New Zealand’s consumer sentiment increased in the June quarter, per the Westpac-McDermott Miller survey. The consumer confidence index rose to 91.2 from 89.2 in the March quarter.

This small improvement partially recovers from the sharp decline in the first quarter. However, the index remains below the neutral level of 100, which divides optimism and pessimism.

Ongoing Uncertainty

The report noted ongoing uncertainty impacting households. It stated that recent months have been turbulent, causing New Zealand households to feel uneasy about the economic future.

That sentiment shift highlights a modest lift in the public mood, pulling back slightly from earlier lows. But confidence still sits firmly in negative territory. Any number below 100 reflects a greater proportion of respondents feeling downbeat about current and future economic conditions. The modest rise to 91.2 doesn’t suggest wholesale change – it may merely mark a pause in declining spirits.

McDermott emphasised that while there’s a measurable uptick, it’s rooted more in household adaptation than improved economic fundamentals. What we’re seeing could reflect a form of fatigue—households may still be pessimistic, but they’ve begun to steady their expectations after a turbulent start to the year. Even then, underlying caution isn’t disappearing. Income pressures haven’t eased. Debt servicing – particularly on mortgages – remains elevated, and many key prices continue to rise.

Westpac pointed to hesitancy about both spending now and expectations for economic growth over the next twelve months. That’s relevant when we consider what consumers expect to do with their discretionary income. When people pull back on large purchases, it often foreshadows weaker short-term demand, something that can add weight on policy decisions, even more so if corroborated by retail sales data.

Modest Recovery

The modest recovery in sentiment is still within the bounds of a weak economic backdrop. We’re not seeing full-fledged pessimism recede. Job security remains a concern, particularly among younger cohorts and renters, while rural respondents appear to have grown more cautious again – a reversal from last year’s steadier results in that group.

For traders in rate-sensitive markets, this partial rebound doesn’t alter broader expectations that sentiment is subdued. It remains important to weigh soft data like surveys against harder indicators such as inflation prints. What this survey might do, however, is slow the momentum for any immediate shift in monetary policy expectations, especially if upcoming labour and CPI figures are benign.

We interpret the move in confidence as tentative – enough to shake off some worst-case scenarios but not enough to support a materially brighter outlook. Household consumption is still expected to tread water, meaning that upward momentum in core inflation seems unlikely unless wage growth surprises or energy prices climb.

Observation of short-term interest rate futures suggests little change in terminal expectations following the release. Options activity hasn’t reflected a marked pricing-in of rate cuts, suggesting markets are treating this data as noise unless followed by stronger prints elsewhere. It may prompt more lateral plays – range-bound strategies in front-end contracts might now offer better value than directional bets, at least until hard data confirms a clearer turn.

Robertson noted that much of the public’s concern lies in future expectations rather than current conditions. This breakdown matters because when pessimism becomes entrenched in long-run expectations, it tends to weigh heavier on medium-term economic performance. We are watching how such sentiment shifts ripple into pricing behaviour by suppliers and employers. If demand expectations stall, forward-looking business activity could taper, which in turn would reduce the need for aggressive repricing in wages or consumer goods.

Now, there are marked differences in sentiment by region and income level, hinting at uneven growth prospects domestically. Urban centres with more exposure to interest rate shocks showed stronger reactions. Where households hold floating debt, perception near-term becomes more volatile. That helps explain increased dispersion in short-end swap pricing immediately after the release, though not enough to trigger follow-through.

In our view, these figures won’t alter the broader narrative unless they’re accompanied by hard confirmation. Still, we remain alert to build-ups in repo and FRA spreads. Short gamma positions may warrant extra caution in the 3-6 month sector as positioning recalibrates into the next round of official statements.

Timing remains sensitive in these markets. Thin conviction from consumers may limit rebound potential in certain sectors, especially those reliant on discretionary spend. After all, if income uncertainty and inflation worries continue, the tendency will be to save rather than spend. This restrained backdrop supports the current flattening bias in the swap curve—though only modestly.

As always, we take this as just one piece of the broader monetary policy puzzle. The next few weeks will bring more actionable input from labour, inflation, and housing data. Until then, implied vol in STIRs and swaps may remain pressured unless external shocks emerge. Caution remains warranted, but outright pessimism seems to have taken a short pause.

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