New Zealand’s consumer sentiment saw a slight increase in the June quarter, according to the Westpac-McDermott Miller survey. The consumer confidence index rose to 91.2 from 89.2 in the March quarter. This small boost partially recovers from a sharp drop earlier this year. However, the index remains below the neutral level of 100, which indicates a balance between optimism and pessimism.

Ongoing Uncertainty

The report highlighted ongoing uncertainty affecting households. Recent months have been turbulent, leaving many New Zealand families uneasy about the economy’s future. This shift in sentiment shows a slight improvement in the public mood, moving away from earlier lows. However, confidence is still in negative territory. Any index score below 100 means more people feel pessimistic about current and future economic conditions. The rise to 91.2 does not indicate a big change; it may simply be a temporary pause in declining spirits. McDermott pointed out that while there is a measurable increase, it comes more from households adjusting than from economic improvement. This may show signs of fatigue—households may still feel negative but are trying to stabilize their expectations after a rough start to the year. Still, caution remains, as income pressures continue. High mortgage repayments and rising prices are ongoing issues. Westpac noted hesitation around spending now and expectations for economic growth over the next year. This is important when considering what consumers plan to do with their extra income. When people cut back on big purchases, it often signals weaker short-term demand, which can influence policy decisions, especially if supported by retail sales data.

Modest Recovery

The slight recovery in sentiment occurs against a backdrop of weak economic conditions. Full-blown pessimism isn’t fading. Job security is still a worry, especially for younger people and renters. Meanwhile, rural respondents are becoming more cautious again, a shift from last year when they were more optimistic. For traders in rate-sensitive markets, this partial rebound doesn’t change the overall expectation of subdued sentiment. It’s vital to compare soft data from surveys to harder indicators, like inflation numbers. However, this survey might slow down any immediate shifts in monetary policy, particularly if upcoming labor and CPI reports are mild. We view the rise in confidence as tentative—enough to ease some of the worst fears but not enough for a significantly brighter outlook. Household consumption is likely to remain steady, meaning that core inflation is unlikely to rise unless there’s unexpected wage growth or increases in energy prices. Short-term interest rate futures show little change in terminal expectations post-release. Options activity doesn’t indicate a strong belief in rate cuts, meaning markets see this data as noise unless reinforced by stronger results elsewhere. This may lead to range-bound strategies in front-end contracts, offering better value than directional bets until hard data confirms a clearer trend. Robertson noted that much of the public’s worry is about future expectations rather than current conditions. This distinction is important because entrenched pessimism can negatively impact medium-term economic performance. We are observing how these sentiment shifts influence pricing behaviors by suppliers and employers. If demand expectations stall, business activity could slow, reducing the need for significant increases in wages or consumer goods prices. There are notable differences in sentiment based on region and income level, suggesting uneven growth prospects within the country. Urban areas more sensitive to interest rate changes reacted more strongly. Households with variable debt may see more volatility in perceptions. This helps explain the increased variability in short-end swap pricing right after the release, though it wasn’t enough to trigger further movement. In our view, these numbers won’t change the narrative unless supported by solid proof. Nonetheless, we remain watchful for changes in repo and FRA spreads. Short gamma positions may require extra caution in the 3-6 month sector as we adjust ahead of the next round of official announcements. Timing in these markets is critical. Weak consumer confidence may limit recovery potential in sectors dependent on discretionary spending. If income uncertainties and inflation worries persist, people are likely to save rather than spend. This cautious environment supports the current flattening in the swap curve, albeit only slightly. As always, we see this as just one part of the broader monetary policy picture. In the coming weeks, we will receive more key insights from labor, inflation, and housing data. Until then, short-term interest rate and swap volatility may stay pressured unless new external shocks arise. Caution is still advised, but outright pessimism seems to have taken a brief hiatus. Create your live VT Markets account and start trading now.

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