seems too early to judge. And the reality is that the NZ housing market is interesting for all sorts of reasons, not just how sales are going in Auckland at the moment. This is where the next Real Estate Institute (REINZ) report will be the more informative. We might get this before the end of the week. If not, then surely next week. craig_ebert@bnz.co.nz

4 Global Watch Chart 1: US Election Front And Centre Offshore risk events: Tuesday is Election Day in the US, with the results coming through in Asia time on Wednesday. There are also four Fed speakers through the week. China releases its inflation reports on Wednesday with lending data due any time from Thursday onward. Australia: A quiet week with the major data points being the NAB Business Survey on Tuesday and Consumer Sentiment Wednesday. There are also a number of second-tier data reports with Housing Finance and Consumer Inflation Expectations Thursday of the most interest. The RBA s Chris Ryan and Guy Debelle also speak, though are unlikely to be market moving - both being at regulatory conferences. China: CPI/PPI on Wednesday is followed by New Yuan Loans/Aggregate Financing and money supply data due for release any day on or after Thursday. US: The Presidential Election and aftermath to dominate the polls are too close to call with Clinton only leading by 1 point according to the average of polls. Aside from the election and Fed speakers, the data flow is fairly light, with the Fed s Labour Market Conditions Index, JOLTS job Openings (both Yellen favourites) and the UoM Consumer Sentiment the picks. Japan: Mostly second tier reports due including Labour Cash Earnings, the Leading Index, the Current Account, the Economy Watchers Survey, Machine Orders, and the Tertiary Industry Index. Euro: German Factory Orders, the Sentix Investor Confidence survey and Retail Sales are all on Monday, German Industrial Production on Tuesday, EC Economic Forecasts on Wednesday, and German CPI on Wednesday. UK: Halifax House Prices on Monday, Industrial Production on Tuesday, Trade on Wednesday, RICS House Price balance on Thursday, and Construction Output on Friday. Canada: Housing Starts/Building Permits on Tuesday, followed by New House prices on Thursday. Chart 2: Confidence Levels Around Average Chart 3: Retail Business Conditions Softening Australia The more significant economic releases for Australia start on Tuesday with the release of the NAB Business Survey for October, followed Wednesday by the monthly Westpac Consumer Sentiment index for early November. The NAB Commercial Property survey for Q3 is also being released on Thursday, along with Housing Finance approvals for September. As usual, we are providing no hints into this month s NAB Business Survey. We would remind readers that the September Survey pointed to confidence of firms remaining at reasonable levels despite the numerous uncertainties lingering in the background. The Business Confidence index was steady at +6 index points, consistent with its long-term average.

5 Business Conditions rose modestly in September to +8 index points from +7. At such levels, Conditions was still above the long term average of +5, having remained consistently above average since early However, after some promising signs of a broader-based recovery earlier in the year, strength in Business Conditions once again have become more heavily skewed toward major service industries with the emergence of a weaker trend in retail conditions, seemingly related to a jump in input costs. Second-tier data scheduled for release starts with the last of the three AIG PMIs, this one the Construction PCI on Monday along with the October ANZ Job Advertisements report. Tuesday sees the release of the weekly ANZ Roy Morgan Consumer Confidence index, followed by the Melbourne Institute s Consumer Inflation Expectations report on Thursday. Chart 5: Steadier Consumer Inflationary Expectations As for Monthly Consumer Confidence Wednesday, the weekly measure is in line with its long term average, suggesting no overt increase in consumer anxiety or caution toward spending. Chart 4: Consumer Confidence At OK Spending Levels There are also two RBA speech/panel participation events, but both at conferences on regulation and so less potentially market sensitive. Chris Ryan, Head of the RBA s International Department is speaking at an Asian Regulatory Summit in Hong Kong on Tuesday while newlyappointed Deputy Governor Guy Debelle is on a panel at a FINSIA Regulators Panel event in Melbourne on Friday. The Melbourne Institute s measure of consumer Inflation expectations is also worthy of elaboration. Expectations rose 0.4% in October to 3.7%. The alternative measure the weighted median of responses that fall in the 0 to 5% range also rose last month, to 2.4%, now more comfortably within the RBA s 2 to 3% target band. It will be interesting to see whether this steadier-to-higher trend in inflation expectations has continued into November given higher than expected headline CPI released at the end of October but news recently of the pullback in world oil prices. david.degaris@nab.com.au

