Upside Risks To GDP. RESEARCH Markets Outlook. 3 September bnz.co.nz/research Page 1

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1 RESEARCH Markets Outlook 3 September 2018 Upside Risks To GDP We expect Q2 GDP to exceed RBNZ expectations Partial indicators this week will solidify our view We re looking for a 0.8% quarter, RBNZ at 0.5% Long term prognosis is still worrisome But pricing a near term easing looks premature Imported Deflation Dead The investor market is very heavily focused on the prognosis for New Zealand s GDP. This is not surprising as the RBNZ published an alternative scenario in its August MPS which shows a lower-than-forecast GDP outturn could see the cash rate cut by 100 basis points. Markets have taken this to heart by pricing in a 50% chance of rate cut in the next twelve months. But what will the RBNZ do and say if GDP surprises to the upside. This is, in fact, what we expect to happen at least in the short term. On September 20 Statistics New Zealand publishes Q2 GDP. The RBNZ has a 0.5% pick for the quarter. We, in contrast, are looking for a 0.8% outturn. And this week we get to see a number of partial indicators that will go into our final estimate for the quarter. Already we have seen the retail sales figures for Q2. And they rose a healthy (and above expected) 1.1%. Importantly, these data show spending prior to the July 1 increase in incomes emanating from Government policy changes, and spending was adversely impacted by rising oil prices. First up this week was this morning s trade data. These came in slightly weaker than we had anticipated. Export volumes rose 1.1% and import volumes were up 0.9%. This is sufficient to contribute positively to Q2 GDP but does indicate some downside risk to our expectations. Similarly, there was slightly less national income generated from the terms of trade than we had expected with the terms of trade rising 0.6% against our expectation of 1.2%. Import prices were as anticipated but export returns were modestly lower. Incidentally, the trend in the import price data supports our view that the deflationary pressure on the domestic CPI from imported goods is now a thing of the past. We get an update on export prices on Wednesday with the latest installment of the ANZ s commodity price index. We are looking for a small increase in NZD terms as a weakening in world prices is offset by the recent softening in the NZD. Earlier Wednesday morning we expect the GDT auction to reveal a 2.0% increase in dairy prices. The next piece in the GDP puzzle is the Q2 Value of Building Work Put in Place also due on Wednesday. We have penciled in a 1.2% increase for the quarter with residential and nonresidential construction contributing equally. On Friday, we get the Wholesale Trade number. We see this as being a major contributor to the quarterly GDP outturn in rising 3.0% for the quarter in value terms. This would be consistent with the 2.0% real increase we have for the Wholesale component of GDP. It is, however, a notoriously difficult indicator to forecast and provides some downside risk to our expectations. Filling out the GDP partials will be next Monday s manufacturing data. We had been looking for a relatively significant contribution from the sector but there was weakness in today s manufacturing exports that surprised us. Accordingly, we have lowered our expectation for manufacturing growth to 0.7%. The strength in the sector is being driving by meat and dairy production but should also be abetted by the demands coming from the construction and retail sectors. We are quick to point out that we too see significant downside risks to the medium term growth profile largely stemming from declining population growth and the current slump in business confidence, which threatens to impact both investment and hiring adversely. However, we caution that it looks like it will be some time before this will be confirmed in the data. In the immediate future not only is growth likely to come out at least as strong as the RBNZ has assumed but inflation, similarly, bears upside risk. This being the case, the market s attempts to bring forward any easing into late this year/early next look misplaced. bnz.co.nz/research Page 1

2 Easing Talks Premature? Moreover, the labour market will also have to soften up if the RBNZ is to be encouraged to ease and we are seeing little sign of that in the data despite intentions to hire coming under pressure. ANZ job ads for August (released Wednesday) will thus be watched with interest. It is notable that recent job ads figures have been relatively robust. Rounding out the week s data is Wednesday s QVNZ housing data. Given the information already available this will not be of great interest. One assumes that it will simply confirm that the housing market, in aggregate, is flat but that outside of Auckland and Christchurch prices continue to forge higher. stephen_toplis@bnz.co.nz bnz.co.nz/research Page 2

