Is the RBNZ Really About To Ease Monetary Conditions?

Transcription

1 Is the RBNZ Really About To Ease Monetary Conditions? RBNZ to water down its LVR restrictions? As part of its Financial Stability Report, Wednesday We expect October s ECT rebounded 0.7% October s FPI risks flattening Q4 CPI altogether BNZ PMI, Nov. consumer confidence, also due Wednesday morning s RBNZ Financial Stability Report (FSR) could well prove more interesting than the string of monthly data releases on show in New Zealand this week. There is a popular perception that the Bank will use this FSR to announce the removal of its loan-to-value-ratio (LVR) restrictions. We think this would be a bold move by the Bank, at least at this juncture. While house price inflation has been slowing, price levels are still pushing the boundaries relative to incomes, rents and other fundamentals. Meanwhile, anecdote from the market has been firming, post September s election, fixed mortgage rates are retesting long-term lows and local banks, via booming deposits, are primed to the hilt for lending. From a general perspective, RBNZ Governor, Graeme Wheeler, must surely be conscious that whatever he thought New Zealand s home price overvaluation to be when he took the reins about two years ago, it has surely increased over his tenure so far. Electing to run extremely low OCR policy in the belief it s essential to spurring the macro-economy, taking pressure off the currency and underpinning CPI inflation, is not without its consequences. The question could be posed; what s worse, a bigger housing bubble or minimised CPI inflation? It s also worth pointing out that for all the talk that the Reserve Bank has been responding to Auckland s housing boom the fact is that it has purposely NOT responded to this pressure, by way of the OCR, over recent years. If it had, then mortgage rates would have been well above historical norms by now, not still languishing near record lows, as they are. In any case, the RBNZ, for its part, would now appear to be happy with the way the housing market is trending. That is, toward lower and lower inflation. In its October OCR review the Wheeler went so far as to say that House price inflation has fallen significantly since late-2013, in part due to interest rate increases and the LVR restrictions. We think the use of word significantly here must have been as much a qualitative judgement as a quantitative one. As last week s QVNZ data showed, annual house "High" LVR Ratio (after exemptions) % Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Source: RBNZ price inflation of 5.9% in October this year, did not seem dramatically different to the 8.4% result for September last year (the last reading before the LVR restrictions were imposed). And the latest for Auckland was 9.2% a region where the LVR policy was supposed to have its greatest effect but where a million-dollar view is still fast becoming the back side of the neighbour s paling fence. For more on the nation s housing market we will look to October s Real Estate Institute report, probably due sometime this week. If it s like all the other housing reports for the month then, yes, it will probably portray gradual slowing in house price inflation in its statistical outcomes, but also a firmer tone in its anecdote of the market of late. With the risk that house price inflation doesn t slow enough, for long enough, or that, potentially, it accelerates QVNZ House Price Index Ann % change (3m/3m) Private Reporting LVR Survey LVR Speed Limit -15 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Source: QVNZ Monthly Introduction of LVR restrictions (1 Oct 2013)

2 anew, might the Reserve Bank, instead, outline a watering down of its LVR policy, while clarifying the criteria for its removal altogether? This could take the form of a signalled increased speed limit, for instance, from the 10% ceiling currently in place, and/or a relaxation of the 80% loan-to-value ratio. The other possibility is the RBNZ moving to a different form of housing credit constraint. Namely, a micro based method, whereby banks are required to judge each and every loan application on strict debt-to-income, or debtservicing ratio, criteria, in terms of the applicant s current financial status. This is more the approach that the United Kingdom has been proposing, with its efforts to rein in its highly inflated housing market. It might seem less indiscriminate than a blanket speed limit, but puts the onus on the banks to determine outcomes. To the extent the Bank does implement, or signal, some lessening in its housing credit restrictions, what would this mean for monetary conditions and expectations thereof? On the ground, it