6 Fixed Interest Market Reuters: BNZL, BNZM Bloomberg:BNZ We expect the RBNZ to remain true to its word and deliver a cut this week. It may also cling to a precautionary easing bias, as a nod to still depressed inflation. However, in our view, recent strong domestic data has simply confirmed the NZ economy does not need further stimulus. We expect a 1.75% OCR to mark the trough for this cycle. The market is only 75% priced for a cut this week, so its delivery could cause a knee-jerk dip in shortend yields. However, we don t expect it to be enduring. The current level of NZ 2-year swap, of 2.20%, is close to fair value based on our view the OCR will be sustained at 1.75% throughout next year, before a gradual hiking cycle takes hold in H We continue to believe it is too early to fear a sustained surge higher in short-end yields. Fear-driven hedging of short-end rate risk that could push swaps into overvalued territory is likely some way off. That would likely require front-page discussion of impending OCR hikes. Rather, a 2.10%-2.35% range for NZ 2-year swap seems plausible in coming months. We continue to see the mid-curve (3-5-year) part of the curve as more vulnerable to upward pressure over the medium-term, as the market reassesses the outlook for the OCR over the full cycle. It is notable that the NZ 1-3s curve now sits at 20bps, up from -5bps at the start of October. Of course the RBNZ may sit somewhat in the shadows this week given the US election results on Wednesday (NZT). Politics is currently trumping data as a driver of US yields. Heading into what will inevitably be a messy US election week there is an overhanging mood of caution. This is indicated by a slump in our global risk appetite index to 41%. As risk aversion has risen safe haven demand for US Treasuries has been sustained, even as a December Fed hike appears highly likely (currently 70% priced by the market). A decisive Clinton victory this week would likely see US 10-year yields quickly trade back to late-october highs circa 1.88%. However, we continue to see resistance to yields breaking above 1.90% near-term. A Trump victory would likely prompt the greater market response. Heightened uncertainty about future policy, increased market volatility and reduction in Fed rate hike expectations would likely result in lower yields. This is particularly true, as the most recent CFTC data shows speculative positions in US 10-year Treasuries have moved short for the first time since early-june. i.e. this segment of the market is anticipating higher yields. Our NAB colleagues point out that over the past couple of years, spikes in market volatility have coincided with US 10-year yields declining 50-60bps. NZ 10-year swaps have now risen by around 45bps since the start of October, to 2.90%. The rise in global yields has contributed, along with strong domestic data that has seen RBNZ rate cut expectations reined in. We continue to see the near-term risk that momentum carries yields toward 3.0%, a level last seen in early-june. Payers of swap may continue to be drawn into the market as they accept that cyclical lows are now be behind us, and current levels still offer fairly attractive value for hedging over a 5-10-year time horizon. However, a surprise US election result, may cause the market to reassess its assumptions and a pullback in NZ long-end yields would result. Hold on for the ride. change (bps) 90 day bills kymberly_martin@bnz.co.nz 12/17 NZGB 04/27 NZGB 2yr swaps 10yr swaps 2yr/10yr swaps (bps) 31-Oct % 1.89% 2.71% 2.13% 2.82% 70 7-Nov % 1.93% 2.76% 2.23% 2.90% 67 Change (bps) Key Fixed Interest Views Category 7-Nov-16 Tactical (1w) Strategic (6-12m) Comments NZ Money Markets OCR 2.00% We expect the RBNZ to cut the OCR this week to a cylce low of 1.75%. NZ Swap Yields 2y 2.20% We expect any dip in yields on an RBNZ cut this week to be short-lived. 5y 2.51% Yields likely to experience some resistance to pushing higher near-term, as close to April-June highs. 10y 2.88% US election and offshore yields to determine direction this week. Resistance to yields pushing above 3.0%. NZ Swap Curve 2s-10s 0.68% We target steepening to 80bps over the medium-term. NZ Bond Yields NZGB 2027s 2.77% Direction to be determined by offshore developments this week. NZ-AU Swap Spreads 2y 0.45% Widening over longer-term as we see potential for RBA easing next year while the RBNZ keeps the OCR at 1.75%. NZ Swap-Bond Spread 2027s ASM 0.17% NZ swap and bond yields feeling similar global pressures at present. US Bond Yields 10y 1.78% A Clinton victory would see yields back at late-oct highs. A Trump victory would unleash a decline in yields. NZ-US Bond Spread NZ-US 2027s 1.00% Spreads are at the upper-end of their expected trading range for the months ahead. NZ-AU Bond Spread NZ-AU 2027s 0.41% Next year, as we move beyond the last RBNZ cut the range for spreads is likely to move higher. Source: Bloomberg, BNZ