3 Global Watch Will US impose tariffs on another $200bn of Chinese goods this week? NAFTA negotiations close to concluding Lower US unemployment rate expected; ISMs, Fed speakers due China PMI and trade data to show any tariff impact? AU Q2 GDP expected to grow 0.7% AU retail sales, home loans, trade to monitor Bank of Canada to sit pat, for now BoE s top brass to testify at Select Committee Australia Q2 GDP on Wednesday is the data focus for a huge week of data releases. Leading up to Wednesday, markets will use a number of partials, to firm up their forecasts. These include: Company Profits and Inventories (Monday) and Net Exports and Government Finances (Tuesday). NAB s forecast is for Q2 GDP growth of 0.7% q/q (2.8% y/y; mkt: 0.7% q/q), with inventories detracting 0.2 ppt (mkt: +0.2 ppt) and net exports contributing nothing to growth (mkt: 0.1ppt). On the nominal side of the National Accounts, NAB expects a 2% rise in company profits (mkt: 1.0% q/q) and a widening of the current account deficit to $12 billion (mkt: -$11 b) interest will be placed on Government spending given the ramp up in public projects such as the NDIS and a number of infrastructure pieces, these are expected to remain strong. Chart 1: Mining profits to rise with higher export prices Chart 2: Watch the composition of growth Other data of note in the week ahead are July prints for Retail Sales (Monday), Trade (Thursday) and Home Loans (Friday). NAB expects retail sales declined in the month (-0.1% m/m, mkt: +0.3% m/m), the trade surplus shrank slightly to $1.5 billion (mkt: $1.45 b) and home loans approvals ticked down 0.2% m/m (mkt:-0.1% m/m). On the RBA, the markets prices absolutely no chance of a change in policy at the Board Meeting on Tuesday. Further, only 1 basis point is priced in by the end of Nevertheless, RBA watchers will dissect the post-meeting Media Release and Governor Lowe s remarks on Wednesday night for any clues for the policy outlook. The Bank has done a lot of work to clearly communicate that the next move in rates is more likely to be up than down, progress in reducing unemployment and returning inflation to target is expected to be gradual and so it is happy to stay on hold for a while. We expect no change to its core message. Markets will look out for any remarks related to the recent increase in home loan rates by Westpac. Retail Sales has recorded moderate growth over the past few months but this month, we expect a slight decline in sales of 0.1% m/m. Declines in food retailing (-0.1% m/m), clothing & footwear (-0.4% m/m) and cafes & restaurants (-0.9% m/m) are expected to drive a weaker overall retail print this month. In particular, Food retailing is expected to have been dented by the plastic bag ban, although plastic Little Shop collectables at Coles have partly offset this. Chart 3: NAB expects a small decline in retail sales On a similar vein, home loans data later this week will be of interest. We expect an ongoing moderation in owner occupier approvals (-0.2% m/m). This is a trend likely to continue over the medium-term, particularly if further price declines and rate rises by lenders occur. GDP partials Company Profits, Inventories, Balance of Payments and Government Finances will help market watchers finalise expectations for Q2 GDP. We expect a small detraction from growth by Inventories, and no contribution to growth from Net Exports. Particular bnz.co.nz/research Page 3

4 Trade balance this month is expected to show offsetting impacts from higher oil prices (trade balance positive) and coal exports, but lower iron ore and rural exports. Net-net, we see the trade surplus a touch smaller. Chart 4: Modest narrowing of trade surplus Unemployment to tick down to 3.8% from 3.9%, and Average Hourly Earnings to continue its 2.7% y/y pace all reinforcing the Fed s current rate hike path. There are also many Fed speakers with the most important being the NY Fed s Williams (voter, vice-chair, hawkish) on Thursday. Japan A fairly quiet week. BoJ s Kataoka will speak on Thursday a known dovish dissenter. Eurozone Italy worth watching with the potential for a ratings update by Moody s and Fitch. Retail sales for Jul and final Q2 GDP data are released Friday, where the consensus looks for a reasonably solid +0.4% q/q and 2.2% y/y. Canada UK Brexit negotiations continue to be the focus with recent remarks by EU Brexit Chief Negotiator Michel Barnier that the UK will be offered a deal like no other to a third country boosting confidence that the EU will be more flexible. We have our doubts on how far any EU flexibility goes with respect to its rules-based red lines. The UK Parliament returns from its summer break on Tuesday, when BoE s Carney, Haldane, Tenreyro and Saunders all testify before Parliament s Treasury Select Committee on the recent inflation report. Datawise, watch the PMIs on Monday and Wednesday. Both Manufacturing and Services readings have been softish at circa US It s a Public Holiday Monday. Data-wise, the ISMs on Tuesday/Thursday and Payrolls on Friday take top billing. Payrolls are expected to be solid again with +192k jobs, The Bank of Canada meets on Wednesday and, while they are expected to be on hold, a hike is expected at the following meeting (markets pricing around an 80% chance of an October hike). Markets will watch out for NAFTA negotiations with the likelihood of a knee-jerk spike in the CAD if an agreement is reached. Datawise, Unemployment and Earnings data on Friday will be closely watched and will likely reinforce expectations of an October rate hike. China US-China trade will be the focus for the week ahead, particularly if US tariffs on $200bn of Chinese imports goes ahead. On the data, Caixin PMIs on Monday and Wednesday and Trade on Friday are highlights markets will watch to gauge any trade war impacts on the Chinese economy. After the recent official Manufacturing PMI was stronger than expected, markets will be watching the Caixin figure (which has less weight on SOEs) to see if this improvement is replicated. Kaixin.Owyong@nab.com.au bnz.co.nz/research Page 4