would clearly be a relaxation of lending conditions. However, the markets would really be wondering whether it represents an unwinding of what happened as the LVR policy came into focus, then into effect. During this process markets interpreted the policy as a substitute for OCR response, not a complement. Hence OCR pricing was trimmed, which, via its suppressive influence on mortgage rates, perversely helped to negate the impact the LVR policy was designed to have on the housing market. Of course, the LVR policy was initially emphasized by the RBNZ as being solely a macro-prudential tool, for the purposes of its financial stability remit. In other words, simply designed to protect the financial system should any house price correction occur. But the Bank eventually came to admit that it was also trying, with its LVR policy, to directly cap house price inflation, which is what the markets had suspected all along. At least this grey area was made clear, in the end. A big question the Reserve Bank might be mulling, however, is whether the removal of the LVR restrictions will have symmetric implications for the economy and, thus, orthodox monetary policy settings. If not, it might be less worried about LVR policy removal proving a stimulus, requiring of an offsetting increase in OCR policy. For what it s worth, the markets don t appear to have reacted to the talk of the LVR policy facing the chop, by bidding up OCR expectations. Then again, this has left downward pressure on local mortgage rates something at odds with the notion of LVR removal. The other thing to point out with the LVR policy is that, in being a macro-prudential policy, it was always designed to be temporary. And that the longer it stayed in place the more chance it stood of being circumvented by people figuring out how to get around it, by hook or by crook (the government s ongoing Welcome Home Loans programme, which was beef up 1 October 2013, has, of course, been a legitimate way of getting around the LVR restrictions for first-home buyers). And so we re sure the RBNZ will want to back off its home lending restrictions at the earliest opportunity. The only question is, when? Wednesday morning s Financial Stability Report will also be interesting for what it says about rural debt, as well as the now-simmering commercial property sector. Rural debt is something the RBNZ has long drawn attention to, but will take on greater importance now that the dairy payout is looking pretty average for the coming season. The commercial property sector is something that caught our eye amongst the Reserve Bank s latest quarterly macro-prudential indicators Also note that there will be a press conference associated with this week s FSR, which presumably will kick off soon after 9:00am, and will be fronted by Graeme Wheeler. We can also look forward to the RBNZ officials giving testimony to Parliament s Finance and Expenditure Committee, on the day s FSR, from around noon. By the end of it we ll no doubt be much better informed. As for the coming week s data; For Tuesday s electronic card transactions we re looking for a 0.7% bounce-back, following September s surprise fall of 0.2%. Wednesday s weekly mortgage approvals will be worth tuning into, given they ve been showing signs of poking their nose into positive territory again, in annual growth terms. Thursday s Performance of Manufacturing Index will be rated against its solid result of last month (August) of We expect October s Food Price Index, due Thursday, to slip a seasonally-affected 0.4%, as part of the 0.1% increase we anticipate for the Q4 CPI, for 1.0% y/y. A bigger drop would increase the odds of seeing a dead flat Q4 CPI. We d be surprised if November s ANZ-RM consumer confidence index, scheduled for Thursday 1:00pm, slipped any further, it having moderated a few points in October, to a still-robust

3 Performance Of Manufacturing Index Diffusion Index (s.a.) Breakeven Source: BNZ/BusinessNZ Monthly Degree of expansion Degree of contraction Finally, note that RBNZ Deputy Governor, Grant Spencer, is set to deliver a speech at the Payments NZ conference at 10:40am tomorrow. A copy of the speech will be published on the RBNZ website. Confirmed as being about the payments system, we don t presume it will have implications for monetary policy, or broader financial stability for that matter, as markets turn to Wednesday morning s FSR to get the Bank s insight into both. craig_ebert@bnz.co.nz