7 Foreign Exchange Markets Reuters pg BNZWFWDS Bloomberg pg BNZ9 One of the key themes we ve highlighted over recent months is the battle between negative global forces and positive domestic forces on the NZD. Last week was classic in this regard, as the NZD appreciated by over 2% against the USD to reach a 6-week high. This was in the face of a plunge in risk appetite from 56% to 41% on our index as the US Presidential election approaches and the polls depict a close race. The more-than-offsetting positive domestic forces were a leap in dairy prices at the latest GDT auction (+20% for whole milk powder) and the unemployment rate falling to an 8-year low of 4.9%. In terms of our NZD model, the net result of the offsetting forces was a fall in fair value to USD , widening the actual/fv gap to 6%. In our view, this dynamic provides the NZD with some asymmetric risk vulnerable to any downside surprise and some headwinds for further appreciation from here. The technical picture is one of resistance around the mark, not too much higher from spot, and support a lot lower at circa The key focus this week is the US Presidential election, where results will start trickling out from Wednesday afternoon NZ time. Depending on how the results turn out, we might have a good idea of the winner by 3pm, or it could be well after the local close if it is a very tight race. The NZD is vulnerable to a Trump victory and a big risk-off move in that event. The upside to the NZD is likely to be limited with a Clinton victory, even with a strong bounce in risk appetite, suppressed by an expected rebound in the USD in that event. This dynamic would help close the gap between spot and our FV model. By comparison to the US election, Thursday s RBNZ MPS holds much less interest. Fixed mortgage and term deposit rates have been rising despite OCR cuts of late. Another rate cut, as widely anticipated, will have little impact on these. And the NZD has been appreciating through much of the easing cycle to date, incorporating six 25bps rate cuts. Another rate cut this week and the market s belief that the easing cycle will have been reached is a positive factor for the NZD going forward. Monetary Policy Statements and the accompanying press conference have a history of supporting the NZD as the Governor talks up the strength of the economy and he speaks of his lack of ability to impact the NZD. The Governor will talk again of the high NZD and that a decline in the exchange rate is needed, but as usual these will be ignored. The NZD isn t particularly overvalued and has fundamental economic support through the economy growing above trend and the strong terms of trade. In economic releases this week, it is fairly quiet and we have most interest in China s foreign reserves, trade and inflation data, due Monday, Tuesday and Wednesday respectively. Some expect to see a big fall in China s foreign reserves, with a chunk reflecting the PBoC s battle to support the yuan. A big surprise here would refocus attention on capital outflows in China. China is a negative risk factor for the NZD bubbling under the surface. Signs of weaker trade and higher inflation are also potential riskoff factors. Risk Appetite Falls on Rising Risk of Trump Victory 100% NZD/USD vs Risk Appetite 90% 80% Risk appetite (lhs) 70% 60% 50% 40% NZD/USD (rhs) 30% 20% 10% Last 41% 0% Source: BNZ Bloomberg NZD Higher Through the Easing Cycle NZ TWI Vertical lines denote 68 OCR cuts 66 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Source: BNZ, Bloomberg Cross Rates and Model Estimates Current Last 3-weeks range* NZD/USD NZD/AUD NZD/GBP NZD/EUR NZD/JPY *Indicative range over last 3 weeks, rounded figures BNZ Short-term Fair Value Models Model Est. Actual/FV NZD/USD % NZD/AUD % jason.k.wong@bnz.co.nz

8 Technicals NZD/USD Outlook: Upward trend ST Resistance: (ahead of ) ST Support: (ahead of ) The NZD is now back up safely in the middle of the upward channel that has been in play all year. There s some technical resistance at ahead of the September high around The bottom of the channel around is the first area of support, ahead of the 200-day moving average of NZD/USD Daily Source: Bloomberg NZD/AUD Outlook: Trading range ST Resistance: (ahead of ) ST Support: (ahead of ) Last week s recovery puts the 0.96 resistance level back in focus. Support levels are a couple of cents lower, including the 200-day moving average of which matches the trend line support. NZD/AUD Daily Source: Bloomberg jason.k.wong@bnz.co.nz NZ 5-year Swap Rate Outlook: Higher MT Resistance: 2.57 MT Support: 2.43 Market is trending higher and keep borrowed position until technical indicators turn down. Support at 2.43 now and keep this trendline as a trailing stop. NZ 5-yr Swap Daily Source: Bloomberg NZ 2-year - 5-year Swap Spread (yield curve) Outlook: Steeper ST Resistance: +33 ST Support: +17 Expect steepening to continue with resistance at +33 and then +43. NZ 2yr 5yrSwap Spread Daily Source: Bloomberg pete_mason@bnz.co.nz

