RBNZ rate hike seen to be a done deal as bond markets groan

New Zealand’s Reserve Bank is expected to hike the official cash rate a quarter-point at today’s policy review, with economists eyeing governor Anna Breman’s comments and the committee’s guidance on how aggressive future moves will be.

That comes as government bond yields continued to push higher as the US launched more strikes on Iranian targets, while President Donald Trump warned of more attacks if the Islamic Republic retaliated.

The elevated tensions in the Middle East drove up oil prices further, weighing on US and European stock markets, with the likes of Home Depot, Sherwin-Williams and Caterpillar leading the Dow Jones Industrial Average lower.

Meanwhile, European regulators are seeking feedback on Google’s proposal to let publishers opt out of artificial intelligence search results without affecting their rankings in search results.

Sticky inflation

Bond traders have almost fully priced in a 25 basis point rate hike by the Reserve Bank’s monetary policy committee at today’s review, which would lift the official cash rate to 2.75%, as the central bank unwinds its stimulatory policy to help slow the pace of price increases.

“The market will be more interested in the outlook and in assessing the probability of further sequential hikes in October and December,” Bank of New Zealand senior market strategist Jason Wong said in a note. “It is clear that the RBNZ will need to maintain a tightening bias and take the OCR at least as high as the 3.3% level projected in May.”

Heightened tensions in the Middle East have renewed inflationary fears, with Brent crude oil futures up 4.9% at US$94.92 a barrel at 7am in Auckland, after the US launched a new wave of strikes on Iranian targets.

US President Trump said the strikes were in response to Iran trying to lay mines in the Strait of Hormuz and the nation’s earlier attack over the weekend, and he warned the Islamic Republic against retaliating.

The yield on US 10-year treasuries climbed to 4.8%, their highest level since January last year, while yields on Japan’s 30-year notes rose above 3% for the first time since 1996 after US Treasury secretary Scott Bessent hinted at more rate hikes by the Bank of Japan.

Stocks on Wall Street were broadly weaker, with the S&P 500 and Dow both falling 0.8%, while the tech-heavy Nasdaq Composite dropped 1.1%.

Greg Boland, market strategy consultant at Moomoo, said September was traditionally the weakest month for US equities and October was often linked to heightened volatility, making the next two months important for investors.

“The escalation has raised concerns about the security of one of the world's most important energy shipping routes and the potential for further disruption to global oil supplies,” Boland said in a note. “Higher energy prices are adding to inflation concerns at a time when markets are already reassessing the outlook for interest rates.”

Oil companies were among the winners on the day, with Chevron and ExxonMobil Holdings both up 2% in late trading, while drugmakers such as Eli Lilly & Co and Johnson & Johnson were also on the green side of the ledger.

Dell Technologies and Palo Alto Networks are due to report after the closing bell.

A new world

Meanwhile, a group of 21 financial institutions including Goldman Sachs, Bank of America, Citi and Deutsche Bank said they planned to create a company this year to issue a stablecoin pegged to the US dollar in the first half of 2027. The group will compete with a rival consortium, which plans to launch a euro-pegged stablecoin later this year.

Stock markets across the Atlantic were also weaker, with the UK’s FTSE 100 falling 0.3% as it returned from a bank holiday. In his first appearance in the House of Commons as UK prime minister, Andy Burnham said he would set out a plan for public control of essential water services later this year, calling the sector a “leaking monument” to the failure of decades of privatisation in Britain.

Separately, his predecessor Keir Starmer said he was stepping down as an MP, triggering a byelection in his north London seat.

Meanwhile, Germany’s DAX dropped 1.1% and France’s CAC 40 declined 0.4%.

European Union antitrust regulators are seeking feedback from publishers on proposals by Alphabet’s Google to let them opt out of AI search without having their search rankings affected.

In other AI news, Anthropic said it would release a new version of its Fable model that was better at coding and scientific tasks, and more economical.

And SoftBank-backed data centre developer SB Energy filed paperwork for a US initial public offering.

The subdued tone is set to carry through to the antipodes, with Australian futures pointing to a 0.9% decline for the S&P/ASX 200 index when trading opens across the Tasman, while the kiwi dollar dropped to 58.92 US cents at 7am from 59.09 cents.

Local data today include July building consents, while Australia’s June quarter gross domestic product figures will also be in view.

And companies going ex-dividend today include heavyweight Mercury NZ and Kiwi Property Group, which will likely weigh on New Zealand’s S&P/NZX 50, which is a gross index.

Reporting by Paul McBeth. Image from Curious News.