4 Global Watch Australia The October NAB Business Survey is released on Tuesday. In September, we saw both conditions and confidence lose further ground. Business confidence fell to +5 in September from +7, to be at its lowest level since the 2013 Federal Election. Business conditions fell to a 4-month low of +0.9 from +3.1 in August. The survey has been showing the strongest industries to be recreational and personal services and construction. still very modest wages growth which will ensure the RBA remains very comfortable with its accommodative policy settings. The week kicks off on Monday with the housing finance approvals data for September. All the focus here has been on investor approvals, which have stepped up to an even higher level in the past couple of months. For the number of owner-occupied approvals we expect to see a 2% fall, but a small rise is anticipated for the value of approvals. Investor Lending Remains A Key Focus For The RBA On Wednesday the consumer confidence data for November are released. While the level of confidence remains low, there are grounds to be optimistic for a gain in November to add to the small 0.9% rise in October. Equity markets recovered some ground in the second half of October and house prices have gained further in the past month. The offset of course is that the unemployment rate continues to edge higher. Confidence Levels Have Eased in 2014 Also this week RBA Assistant Governor Kent is speaking at an Australian Business Economists event in Sydney on Thursday. China Monday s CPI data are forecast to show a steady 1.6%yoy outcome. Thursday s industrial production, retail sales and fixed investment annual growth rates are also expected to be little changed in October. The soft labour market means that wage pressures remain low. We expect the Q3 Wage Price Index on Wednesday to rise by 0.7%, a bit higher than the 0.6% growth in Q2, lifting the annual pace from 2.6% to 2.7%. However, it is Wage Pressures Remain Low United States Retail sales, due Friday are expected to rise 0.2% in October after the 0.3% fall in September, while Tuesday s NFIB small business optimism index is expected to ease back to 95.0 in October from There are also a few Fed speakers to keep a tab on, albeit none considered heavyweights. Eurozone In the wake of the ECB President Draghi s latest version of Whatever It Takes in the post-ecb meeting press conference last week, there will now be very keen interest in Friday s first estimates for both German and Eurozone GDP. Consensus estimate for Germany is +0.1%, which, if correct, would mean the Eurozone s largest economy just avoids the technical definition of recession after GDP fell by 0.2% in Q2. For the Eurozone as a whole, consensus is also 0.1%, after the flat outcome in Q2.

5 On Wednesday, Eurozone September industrial production is expected to rise 0.5% on the month but fall 0.2% on a work-day-adjusted basis. Thursday brings the final German October CPI (preliminary fell to 0.7% from 0.8% on an HICP basis) and Friday the final Eurozone number (which was unchanged at 0.4% for the flash estimate). UK All of the significant UK event risk is concentrated on Wednesday, when the Bank of England publishes its November Quarterly Inflation Report. Markets will be looking for indications that the MPC is now thinking the same way it is, namely no first policy tightening this side of next May s UK general election. On the data front we get the latest labour market data, Wednesday, expected to show the ILO unemployment measure dropping to 5.9% from 6.0% aided by an expected 25k drop in the number of jobless claimants. The earnings numbers will also be of interest. Thursday sees the latest house price signals from RICS. Japan Not much to note in Japan for this week, save for the September Current Account data on Tuesday. In seasonally adjusted terms a meagre surplus of 36.9bn is expected, down from 130.8bn in August. We will also get latest consumer confidence readings on Tuesday (expected 40.5 from 39.9) as well as the Economy watchers survey where the current conditions reading is expected to dip to 47.2 from Canada Aside from housing stats (overnight) there is nothing of note throughout the week. spiros.papadopoulos@nab.com.au