9 Key Upcoming Events Forecast Median Last Forecast Median Last Monday 7 November Aus, Construction PMI (AiG), October 51.4 Aus, ANZ Job Ads, October -0.3% Jpn, BOJ Minutes, 20/21 Sept Meeting Euro, Retail Sales, September -0.3% -0.1% Germ, Factory Orders, September +0.2% +1.0% Tuesday 8 November Aus, NAB Business Survey, October China, Trade Balance, October +CNY365b +CNY278b Germ, Trade Balance, September b b Germ, Industrial Production, September -0.5% +2.5% UK, Industrial Production, September flat -0.4% US, Fed's Evans Speaks US, Presidential Election US, JOLTS Job Openings, September 5,800 5,443 Wednesday 9 November NZ, Electronic Card Transactions, October flat +0.4% +2.0% Aus, Consumer Sentiment - Wpac, November China, CPI, October y/y +2.1% +1.9% Jpn, Eco Watchers Survey (outlook), October Euro, EC GDP Forecasts Wednesday 9 November continued UK, Trade Balance, September - 3.9b - 4.7b US, Fed's Kashkari/Williams Speak Thursday 10 November NZ, RBNZ MPS 1.75% 1.75% 2.00% NZ, RBNZ Testifies, FEC Aus, Housing Finance, September -3.0% Jpn, BOJ Summary of Latest Meeting, 31 Oct//1 Nov Jpn, Machinery Orders, September -1.8% -2.2% UK, RICS Housing Survey, October +18% +17% US, Fed's Bullard Speaks US, Jobless Claims, week ended 05/11 260k 265k Friday 11 November NZ, BNZ PMI (Manufacturing), October 57.7 NZ, Food Price Index, October -0.6% -0.9% Aus, RBA's Debelle Speaks Jpn, Tertiary Industry Index, September -0.2% flat Germ, CPI, Oct y/y 2nd est +0.8% +0.8%P US, Mich Cons Confidence, November 1st est US, Fed's Fischer Speaks Historical Data Today Week Ago Month Ago Year Ago Today Week Ago Month Ago Year Ago CASH & BANK BILLS Call mth mth mth mth GOVERNMENT STOCK 12/ / / / / / / / GLOBAL CREDIT INDICES (ITRXX) AUD 5Y N. AMERICA 5Y EUROPE 5Y SWAP RATES 2 years years years years FOREIGN EXCHANGE NZD/USD NZD/AUD NZD/JPY NZD/EUR NZD/GBP NZD/CAD TWI NZD Outlook TWI Source: BNZ, RBNZ NZD TWI New Zealand Dollar Monthly NZD/USD (RHS) F/casts NZD/USD

10 Contact Details Stephen Toplis Head of Research +(64 4) Craig Ebert Senior Economist +(64 4) Doug Steel Senior Economist +(64 4) Kymberly Martin Senior Market Strategist +(64 4) Jason Wong Currency Strategist +(64 4) Main Offices Wellington 60 Waterloo Quay Private Bag Wellington Mail Centre Lower Hutt 5045 New Zealand Phone: +(64 4) FI: Auckland 80 Queen Street Private Bag Auckland 1142 New Zealand Phone: +(64 9) Toll Free: Christchurch 81 Riccarton Road PO Box 1461 Christchurch 8022 New Zealand Phone: +(64 3) Toll Free: National Australia Bank Peter Jolly Global Head of Research +(61 2) Alan Oster Group Chief Economist +(61 3) Ray Attrill Global Co-Head of FX Strategy +(61 2) Skye Masters Head of Interest Rate Strategy +(61 2) Wellington Foreign Exchange Fixed Income/Derivatives Sydney Foreign Exchange +(61 2) Fixed Income/Derivatives +(61 2) New York Foreign Exchange Fixed Income/Derivatives Hong Kong Foreign Exchange +(85 2) Fixed Income/Derivatives +(85 2) London Foreign Exchange +(44 20) Fixed Income/Derivatives +(44 20) ANALYST DISCLAIMER: The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report accurately reflect their personal views about the subject securities and issuers and other subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. Research analysts responsible for this report receive compensation based upon, among other factors, the overall profitability of the Markets Division of National Australia Bank Limited, a member of the National Australia Bank Group ( NAB ). The views of the author(s) do not necessarily reflect the views of NAB and are subject to change without notice. NAB may receive fees for banking services provided to an issuer of securities mentioned in this report. NAB, its affiliates and their respective officers, and employees, including persons involved in the preparation or issuance of this report (subject to the policies of NAB), may also from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as advisors, brokers or commercial bankers in relation to the securities (or related securities and financial instruments), of companies mentioned in this report. NAB or its affiliates may engage in these transactions in a manner that is inconsistent with or contrary to any recommendations made in this report. NEW ZEALAND DISCLAIMER: This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication. Bank of New Zealand strongly recommends readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. Neither Bank of New Zealand nor any person involved in this publication accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication. US DISCLAIMER: If this document is distributed in the United States, such distribution is by nabsecurities, LLC. This document is not intended as an offer or solicitation for the purchase or sale of any securities, financial instrument or product or to provide financial services. It is not the intention of nabsecurities to create legal relations on the basis of information provided herein. National Australia Bank Limited is not a registered bank in New Zealand.