5 Sep-18 Nov-18 Feb-19 Mar-19 May-19 Jun-19 Aug-19 Sep-19 Nov-19 Feb-20 Mar-20 May-20 Jun-20 Aug-20 Sep-20 Markets Outlook 3 September 2018 Fixed Interest Market Reuters: BNZL, BNZM Bloomberg:BNZ Another weaker than expected ANZ business survey set the scene for a further decline in NZ rates last week. Swap rates fell by 4-5bps across the curve, leaving the 2 year rate, at 1.97%, within touching distance of its all-time low (1.94%, in mid-2016). The market further increased the probability of an RBNZ rate cut see chart. The implied probability of a rate cut by February is around one-third while the cumulative probability of a rate cut by mid-2019 is close to 50% (based on a single 25bp cut). Of course, if the RBNZ were to cut rates, it would probably do some more than once, so the 12bps of cuts priced in by mid-2019 could be seen, for instance, as reflecting a ~25% probability of two cuts. Given the downside growth risks signalled by business confidence readings and the RBNZ s stated reluctance to hike until core inflation is at least at 2%, we think the market pricing is broadly fair at this stage. The next major piece of domestic data is GDP on the 20th, and this week we receive some of the partial indicators that will help us firm up our estimate (we wouldn t expect much market reaction to the partials this week though). As things stand, we are looking for a 0.8% increase in GDP in Q2 vs. the RBNZ s MPS forecast of 0.5%. Our base case remains that the RBNZ won t cut rates, although we think it will require domestic data to improve significantly (and more than just a stronger Q2 GDP release) for the market to price-out that risk. On a separate note, there was significant Kauri SSA issuance last week, with $1b issued across three different lines (IFC, KBN and KFW). Last week s heavy issuance follows an extended lull (the last fixed rate Kauri SSA was in March) and brings year-to-date issuance to around $4.5b (see chart). Net issuance year-to-date is much lower, at $750m. There was a slight decline in NZD crosscurrency basis swap levels last week in response, but they remain near multi-year highs. The US 10 year Treasury yield remains range-bound; it increased modestly from the range lows last week. There is plenty to focus on this week with the ISM surveys and payrolls and the potential for Trump to impose additional tariffs on Chinese imports from Friday. The latter presents a risk to equity markets, which could in turn spill-over into lower bond yields both in the US and elsewhere (including NZ). Our central expectation though is that 10 year Treasury yields remain contained within the existing 2.80% 3% range for some time. In Australia, 10 year yields are at their lowest levels in over 12 months ahead of GDP and retail sales releases this week. Westpac s announcement last week that it would increase variable mortgage rates has seen the market push back RBA rate hike expectations even further. The broader backdrop remains one of monetary policy desynchronization, where the US and Canada (and to a lesser extent, the UK) are raising rates and the rest of the developed world is not. Consequently, US and Canadian bond yields are significantly higher than a year ago, whereas there has been little to no increases seen elsewhere. Market now prices a near 50% chance of cut by mid-2019 prob, % Source: BNZ, Bloomberg Kauri SSA issuance picked up last week NZ$m 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Implied probability of OCR move - meeting by meeting nick.smyth@bnz.co.nz Individual meeting probability Cumulative probability, RHS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Thomson Reuters, BNZ, Bloomberg SSAs - Kauri issuance by year 2018 YTD Current Rates/Spreads and Recent Ranges Current Last 3-weeks range* NZ 90d bank bills (%) NZ 2yr swap (%) NZ 5yr swap (%) NZ 10yr swap (%) s10s swap curve (bps) NZ 10yr swap-govt (bps) NZ 10yr govt (%) US 10yr govt (%) NZ-US 10yr (bps) NZ-AU 2yr swap (bps) NZ-AU 10yr govt (bps) *Indicative range over last 3 weeks prob, % bnz.co.nz/research Page 5