6 Fixed Interest Market Reuters: BNZL, BNZM Bloomberg:BNZ At the risk of tempting fate, it looks to be a relatively quiet week of consolidation ahead. There is a lack of blockbuster data releases locally or globally. This stands in stark contrast to last week which was defined by the release of US payrolls data on Friday night (headline nonfarm payrolls 214k vs. 235k expected). The data resulted in a sharp step down in US yields, across the curve. The market now likely under-estimates the pace of Fed rate hikes, in our view. The market prices a first Fed Funds hike around the start of Q4 next year. We see a hike closer to mid-year. But the market appears to be responding to signs that wage pressures remain contained in the US. Friday s data showed average hourly earnings rose 0.1%m/m, to be up 2.0%y/y (2.1% expected). The market is betting this will limit any urgency for the Fed to raise rates. This is despite the fact the US unemployment rate (5.8%) is now inching closer to the level the Fed estimates as long-run equilibrium (5.2%-5.5%). But there is little to shift US rate expectations this week. A quiet start to the week will be exacerbated by US Veteran s Day holiday (Tuesday). The greatest US data risk is likely be Friday s October retail sales release. There are also US Treasury auctions this week (3y, 10y and 30y) which could apply some upward pressure to US yields. Ultimately we see US 10-year yields (currently 2.30%) heading toward 2.50% by year-end, and 3.50% by end This would see NZ long-end yields dragged higher. Consistent with these forecasts we see NZ 10-year swap at 5.30% at end This week there is not too much on the domestic agenda to push yields higher. But that does not mean the agenda is without interest. The highlight will be Wednesday s RBNZ Financial Stability Report. With much recent murmuring about the fate of LVR restrictions, this document will provide the appropriate vehicle for their discussion. Any prospect of their imminent removal may refocus the market on the use of the OCR as the tool of choice, if house prices were to re-accelerate. Thursday will bring the latest BNZ PMI. Although this will likely show the manufacturing sector remains firmly in expansion, solid growth data is no longer sufficient to raise OCR expectations. The market needs to see this accompanied by rising inflation. A 3.85%-4.00% range looks set to contain 2-year swap in the near-term. At the long-end of the curve, we see a bias toward higher yields. This suggests the curve is biased to steepen. From 54bps we see the 2-10s curve heading back toward 90bps later next year. We see the mid- October low on this spread, at 40bps, marking the cyclical trough. The market has reduced its expectations of a rate cut from the RBA in the year ahead. The market now prices just a 25% chance of a cut by 2H next year. We expect the market may continue to veer toward pricing cuts in coming months. However, we, and our NAB colleagues, expect the RBA is more likely to keep the cash rate unchanged for a prolonged period (late-2015, at least) before raising it. This week s AU business and consumer confidence releases have the greatest potential to nudge market expectations for the cash rate higher near-term. We expect NZ-AU short-end swap spreads to remain contained near-term, reflecting market expectations that cash rates will not deviate too far from current levels in the year ahead. However, as we move into H2 we anticipate spreads will narrow. This reflects the fact that the RBNZ is now more than half way through its rate hiking cycle (we see the OCR peak at 4.25% in early 2016), whereas the RBA is yet to start (cash rate at 2.50%, but forecast to peak at 4.25% in early 2017). We see NZ- AU 2-year swap spreads trading around current levels in H1 before heading below 100bps in the second half of next year. change (bps) 90 day bills kymberly_martin@bnz.co.nz 04/15 NZGB 04/23 NZGB 2yr swaps 10yr swaps 2yr/10yr swaps (bps) 31-Oct % 3.51% 3.98% 3.87% 4.39% 53 7-Nov % 3.52% 4.06% 3.93% 4.47% 55 Change (bps) Key Fixed Interest Views Category 10-Nov-14 Tactical (1w-1m) Strategic (12mth) Comments NZ Money Markets OCR 3.50% We now see the RBNZ resuming rate hikes in December, reaching 4.25% in early NZ Swap Yields 2y 3.90% 3.85%-4.00% range near-term. We do not see higher short-end yields until well into y 4.17% Bounce of flows likely to be driven by offshore moves as opposed to domestic OCR expectations. 10y 4.43% Long-end still closely tied to moves in USTs, but curve flatness to encourage extending hedging further out curve. NZ Swap Curve 2s-10s 54bps Bias for near-term steepening as short-end capped and long-end drifts higher. NZ Bond Yields NZGB 2023s 4.04% Near-term direction highly dependent on moves in US Treasuries. We see higher yields by year-end and beyond. NZ-AU Swap Spreads 2y 112bps Currently undergoing a period of consolidation. We see spreads narrowing in H NZ Swap-Bond Spread 2023s 35bps We expect wider swap spreads. We prefer to trade a 35-55bps range from the widening side. US Bond Yields 10y 2.30% Little in the way of immediate catalysts this week. We see higher yields by year-end and next year. NZ-US Bond Spread NZ-US 2023s 189bps Dependent on direction in USTs. Spreads will likely narrow if USTs sell-off. i.e NZGBs will outperform. NZ-AU Bond Spread NZ-AU 2023s 82bps We now see a slightly lower (65-95bps) range for spreads.

