Remy Morgan: Milford Asset Management expert on the market reactions to the 50bp OCR cut

The Reserve Bank today slashed the OCR by 50 basis points to 2.5 percent, prompting markets to make readjustments.

This recent cut wasn't full priced in, and it's got some experts re-thinking their OCR outlooks ahead of the end of the year.

Milford Asset Management's Remy Morgan explains further.

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Hither have you looked at the exchange rates since the
OCR announcement? Meaning fuel and everything which is important will
be more expensive for BEAZ, Thank you very much for
bringing us to this. Right now, it's quarter past six
and Remy Morgan Milford Asset Management is with us high. Remy, Hi, Heather.
How did the market react to that decision?

Speaker 2 (00:14):
Today? We saw markets readjusting their interest rate expectations lower
in response to that fifty basis point cut, and that
was because it wasn't fully priced in. We saw market
expectations for the November decision adjusting to fully price another
twenty five basis point cut. We saw wholesale swap rates
offered lower. Notably, that key two year rate was down

(00:37):
around seven basis points shortly after the release. And the
other key call out was that INZA dollar, which we
can further immediately dropping around one percent against the US dollar. Yeah.

Speaker 1 (00:46):
What about the INSIDEX have we seen any major moves there? Yeah?

Speaker 2 (00:50):
So over the last week leading into today, the INSIDEX
moved sharply upwards and finally above record highs. Again, it's
only taken about four years, and that was likely in
anticipation of more rate cuts to come. Following that week
GDP print that we had the other week. Some notable
moves in share prices that are up around ten percent
over the past week are in cyclical retail companies like

(01:14):
sky City and Catman, do brands, housing linked retirement companies
Ryman and Somerset, and real estate companies, and that larger
fifty basis point cut today further supported moves higher. We
saw the index closing zero point two five percent on
the day, marking a rally of over two percent the
past week and closing on a fresh new high.

Speaker 1 (01:36):
How important do you think was the detail that the
Reserve Bank released for the market.

Speaker 2 (01:41):
It was just a policy announcement this time, and not
a full statement with a new set of Reserve Bank
forecast as we had back in August, And because it
wasn't fully clear to the market which way the RBNZ
would go, that made both the decision and the signals
that the release sent to the market even more important.
Now the messaging signaled openness to cut further, and I

(02:02):
think that supported that market move lower in wholesale interest rates,
which helps to give that intended transmission effect.

Speaker 1 (02:08):
Okay, where do we go from here?

Speaker 2 (02:11):
For companies in the insid X, particularly those more interest
rates sensitive and consumer focused companies. There might be some
further optimism to come as those lower interest rates continue
to transmit through the economy, but it is important to
remember that today's market reactions are a point in time
reaction and developments in the data and the economy can

(02:31):
see markets move potentially either way.

Speaker 1 (02:33):
In response, Remy, thanks very much, appreciate it. Remy Morgan
Milfit Asset Management. For more from Heather Duplessyellen Drive, listen
live to news talks. It'd be from four pm weekdays,
or follow the podcast on iHeartRadio.