6 Foreign Exchange Markets Reuters pg BNZWFWDS Bloomberg pg BNZ9 The NZ dollar was under pressure towards the end of last week following another weak ANZ business outlook survey and emerging market currencies under attack again. For the week, the NZD fell by % against USD, EUR and JPY, and was down almost 2% against GBP as the market took a more optimistic view on Brexit negotiations. The AUD performed even worse, with its closer link to EM currencies and some banks raising mortgage rates in the face of higher funding costs. NZD/AUD rose by 0.8% for the week to over As we saw last week, the NZD is sensitive to negative domestic economic releases since the RBNZ made it clear that it is paying more attention to growth than inflation dynamics, given CPI inflation is still in the bottom half of the target range and some activity indicators have sent a warning message about near-term growth risks. The OIS market now prices a near-50% chance of a 25bps cut to the OCR within the next year. Given the fiscal stimulus that the economy will enjoy in 2H18, the weaker NZD, and recent cuts to mortgage rates, we find it difficult to buy into the argument that the economy is about to lurch down. In time, we would expect the policy easing to be priced out of the curve and the run of data to turn more supportive for the NZD, but not yet. The near term threat for the NZD remains a break of the mid-august low of Trump s decision on whether to impose further tariffs on another $200b of Chinese imports could come as soon as later this week. The period of public consultation for a further round of tariffs ends 6 September and after that Trump will be free to make his decision. So it could come as early as Friday NZ time or a decision might not come for another week or two. It is difficult to see the NZD recover to any meaningful extent ahead of any decision. While many in the market, including ourselves, seem to be resigned to the fact that Trump will go ahead with proposed tariffs on another $200b of Chinese imports, market reaction might well be determined by the detail whether the tariff rate to apply will be 10% or 25%, the phasing of the tariffs, and the language about the prospect of future tariffs on the full $500+bn of Chinese imports. We see the NZD vulnerable to any renewed weakness for CNY and spill-over for other Asia-Pacific currencies. An aggressive stance by Trump could easily see the mid- August low broken, and there is little technical support in the way to reach as low as The more positive scenario would be a delayed phasing to further possible tariffs and this would set the scene for a wee rally in the NZD. As we ve mentioned in previous reports, it s a pretty binary outcome, at the whim of Trump s decision. While the market will remain on tenterhooks awaiting any fresh tariff announcement, the economic data calendar is full in Australia and the US, with only second-tier releases in NZ. The most anticipated release will be US non-farm payrolls at the end of the week. Employment growth should remain strong, the unemployment rate is expected to tick down to 3.8% but the focus will be on wage data, where average hourly earnings are expected to be steady at 2.7% y/y. Earlier in the week, the ISM indicators will be watched and a number of Fed speakers are on the circuit. Australian Q2 GDP data on Wednesday is expected to show trend-like growth of 0.7% qoq. Ahead of that, Tuesday s RBA policy announcement is likely to maintain a decisively neutral tone, but the market will be interested if there is any response to the recent nudge up in mortgage rates from a number of banks. The Bank of Canada meets this week but isn t expected to hike rates again until the October meeting. NZD Trend Not Great 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 bnz.co.nz/research Page 6

7 Technicals NZD/USD Outlook: Downside risk ST Resistance: (ahead of ) ST Support: (ahead of ) The mid-august low of is back into focus now. A break of that opens up the 0.64 area. NZD/USD Daily Source: Bloomberg NZD/AUD Outlook: Trading range ST Resistance: (ahead of ) ST Support: (ahead of ) A decent rally over the past couple of weeks sees resistance just over 0.92 come into play. Beyond that level, there is little resistance ahead of NZD/AUD Daily Source: Bloomberg jason.k.wong@bnz.co.nz NZ 5-year Swap Rate Outlook: Lower ST Resistance: 2.41 ST Support: Getting closer to our target lower stop to 2.41 NZ 5-yr Swap Daily Source: Bloomberg NZ 2-year - 5-year Swap Spread (yield curve) Outlook: Flatter ST Resistance: ST Support: +20 Expect move to +20 target, stop on a move back through NZ 2yr 5yrSwap Spread Daily Source: Bloomberg pete_mason@bnz.co.nz bnz.co.nz/research Page 7