7 Foreign Exchange Markets Reuters pg BNZWFWDS Bloomberg pg BNZ9 The NZD is higher this morning relative to the tail end of last week, and undeservedly so, on a fundamental level at least. The idea that the headline miss in US non-farm payrolls (+214k vs +235k exp.) supports an NZD/USD closer to 0.80 than 0.77 holds little weight. For one thing, the cumulative upward revisions to previous months data (+31k) more than offset the disappointment in the monthly outturn. More importantly, the (separately-polled) household survey showed that the unemployment rate edged lower to 5.8%, a result made stronger by the fact that the participation rate actually rose to 62.8%. The unemployment rate now sits just 0.2% above the top end of what the Fed considers to be long-run unemployment i.e. 5.2% to 5.6%. This will keep the FOMC on track to lifting the Fed Funds Rate in mid In our view, the market is simply taking a breather. Having pushed the broad Bloomberg Dollar Spot Index 2.6% higher in the five trading days since the Bank of Japan s surprise easing on 31 October, the USD weakened by all of 0.6% on Friday. We remain firmly of the view that the USD continues to gain over the coming 18 months. This week, the data calendar poses little threat to a phase of consolidation after a rather hectic week previously. We will keep an eye on the RBNZ s Financial Stability Review (Wed) for any clues Governor Wheeler and his team may drop about the Bank s bias for monetary policy and his intentions for the future of New Zealand s LVR restrictions. The market considers the RBNZ to still hold a mild tightening bias. Any sign to the contrary would be taken as another opportunity to send the NZD lower. NZD/USD remains ensconced within the fair value range according to our short-term model, though there is a good chance that the spot rate falls below this for the first time since Currently, the model s assessment of fair value is benefitting from better investor risk appetite, as the VIX Index continues to ease lower from the heartstopping 31.0 it hit in early October. We would not read much more than that into the model s higher reading, and certainly not use it as an excuse to bid NZD higher. Sentiment on NZD remains negative, and we suspect any pop toward 0.80 would be heavily sold. raiko_shareef@bnz.co.nz Charts of the week Chart 1: US Unemployment Continues To Fall Toward Neutral Chart 2: NZD/USD Fair Value Drifts Higher With Risk Appetite NZD/USD Relative To Short-term "Fair Value" NZD/USD Actual NZD/USD Current "fair-value" range of Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec *Fair-value is based on a regression model using NZ commodity prices, NZ-US 'Shadow' Rate Spreads, and Risk Appetite Current Week ahead Year ahead Momentum¹ NZD/USD NZD/GBP NZD/EUR NZD/JPY Negative NZD/AUD Neutral Negative Negative Positive NZD Weekly Outlook A very light data week in the US, with highlights likely to be retail sales and consumer confidence on Friday. We think a break of this week would be hard to achieve, having failed last week. The survived by the skin of its teeth last week, with no daily closes below that level. This week's AU data seem unlikely to prompt another test of that support, let alone a break. The BoE's Quarterly Inflation Report will be closely watched to see if policymakers continue to step back from the possibility of rate hikes ahead of the May 2015 General Election. EUR weakness following the ECB's voiced intent to increase its balance sheet was short-lived. We expect EUR to resume its downward progression, but in line with its G10 peers this week at least. The JPY sell-off looks to have run out of puff, curbed by headline disappointment in the US payrolls report. We remain wary of intraday lurches higher in USD/JPY, which would see the cross gain. Short-term Fair Value² Risk Appetite³ NZ Commodity Prices (SDR)⁴ weekly Δ monthly Δ weekly Δ monthly Δ NZD/USD: NZD/AUD: % % 30% ¹According to our momentum model ²According to our short-term fair-value models ³According to our Risk Appetite Index (where 100 =risk-loving) ⁴ASB Commodity Price Index Source: BNZ, Bloomberg, ASB Outlook

