Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
The New Zealand government bonds gained on Monday after reading weaker than expected United States second-quarter gross domestic product (GDP) figure.
Also, investors preferred safe-haven assets after the RBNZ signalled in its recent economic outlook report that rate cuts were needed as stronger NZ dollar rate is holding down tradable good inflation and currency markets make it difficult to meet inflation objective.
The yield on the benchmark 10-year bond slid 5 basis points to 2.165 percent (fresh record low), the yield on 7-year note also dipped 5-1/2 basis points to 1.920 percent (new record low) and the yield on short-term 2-year note ended 5 basis points lower at 1.795 percent (fresh record low).
The advance second-quarter US GDP reading increased +1.2 percent, well below market expectations for a +2.6 percent result, as compared to the revised +0.8 percent reading seen in the first quarter of 2016 (previous was +1.1 percent).
Alongside the weaker than expected headline result, this report clearly reflects the mixed tone of data seen throughout the quarter. Given the magnitude of the inventories decline seen in the advance release, we see this potentially signalling positive momentum on this front in 2H16.
Moreover, the Reserve Bank of New Zealand in its unscheduled economic outlook update concluded that it is likely that further policy easing will be required as decline in the exchange rate is needed. The central bank added the monetary policy will continue to be accommodative and long-term inflation expectations are well anchored. Also, the NZ dollar rate is holding down tradable good inflation and currency markets make it difficult to meet inflation objective.
The surprised assessment mentioned that more easing is possibly needed to return inflation to target as many uncertainties hover around the country’s economic outlook.
On the other hand, New Zealand Treasury in its monthly economic indicators for July mentioned that the key economic data releases point to stronger economic growth in the June quarter than expected in the Budget. Also, economic and fiscal update business surveys point to robust economic activity, supported by stronger-than-expected export volumes and consumer spending. They further mentioned that global financial markets stabilised in July but the economic outlook remains slightly weaker.
We foresee that the RBNZ will go for further rate cuts to counter deflationary pressure if inflation fails to revive, which is way below the target range of the central bank.
Lastly, investors will remain keen to focus on the next week’s employment report. Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 8.50 points to 7,356.63.