8 Quarterly Forecasts Forecasts as at 3 September 2018 Key Economic Forecasts Quarterly % change unless otherwise specified Forecasts Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 GDP (production s.a.) Retail trade (real s.a.) Current account (ytd, % GDP) CPI (q/q) Employment Unemployment rate % Avg hourly earnings (ann %) Trading partner GDP (ann %) CPI (y/y) GDP (production s.a., y/y)) Interest Rates Historical data - qtr average Government Stock Swaps US Rates Spread Forecast data - end quarter Cash 90 Day 5 Year 10 Year 2 Year 5 Year 10 Year Libor US 10 yr NZ-US Bank Bills 3 month Ten year 2017 Jun Sep Dec Mar Jun Forecasts Sep Dec Mar Jun Sep Dec Mar Jun Sep Exchange Rates (End Period) USD Forecasts NZD Forecasts NZD/USD AUD/USD EUR/USD GBP/USD USD/JPY NZD/USD NZD/AUD NZD/EUR NZD/GBP NZD/JPY TWI-17 Current Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Source for all tables: Statistics NZ, Bloomberg, Reuters, RBNZ, BNZ TWI Weights 14.0% 20.7% 10.3% 4.8% 6.8% bnz.co.nz/research Page 8

9 Annual Forecasts Forecasts March Years December Years as at 3 September 2018 Actuals Forecasts Actuals Forecasts GDP - annual average % change Private Consumption Government Consumption Total Investment Stocks - ppts cont'n to growth GNE Exports Imports Real Expenditure GDP GDP (production) GDP - annual % change (q/q) Output Gap (ann avg, % dev) Household Savings (% disp. income) Nominal Expenditure GDP - $bn Prices and Employment - annual % change CPI Employment Unemployment Rate % Wages - ahote Productivity (ann av %) Unit Labour Costs (ann av %) External Balance Current Account - $bn Current Account - % of GDP Government Accounts - June Yr, % of GDP OBEGAL (core operating balance) Net Core Crown Debt (excl NZS Fund Assets) Bond Programme - $bn Bond Programme - % of GDP Financial Variables (1) NZD/USD USD/JPY EUR/USD NZD/AUD NZD/GBP NZD/EUR NZD/YEN TWI Overnight Cash Rate (end qtr) day Bank Bill Rate year Govt Bond year Govt Bond year Swap year Swap US 10-year Bonds NZ-US 10-year Spread (1) Average for the last month in the quarter Source for all tables: Statistics NZ, EcoWin, Bloomberg, Reuters, RBNZ, NZ Treasury, BNZ bnz.co.nz/research Page 9

