NZ inflation top of mind as week starts amid more Iran jostling

Statistics New Zealand’s inflation report on Tuesday and the New Zealand Institute of Economic Research’s business confidence survey the same day are top of mind for investors as they gauge when the Reserve Bank will start raising interest rates.

That comes as the US and Iran prepare for the latest round of peace talks, with President Donald Trump again threatening strikes on energy and transport infrastructure if a deal isn’t reached.

Oil prices tumbled on Friday and stocks on Wall Street and in Europe rallied, with travel and tourism stocks such as United Airlines and Royal Caribbean Group among the biggest gainers, when the Strait of Hormuz opened before it was swiftly closed over the weekend.

And the stability of New Zealand’s coalition government is back in focus as prime minister Christopher Luxon returns to Wellington after the latest political poll showed its support is slipping.

Growing pressure

Australian futures are pointing to a 0.9% gain for the S&P/ASX 200 index when trading opens across the Tasman after a strong Friday on Wall Street and Europe when oil prices dropped when the Strait of Hormuz reopened, with Brent crude futures at US$92.42 a barrel.

The S&P 500 climbed 1.2%, with the Dow Jones Industrial Average up 1.8% and the tech-heavy Nasdaq Composite rallying 1.5%, while European markets were also stronger as the UK’s FTSE 100 gained 0.7%, Germany’s DAX climbed 2.3% and France’s CAC 40 advanced 2%.

Royal Caribbean led the S&P 500 on Friday, jumping 7.3% and Carnival climbing 7%, while United Airlines led carriers higher as it gained 7.1%.

New Zealand’s Tourism Holdings shed 3.5% last week and Air New Zealand slipped 1.1%.

However, any optimism might be tempered after Iran closed the strait over the weekend, with President Trump again threatening to attack infrastructure if a deal isn’t reached in upcoming negotiations.

“The new week begins with the fog of war continuing and a likely hit to risk assets in early trading, until we hear more,” Bank of New Zealand senior markets strategist Jason Wong said in a note.

The kiwi dollar traded at 58.73 US cents at 7.30am, little changed from 58.82 cents at 7am and 58.88 cents last week.

Price pressures

Bond traders are pricing in 22 basis points of increases to the 2.25% official cash rate by the Reserve Bank’s July meeting as investors continue to weigh up if and when the central bank will respond to the energy shock’s inflationary pressures.

Stats NZ’s March quarter consumers price index is due on Tuesday and expected to show the annual pace of inflation at 2.9%, at the top end of the Reserve Bank’s target band. NZIER’s quarterly survey of business opinion is out the same day, providing a gauge on the appetite and ability of firms to pass on rising costs.

Bevan Graham, economist at Salt Funds Management, said those reports only capture part of the petrol price increases, with the June period expected to show the full effect.

“It’s also important to note that this result will tell us little, if anything, about the more important second round effects of higher fuel prices into broader and therefore will do nothing to settle the debate about how hard the RBNZ may need to lean against them in the period ahead,” he said in a note.

Local data today include Stats NZ’s March overseas merchandise trade figures, and the Reserve Bank’s update on non-resident bond holdings.

Trade minister Todd McClay will travel to India next week to sign a free trade agreement with the world’s most populous country.

And prime minister Luxon returns to Wellington today amid growing speculation about his control on the National party after the latest 1News-Verian poll showed dwindling support for the coalition government’s senior partner. The Kalshi prediction market is pricing in a 55% chance that Luxon will leave office this year in a relatively thinly traded contract.

Reporting by Paul McBeth. Image from Aaron Birch on Unsplash.