Remy Wisenberg: Milford Asset Management expert on the market reactions to the OCR staying in place

The Reserve Bank has opted to keep the OCR on hold at 2.25 percent today.

Most markets had priced in a hold, but the views on what will happen next are split, especially considering concerns around inflation. 

Milford Asset Management's Remy Wisenberg explained further.

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Episode Transcript

Speaker 1 (00:00):
For Remy Weisenberg, Milfitt Asset Management High Remy Hi Heather.
So what were the markets expecting going into today.

Speaker 2 (00:07):
Yes, so the markets were actually near to fully pricing
in the hold for today, which is what happened. But
as you said, there has been a divergence of views,
and especially on the forward outlook. We've had concerns over
rising inflation due to that ongoing Middle East conflict and
New Zealand inflation is already relatively high, so that was

(00:28):
sitting around three percent last quarter. But at the same
time we've actually had other economic data points, so unemployment,
consumer and business confidence. They're pointing to softness in the economy. Now,
the RBNZI, they have a single mandate which has focused
on keeping inflation within a target range of one to
three percent over the medium term. Now that's made it

(00:49):
very difficult for markets and economists actually to have a
really firm view on what the RBNZ should do and
where the ocr will ultimately end up. So going into today,
we did see the market pricing in nearly three hikes
before the end of the year. Now that was actually
slightly above the rb and z's previously communicated track.

Speaker 1 (01:09):
Okay, so how did the market react then to today's announcement.

Speaker 2 (01:13):
Yeah, so we did get the updated track from the
RB and Z today in the announcement, and that did
suggest roughly two to three hikes this year, so that
brought it roughly in line to what the market had
already been expecting. But what we did see was that
the track indicated a relatively strong chance of an increase
in the OCR in the third quarter, potentially as soon

(01:35):
as July. And it's also worth noting that three of
the six committees, three of the six committee members voted
to increase the OCR today, so that really enforced that
upward trajectory of the OCR, and as a result, we
actually saw the market bring forward some of its rate
high expectations from later in the year. So what we

(01:56):
saw initially was the Kiwi dollar that bounced up high
against the US dollar and the Aussie dollar. We also
saw a little bit of movement in interest rate swaps,
so at the shorter end, the two year swap rates,
they were up around five basis points, while the longer end,
the ten year, that was actually down a touch. But
as we know, there is a lot of uncertainty around

(02:18):
the Middle East and how the economy might respond. So
I think the RB and Z and markets will need
to remain.

Speaker 1 (02:23):
Fluid now on that and obviously the talk of a
possible peace steal. How the market's reacting to that.

Speaker 2 (02:30):
Yeah, so overnight the US ten year treasury rate that
actually came down a little bit, so that was potentially
on hopes of that peace steal, but it does continue
to sit higher than where it was pre conflict. Now,
global equity market, as we know, they've been bouncing around
a lot based on the news flow. But the S
and P five hundred that actually hit a new record

(02:51):
height again. Now, some of that could be optimism of
the conflict resolution, some of that might also be some
of the catch up from the long weekend over the US,
But ultimately the fact that we are still seeing new
highs really shows the strength of the global equity markets
and they continue to be popped up by the strong
demand for AI and also really solid earnings growth from

(03:14):
some of those large US companies. But never say never,
because we haven't seen a firm resolution yet, so things
move around by the day, and we do continue to
see volatility across the markets. I think until there is
a resolution.

Speaker 1 (03:29):
Very good advice, Remy, I really appreciate it. Remy Weisenberg,
Milford Asset Management. For more from Heather Duplessy Allen Drive,
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