10 Key Upcoming Events Forecast Median Last Forecast Median Last Monday 3 September NZ, Terms of Trade, Q2 +1.2% +1.0% -1.9% Aus, ANZ Job Ads, August +1.5% Aus, Company Profits, Q2 +1.3% +5.9% Aus, Manufacturing PMI (AiG), August 52.0 Aus, CoreLogic HPI, August -0.6% Aus, Inflation Gauge (Melb. Inst.),August y/y +2.0% Aus, Retail Trade, July -0.1% +0.3% +0.4% Aus, Business Inventories, Q2 +0.2% +0.7% China, PMI (Caixin), August Jpn, Capital Spending, Q2 y/y +6.5% +3.4% Euro, PMI Manufacturing, Aug 2nd est P UK, Markit/CIPS Manuf Survey, August US, Holiday, Labor Day Tuesday 4 September Aus, Current Account, Q2 -$11.0b -$10.5b Aus, BOP Goods and Services, Q2 prelim +0.3ppts Aus, RBA Policy Announcement 1.50% 1.50% 1.50% Euro, PPI, July y/y +3.9% +3.6% US, ISM Manufacturing, August US, Markit PMI, August 2nd est P US, Construction Spending, July +0.4% -1.1% Wednesday 5 September NZ, Building Work Put In Place, Q2 vol s.a.+1.0% +2.9% -0.9% NZ, QVNZ House Prices, August y/y +5.1% NZ, ANZ Comdty Prices (world), August -3.2% NZ, ANZ Job Ads, August +3.1% NZ, Dairy Auction, GDT Price Index -3.6% Aus, Services PMI (AiG), August 53.6 Aus, GDP, Q2 +0.7% +0.7% +1.0% Wednesday 5 September cont. China, Services PMI (Caixin), August Euro, Retail Sales, July % Euro, PMI Services, August 2nd est P UK, Markit/CIPS Services, August US, International Trade, July -$50.0b -$46.3b Can, BOC Policy Announcement 1.50% 1.50% Thursday 6 September NZ, Local Authority Statistics, Q2 Aus, International Trade, July +$1.50b +$1.45b +$1.87b Germ, Factory Orders, July +1.8% -4.0% US, Productivity (non-farm), Q2 saar 2nd est +2.9% +2.9%P US, Factory Orders, July -0.6% +0.7% US, ISM Non-Manuf, August US, Jobless Claims, week ended 24/08 213k 213k US, Markit PSI, August 2nd est P US, Durables Orders, July 2nd est -1.7%P US, ADP Employment, August +190k +219k Friday 7 September NZ, Wholesale Trade, Q2 ($) s.a. +0.1% Aus, Housing Finance, July -0.2% -0.1% -1.1% Aus, Construction PMI (AiG), August 52.0 Jpn, Household Spending, July y/y (real) -0.8% -1.2% Euro, GDP, Q2 3rd estimate +0.4% +0.4%P Germ, Industrial Production, July +0.2% -0.9% Germ, Trade Balance, July b b US, Unemployment Rate, August 3.8% 3.9% US, Non-Farm Payrolls, August +193k +157k Saturday 8 September China, Trade Balance, August + 177b Historical Data Today Week ago Month Ago Year Ago Today Week ago Month Ago Year Ago CASH & BANK BILLS SWAP RATES Call years mth years mth years mth years mth years GOVERNMENT STOCK FOREIGN EXCHANGE 03/ NZD/USD / NZD/AUD / NZD/JPY / NZD/EUR / NZD/GBP / NZD/CAD / / TWI / GLOBAL CREDIT INDICES (ITRXX) Australia 5Y Nth America 5Y Europe 5Y bnz.co.nz/research Page 10

11 Contact Details Stephen Toplis Head of Research Craig Ebert Senior Economist Doug Steel Senior Economist Jason Wong Senior Markets Strategist Nick Smyth Interest Rates Strategist Main Offices Wellington Level 4, Spark Central Willis Street Private Bag Wellington Mail Centre Lower Hutt 5045 New Zealand Toll Free: Auckland 80 Queen Street Private Bag Auckland 1142 New Zealand Toll Free: Christchurch 111 Cashel Street Christchurch 8011 New Zealand Toll Free: National Australia Bank Peter Jolly Global Head of Research Alan Oster Group Chief Economist Ray Attrill Head of FX Strategy Skye Masters Head of Fixed Income Research Wellington Foreign Exchange Fixed Income/Derivatives Sydney Foreign Exchange Fixed Income/Derivatives New York Foreign Exchange Fixed Income/Derivatives Hong Kong Foreign Exchange Fixed Income/Derivatives London Foreign Exchange Fixed Income/Derivatives Analyst Disclaimer: The Information accurately reflects the personal views of the author(s) about the securities, issuers and other subject matters discussed, and is based upon sources reasonably believed to be reliable and accurate. The views of the author(s) do not necessarily reflect the views of the NAB Group. No part of the compensation of the author(s) was, is, or will be, directly or indirectly, related to any specific recommendations or views expressed. Research analysts responsible for this report receive compensation based upon, among other factors, the overall profitability of the Global Markets Division of NAB. NAB maintains an effective information barrier between the research analysts and its private side operations. Private side functions are physically segregated from the research analysts and have no control over their remuneration or budget. The research functions do not report directly or indirectly to any private side function. The Research analyst might have received help from the issuer subject in the research report. New Zealand: 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. To the extent that any information or recommendations in this publication constitute financial advice, they do not take into account any person s particular financial situation or goals. 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. National Australia Bank Limited is not a registered bank in New Zealand. USA: 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. bnz.co.nz/research Page 11