Generate's Investment Specialist Greg Smith joined Mike Hosking on ZB this morning to discuss the likelihood of, and need for, the RBNZ to put through a 0.50% cut to the OCR this week. He also looks at the impact of the US government shutdown, and what the latest data prints say about the state of the services sector in the world’s largest economy.
Listen to the 6 October 2025 recording from The Mike Hosking Breakfast on Newstalk ZB here:
Or read the transcript below:
Generate's Investment Specialist Greg Smith joined Mike Hosking on ZB this morning to discuss the likelihood of, and need for, the RBNZ to put through a 0.50% cut to the OCR this week. He also looks at the impact of the US government shutdown, and what the latest data prints say about the state of the services sector in the world’s largest economy.
Right from Generate Monday morning, Greg Smith, good morning to you.
Good morning to you, Mike.
Wednesday's the day. What are you calling?
Well, I think a quarter point is locked in, but I think a half percent rate cut is a real probability and I think that's what we actually need. So let's just think about it quickly. So obviously we have the June quarter GDP that was pretty dire, you know .9% contraction, it's triple what the RBNZ forecast and you look at what we've had since. So the manufacturing sector we're backing contraction mode and the absolutely getting a few banging on about September being a better one for the economy. But I'm not sure that's a huge achievement from a pretty low base.
So it's still tough if a lot of people wouldn't just you can look at that anecdotally as well. So we actually are getting another sighter on the economy before the meeting on Wednesday. So that is the NZI quarterly survey of business opinion and the RBNZ is known to follow that. So that could be what swings it of course, there will be an additional element.. We did have the new governor announced and Christian Hawkesby, he'll be in the seat till the start of December.
So he may be tempted to side more of those that are going to remain after he's gone. Also, we also got another recent appointee as well that might be drawn that way. We have had reductions in the cash rate. Of course, we've talked about that since the peak 5.5% last year. But we need more 3% still way too high and I think we need to be back at 2.5%. So that's where a .5% comes from and perhaps towards 2% by the end of the year and get those transmission effects.
So obviously for businesses and also consumers, you know we've got around about 45% of mortgage holders set to refix their rates the next six months. Several big banks cut their one-year mortgage rates last week. They'll probably got further to go as well. So this could all be quite helpful as they close out 2025 and hopefully you know put our economy into a better frame as we into 2026.
Well, one would hope so. Shut down in America. Still shut down, of course. So we didn't get the job numbers apart from anything else.
No, we didn't get the job numbers so the Bureau of Labour statistics have paused all activity. Obviously Trump’s been pretty fixed on those job numbers so a double-edged sword for him.
As we've seen with the Doge team, but what's the impact and how long is it going to go on? We don't know how long it's going to go on, but we still have a sense on the impact. So 750,000 employees were estimated to be furloughed each day. That's a cost of around 40 million terms of their compensation. So we've got things that aren't paused. So defence, postal services, dept payments, thankfully air traffic control that's still running, but national parks, passport processing, that's paused. And yeah, lots of them.
There will be lots of impacts and there was a travel and tourism industry estimate over the weekend that it's going to cost the sector around about a billion dollars a week as government travel’s canned and people that are meeting with the government don't need to do so. Markets don't seem too perturbed. They and we have seen this movie before, they've actually in fact been 20 shutdowns since 1976. So obviously a lot of headlines, but investors view it as political gridlock rather than an economic crisis. Also the staff that were furloughed will typically come back with back pay that have an impact.
So overall the GDP impact is expected to be relatively minor, about .1 to .2 percentage points per week. And obviously politicians, they always reach a deal, don't they? It's just how long it goes on for. So you look at the past two decades, equity markets have actually risen during the shutdown, the largest and the longest one was 35-day one and Trump's first term, late 2018, early 2019. S&P rose 10% during that. We have to see how long it drags on, but it might not prove a big deal for equity markets.
No, indeed not. What about the services sector though? That's interesting.
That's right. So we didn't get the non-farm payrolls print. We did get some reads on the on the services sector. So activity there is softening, So it was a couple of surveys actually. So the ISM services PMI came in at 50%. So that's like break even. So the percentage of firms even in terms of those reporting growth of those contracting, that's the first time it's been there since January 2010 down 2 points from August and was worse than expected.
So you look at the service sector business activity and production index that was in contraction for the first time since the early days of the pandemic in May 2020. The employment index did actually jump in new orders. They went quite well, particularly in terms of backlogs. But yeah, certainly slowing down. There was a slightly better sighter from S&P Global market. These survey is a broader one. It looks more smaller mid-sized businesses. So that was slightly more positive, did show that things are slowing down, but only slightly. They're saying that services sector is still in contraction at 54.2. Sorry, it's still in expansion, I should say at 54.2. So it's been that way for 32 months.
Financial services and tech sectors are going pretty well and consumer-facing services such as leisure and recreation going well as well. So it suggests that low interest rates are helping these. Foreign demand, that improved the first time in six months, tariffs that slowed in terms of the inflation impact, although hiring did stall. So I think on balance, the two surveys do support the case for more rate cuts by the fed.
OK, what are the numbers?
So the Dow was up half percent 46758. There is a record high. S&P 500 flat, 6715. That's holding around record highs. NASDAQ down .3 percent, 22780. Footsie 100 up .7%. That is a record high, 9491. Nikkei 1.9%. That is also a record high 45769. ASX 200 up half a percent, 8987. NZX 50 up half percent, 13514. We could be talking about our record highs before too long as well.
Gold up $30 at $3886 an ounce. Oil up 40 cents, 60.88. Currencies. Kiwi up slightly against U.S. dollar, 58.3. Australian dollar 88.3 up very slightly, .1% higher. British pound worth 43.3 down .1%. Japanese yen 85.98 that was up .4% versus the Kiwi.
This week Mike, we've got minutes from the last Fed meeting. We've got consumer confidence in the US as well as Australia. We've got earnings from Pepsi, Delta Airlines and Levi Strauss. Locally we've got the manufacturing PMI later in the week with the dairy auction. We've got the quarterly survey of our business opinion and of course the big one. So half a percent? Come on, let's go.
All right mate. Well, go up Greg Smith out of Generate Wealth and Kiwi Saver specialists of course.