8 Technicals NZD/USD Outlook: Play the range ST Resistance: (ahead of ) ST Support: (ahead of ) NZD/USD has drifted off its lows, but remains closer to breaking the bottom of its range (0.7680) than the top (0.7980). Momentum indicators sit fairly neutral. We prefer to play the range this week, but still with a negative bias. NZD/USD Daily Source: Bloomberg NZD/AUD Outlook: Play the range ST Resistance: (ahead of ) ST Support: (ahead of ) Support at managed to hold last week, and the cross is back to the middle of its recent range. On the topside, the 100-day moving average provides a cap, a break above which would be mildly bullish. NZD/AUD Daily Source: Bloomberg raiko_shareef@bnz.co.nz NZ 5-year Swap Rate Outlook: Lower ST Resistance: 4.28 ST Support: 4.00 Although the downward sloping trendline was breached, we will not change our view until we get a close above resistance at NZ 5-yr Swap Daily Source: Bloomberg NZ 2-year - 5-year Swap Spread (yield curve) Outlook: Neutral ST Resistance: +39 ST Support: Flat The recent steepening has been unconvincing. We remain neutral until resistance/support is breached. Although, with the trend firmly in place, the risk is we trade down to flat. NZ 2yr 5yrSwap Spread Daily Source: Bloomberg pete_mason@bnz.co.nz

9 Key Upcoming Events Forecast Median Last Forecast Median Last Monday 10 November NZ, (circa) REINZ Housing Data, October Aus, Housing Finance, September -2.0% -0.4% -0.9% China, CPI, October y/y +1.6% +1.6% China, (circa) Aggregate Financing (RMB), October $1050b Tuesday 11 November NZ, RBNZ's Spencer Speaks, Not Public NZ, Electronic Card Transactions, October+0.7% +0.5% -0.2% Aus, House Prices, Q3 y/y +10.5% +8.8% +10.1% Aus, NAB Business Survey, September Jpn, Eco Watchers Survey (outlook), October 48.7 UK, BRC Retail Sales Monitor, Oct y/y -0.5% -2.1% Wednesday 12 November NZ, RBNZ Financial Stability Report Aus, Labour Price Index, Q3 +0.7% +0.6% +0.6% Aus, Consumer Sentiment - Wpac, November 94.8 Euro, Industrial Production, September +0.7% -1.8% UK, Unemployment Rate (ILO), September 5.9% 6.0% UK, BOE Inflation Report US, Wholesale Inventories, September +0.2% -0.7% Thursday 13 November NZ, BNZ PMI (Manufacturing), October 58.1 NZ, ANZ-RM Consumer Confidence, November NZ, Food Price Index, October -0.4% -0.8% Aus, RBA's Kent Speaks China, Industrial Production, October y/y +8.0% +8.0% China, Retail Sales, October y/y +11.6% +11.6% Jpn, Industrial Production, September 2nd est +2.7%P Jpn, Machinery Orders, September -1.2% +4.7% Euro, ECB Monthly Bulletin Germ, CPI, Oct y/y 2nd est +0.8% +0.8%P UK, RICS Housing Survey, November +25% +30% US, Jobless Claims, week ended 08/11 280k 278k Friday 14 November Euro, GDP, Q3 1st estimate +0.1% flat Euro, CPI, Oct y/y 2nd est +0.4% +0.4%P Germ, GDP, Q3 1st est +0.1% -0.2% US, Business Inventories, September +0.2% +0.2% US, Mich Cons Confidence, November 2nd est US, Retail Sales, October +0.2% -0.3% 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 04/ / / / / / 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 New Zealand Dollar NZD/USD (rhs) NZD TWI Monthly Forecast 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) Raiko Shareef 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.