Market open: Global risk appetite may spur buying; RBNZ in focus

Reserve Bank Governor Adrian Orr will make a big call today. Photo / Mark Mitchell

New Zealand's financial markets may be in for a positive day after better-than-expected US data, but the main focus will be on the NZ central bank's rate decision and statement.

The RBNZ is widely expected to keep rates on hold at 0.25 per cent at 2pm local time and "may sound more positive about the near-term outlook" after lockdown restrictions were eased earlier than previously expected, said ASB Bank chief economist Nick Tuffley.

However, "we expect the RBNZ will continue to stress that it will take further action as needed, including keeping alive the possibility of a negative official cash rate."

While economists expect the bank to signal an expansion of its quantitative easing programme, most expect that will happen at the August review, when it will also publish a full set of forecasts.

It currently has a $60 billion large-scale asset purchase programme which includes NZ government bonds, Local Government Funding Agency bonds and, now, NZ government inflation-indexed bonds.

The NZ dollar benefited from the stronger overnight risk appetite and was trading at 64.95 US cents at 8am in Wellington versus 64.71 cents at 5pm yesterday.

"Kiwi is hovering around 0.65 but isn't likely to go too far before today's OCR Review, where we expect the 'easy policy for some time' message will be reinforced," said ANZ Bank.

Global risk appetite got a lift when data in the eurozone and the US showed an improvement.

According to IHS Markit, "the eurozone economic downturn eased markedly for a second successive month in June," with flash Eurozone composite purchasing managers index surging to 47.5 in June from 31.9 in May.

Germany's DAX added 2.1 per cent.

Meanwhile, in the US, the flash PMI data showed the economic downturn "abating markedly in June. The improvement will fuel hopes the economy can return to growth in the third quarter," said Chris Williamson, chief business economist at IHS Markit.

The flash US service sector purchasing managers index rose to a four-month high of 46.7 in June from 37.5 in the previous month, IHS Markit said.

The flash manufacturing sector purchasing managers index rose to a four-month high of 49.6 from 39.8 in May.

Also, in the US, sales of new single-family houses rose 16.6 per cent in May and were up 12.7 per cent from a year earlier.

The Dow Jones Industrial Average was up 0.5 per cent at 8am, while the Nasdaq had added 0.7 per cent and the S&P500 was up 0.4 per cent.

While investors' risk appetite was whetted by the positive data, worries about a new wave of covid-19 cases continue to linger.

There are now 9.2 million cases worldwide and 473,930 people have died. The US continues to have the highest number at 2.3 million cases.

- BusinessDesk