Trump: The Sequel is unfolding like a thriller film, complete with twists and turns. And last week proved Trump’s announcements hold a shelf life of mere hours. On Thursday morning, news broke that the start date of the 25% Mexico and Canada tariffs was pushed out to April 2 from March 4 (after being delayed from the original Feb 1 start date). Then Friday morning, we woke to news that Trump will in fact go ahead with the March 4 start date. An additional 10% tariff on Chinese imports was also announced. And in targeting trading partners with which the US holds a trade deficit, European imports will be slapped with a 25% tariff. Confusion and uncertainty however don’t go down well in financial markets. Add to that elevated geopolitical tensions following a fiery clash between Trump and Ukraine President Zelenskyy in the Oval Office. Equity markets were rocky and safe haven flows saw the US dollar strengthen and the 10-year US Treasury yield plummet. It’s still anyone’s guess whether tariffs will be implemented this week. February was a volatile month. And this month will be no different. Trump could give ‘March madness’ a whole new meaning.

Here at home, it was a relatively quiet week on the data front in terms of major releases. That said, we did get a number of positive high frequency data points and partial GDP indicators. Monthly business and consumer confidence numbers were both up and showed signs of stabilising at higher levels over February.

Meanwhile, Stats NZ’s monthly job indicator showed a 0.3% increase in filled jobs over January. It’s a decent lift, though it should be noted that the first outturn is often revised. Filled jobs for December were revised from a 0.1% gain to a 0.1% decline. At the industry level, it’s still a mixed read. As in previous months, there were gains in industries related to tourism including hospitality and recreational services. But job cuts continued in industries like construction given a quiet pipeline. Encouragingly, there was a slight uptick in employment within the retail sector. That’s consistent with recent signs of improvement in household consumption. Retail spend rose 0.9% in the December quarter, up from flat in Q3 and with a notable increase in discretionary spending (see our ‘Chart of the Week’ for more).

Overall, the turn in data provides growing evidence that the Kiwi economy is on track for a recovery in 2025. With rate relief underway we’re slowly making progress. However, it’s still not until the second half of the year that we expect the recovery to really gain momentum. But the turn in data is a start. And with more rate relief to come, the light at the end of the tunnel is burning brighter. At 3.75% the cash rate remains well above estimates of neutral - which are close to 3%. So, interest rates are still at levels restraining demand. Thankfully, the RBNZ have signalled further cuts. Most economists are aligned in the view that the cash rate will fall a further 75bps to 3%. And while the positive turn in data now has seemed to fuel some discussion on whether the RBNZ get to 3%, we think the risks remain to the downside. With everything that is happening offshore, from Trump tariffs and trade wars to geoeconomic fragmentation, the RBNZ may find themselves having to stimulate the economy.

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, offshore direction left kiwi rates lower

“NZ rates reverted to following offshore direction lower last week, albeit not moving by the same magnitude. Sub NZ 2-year yields have been supported by mortgage paying. Whether this is the start of the shift to longer mortgage tenors remains to be seen, but when combined with improving higher frequency data it has been a supporting factor for short end rates. The longer end more reactive to offshore moves, but again not moving in symmetry with offshore given NZ Debt Managements decision to come early with a syndicated cap of the 2032 line. The net result seeing a mild flattening of the NZ yield curve as opposed to a parallel shift lower. The pace of the move lower did accelerate late in the week as more tariffs were announced further threatening the global growth outlook.

Offshore US Treasury yields are languishing at, and through, the bottom of 2025 ranges. US economic polices paying havoc with confidence, overlaid with weaker economic data and tit for tat tariffs. Over February pricing for FED cuts this year have moved from -47bp to -68bp currently. This even though the FED have said they are in no hurry to lower interest rates. Bets are shifting that the FED’s view will quickly change from inflation to tackling economic weakness. Watch this space, slower growth higher inflation = stagflation.

NZ GDP partials start this week, the actual release on 20 March probably lacks the weight it once did. High frequency data more relevant for NZ, as are the flows. noted above for direction.” Ross Weston, Head of Balance Sheet – Treasury

In currencies, risk sentiment sours currency markets

"Last week the Kiwi dollar traded lower. After opening the week at the 0.5740 mark, and a brief foray to a high of 0.5770 following a dip in the US dollar, the Kiwi made a slow but steady decline over the week, as uncertainties around global growth and souring risk sentiment built up as the week wore on. On Friday news that Trump intends to go forward with tariffs on Canada, China and Mexico, effective this week, saw the US dollar surge higher. The Kiwi hit a low of 0.5612 on Friday, during our trading day. On Friday night and into the New York close for the week, the Kiwi got to a low of 0.5585, following the fiery showdown between Trump and Zelensky. Geopolitical uncertainty, in addition to the potentially widespread economic impacts of tariffs, saw risk sentiment well and truly sour. Equity markets also had a rough ride last week, as earnings reports came through, and the general air of confusion around the unknown impacts of tariffs remained the theme of the week. We still see limited upside for the Kiwi to break out of its current 0.5650-0.5750 range, and further tariff and geopolitical fall out is more likely to see the Kiwi trade sub 0.5600." Mieneke Perniskie, Trader - Financial Markets.

Weekly Calendar

• Here at home, more GDP partials data will be released this week. The attention turns to construction activity with building consents and build work put in place. Both will likely show subdued activity, especially within the residential construction space given a lacklustre housing market.
• Across the Tasman, GDP data for the December quarter is due out. Economic growth likely accelerated slightly at the end of 2024, up 0.5% over Q4 from 0.3% in Q3. Underpinning growth likely was strong consumer spending as well as solid increases in residential construction activity and business investment. Year-on-year, GDP growth likely acclerated from 0.8% to 1.2%.
• US nonfarm payrolls is the main market event this week. Around 155k jobs are expected to have been added over the month of February, from 143k in January. The unemployment rate is also expected to hold steady at 4%. By these counts, the US labour market remains robust.
• The European Central Bank is set to announce their latest policy decision this week. A 25bp cut to all key policy interest rates is expected. The ECB will also likely signal further easing to come as the growth outlook faces downside risks, particularly trade given Trump's signalled tariffs. Euro-area inflation will also be released this week. After drifting higher in recent prints, annual inflation is expected to slow to 2.3% fro 2.5% in February. Annual core inflation is also picked to decline to 2.5% from 2.7%. Weak growth and slowing inflation strengthen the case for further easing from the ECB this year.

See our Weekly Calendar for more data releases and economic events this week.